Merck Still Murky

Lose one, win one. Two down, and more than 6,400 to go.

About the only thing certain after Thursday's New Jersey state court verdict favoring Merck (MRK Quote) and its arthritis drug Vioxx, is that there will be more uncertainty.

"Quantifying Merck's total liability still remains an exercise in futility," says Tim Anderson of Prudential Equity Group in a Thursday research note. "The whole issue will take years to play out."

The Atlantic City, N.J., jury said Vioxx didn't cause an Idaho postal worker's heart attack. The jury also said Merck didn't commit consumer fraud in marketing Vioxx to physicians.

Merck withdrew the drug from the market Sept. 30, 2004, after a company-sponsored clinical trial showed long-term use could increase the risk of cardiovascular injury or death.

Although Merck's stock rose following the decision, bond and stock analysts cautioned against building long-term hopes on one verdict.

"In our amateur legal opinion, this was not a strong case [vs. Merck] on medical grounds and should not be viewed as having tremendous legal ramifications for Merck's longer-term legal risk," says Carol Levenson, director of research for the independent bond research service Gimme Credit, in a research report.

Moody's Investors Service kept its "high-grade" Aa3 long-term credit rating on Merck, but it also retained a negative outlook "primarily because of concerns that Vioxx litigation costs may be extremely high." The favorable verdict alleviated "near-term rating pressure" that would have been triggered if Merck lost the case.

The New Jersey verdict certainly helped Merck, but because there are at least 6,400 personal injury cases in state and federal courts, the company still faces "significant risk for negative outcomes," says Albert L. Rauch of A.G. Edwards in a report to clients. "We expect Merck to be highly volatile on negative and positive outcomes of cases going forward."