Merck Muddles Through

Analysts debate the impact of the latest Vioxx data.
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Don't expect any clear-cut consensus from Wall Street on what

Merck's

(MRK) - Get Report

latest research means for

all those lawsuits involving Vioxx.

Even with a whole evening and morning to digest results presented Thursday after markets had closed, analysts aren't sure whether the news is good, bad or indifferent.

"The findings were mildly negative," says David Moskowitz, of Friedman Billings Ramsey, in a Friday research note. He has an underperform rating.

"We view this news as a modest positive for Merck," says Susanna Matter, of Leerink Swann & Co., who tells clients she is retaining her outperform rating.

"On balance, we think the impact of this new analysis on the ongoing Vioxx litigation is net neutral," says Tim Anderson, of Prudential Equity Group, in a Friday report in which he remains neutral on the stock.

The lack of consensus was reflected in the stock, which lost 8 cents to $34.43 by early afternoon, while trading in a narrow range.

The research causing all these opinions is a follow-up to the clinical trial that prompted Merck to pull the arthritis drug/pain reliever from the market in September 2004. This original study, whose acronym is Approve, says people who took Vioxx for more than 18 months had a higher risk of cardiovascular injury than people who took placebos.

However, for the first 18 months of the study, Merck says the cardiovascular risk between the Vioxx and placebo groups was statistically insignificant. The study was trying to assess if Vioxx could prevent the recurrence of polyps that could lead to colon cancer.

On Thursday, Merck described preliminary results for follow-up research on the Approve participants. After receiving pills for 36 months, both the Vioxx and placebo groups stopped taking the pills for 12 months. Merck says this follow-up period shows no statistically significant difference in cardiovascular problems between the two groups.

But the study also shows that Vioxx users had a higher cardiovascular risk vs. placebo recipients during the full four years of the study -- the 36 months they took the pills and the 12-month follow-up period.

The four-year data also show "an increased relative risk" of strokes in the Vioxx group vs. the placebo group. Merck executives said Thursday that this "limited data" must be viewed "in the context of the extensive data we have previously published, which consistently showed no increased risk of strokes in patients taking Vioxx."

The stroke results helped stimulate the "mildly negative" remarks from analyst Moskowitz, who said this finding "could modestly increase" the number of Vioxx lawsuits. "This substantiated risk was not observed in earlier studies," says Moskowitz, who doesn't own shares. His firm says it seeks to do business with companies mentioned in research reports.

Kenneth C. Frazier, Merck's general counsel, said Thursday that neither the stroke data nor anything in the follow-up study would change Merck's strategy of defending Vioxx on a case-by-case basis. Merck is a defendant in 11,500 personal injury cases in the U.S. as well as 190 class action suits claiming personal injury or financial damage.

"Merck will continue to face headline risk as the Vioxx trials play out

but we think that the Vioxx financial risk will likely be manageable," adds Matter, of Leerink Swann. If the 12-month follow-up period has shown more cardiovascular problems for Vioxx users, Merck could have been subject to a "significantly greater" risk of lawsuits.

Although the stroke data contradict data from previous studies, Matter says "the robustness of the results could be questioned" because the follow-up was not designed as a safety study. She doesn't own shares; her firm doesn't have an investment banking relationship.

But Anderson, of Prudential Equity Group, says this follow-up study doesn't help Merck, even though Merck "tried to drive home" the lack of significance in heart problems between the Vioxx group and the placebo group. Because it wasn't a formal safety study, the follow-up "undermines the validity of the statistical analysis," Anderson says. He doesn't own shares; his firm doesn't have an investment banking relationship.

Although the follow-up wasn't designed to assess safety, "this is as good a result as the company could have hoped for," says Chris Shibutani, of JPMorgan, in a Friday research report. "The general neutrality of the results is a positive for Merck.

Shibutani says he doubts this research will provoke a flood of new lawsuits. Even the stroke data, which Shibutani called "puzzling," probably won't encourage more lawsuits because there is "greater data against a causal role for Vioxx in strokes." He doesn't own shares; his firm has provided investment banking and non-investment banking services in the last 12 months.

Maintaining his neutral rating, Shibutani tells clients there's still no way to predict the ultimate legal bill. "The company has the better scientific and legal arguments," he says. Until a "good number" of cases have completed the appeals process, "Merck's strategy of trying every case one-by-one is the sensible one."