1. Heartthrobs

News out of the first Vioxx case to go to trial could not have been heartening for

Merck

(MRK) - Get Report

fans.

Early evidence from Angleton, Texas, seems to be running against the Whitehouse Station, N.J., drugmaker. Merck sent a letter to doctors four years ago putting the painkiller's risk of "cardiovascular events" at 0.5%,

The New York Times

reported this week. But at the same time, plaintiff lawyers claim, documents submitted to regulators showed that 14.6% of Vioxx patients studied had heart problems.

"Y'all didn't tell him the truth about the safety of Vioxx, did you?" plaintiff lawyer W. Mark Lanier asked Merck's Nancy Santanello, referring to a letter sent to the doctor of a Vioxx patient who died. The plaintiff, Carol Ernst, alleges Vioxx caused the May 2001 death of her 59-year-old husband, Robert, after he had taken it for eight months to ease pain in his hands. Merck faces 4,100 lawsuits over its heavy promotion of Vioxx before it pulled the drug last fall over a link to heart problems.

"You know the way this is written is wrong, isn't it?" Lanier continued. Dr. Santanello, a senior scientist at the drug giant, responded, "It's not very precise," the

Times

reports.

Merck wasn't backpedaling for long, though. "This is no new information," a Merck lawyer told the

Times

, adding that the plaintiff lawyer has "taken data which the whole scientific community has had, and he has played with it in front of a jury, and in doing so he's clouded what's important."

Oh, the irony. Who would ever accuse Merck of playing with the data?

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Dumb-o-Meter score: 90. The jury will let everyone know soon enough what's important, we figure.

Take-Two to the Woodshed
Political leaders, get that patch out!

2. San Andreas Fault

Video game maker

Take-Two

(TTWO) - Get Report

was humming a new tune this week after an industry panel

slapped its equivalent of an X rating on the company's

Grand Theft Auto: San Andreas

game.

The Entertainment Software Rating Board said players can use a file downloaded off the Internet -- the so-called hot coffee mod -- to view sex scenes on the disk. The board assigned the game its uncoveted adults-only rating, spurring big retailers such as Best Buy (BBY) - Get Report to yank the title. Take-Two shares tumbled after the company said its earnings would get hit.

Controversy is hardly new for Take-Two or its Rockstar unit, which cultivates an outlaw image. "Rockstar proves that not all developers are concerned with toning down the violence in their games," an Amazon.com review of an earlier

Grand Theft Auto

game says. "This sequel is even more bloody, violent and sadistic than its popular predecessors, offering up an enormous 3-D city in which nearly any criminal act is possible." Asked a few years back by

The Washington Post

about negative reactions to the violence, a Rockstar spokesman replied, "Seven million copies worldwide doesn't seem like much negative feedback."

So last week, when critics took aim at the

San Andreas

sex scene, Take-Two held the line, suggesting that the modification was created by outsiders. But by Wednesday, Take-Two had had enough. Though conceding that the scene was company-created and was simply unscrambled by the modifications, Take-Two said it would be newly vigilant about game modifiers.

"We are deeply concerned that the publicity surrounding these unauthorized modifications has caused the game to be misrepresented to the public and has detracted from the creative merits of this award-winning product," CEO Paul Eibeler said, vowing to explore "legal options." The press release also makes a most unusual appeal: "Rockstar encourages parent groups and political leaders to assist with distribution of the patch to prevent the content of the modification from spreading further."

This might be the first time Rockstar has encouraged parents and politicians to do anything but back off.

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Dumb-o-Meter score: 82. Funny how Take-Two didn't call those modifications a problem till the game got banned by big retailers.

Cloudy Picture
Kodak keeps negatives in the dark

3. Digital Divide

The picture isn't getting any prettier at

Kodak

(EK)

.

The unraveling of the company's traditional film business was exposed once again this week. For the second straight quarter, Kodak posted earnings that fell far short of Wall Street's estimates. "Sales of our consumer traditional products and services are declining faster than expected," said new chief Antonio Perez. "While we are not in a position to control the rate at which traditional markets decline, there is a lot I can do about the cost structure of the traditional portfolio."

And indeed, Perez, who took over this spring for Daniel Carp following the first quarter's massive miss, laid out plans to cut as many as 10,000 more jobs. That's on top of 13,000 firings Kodak has made over the last year and a half. The company billed the overhaul as an effort to "accelerate" its "digital transformation strategy."

Of course, Kodak is making other changes, too. Though the Rochester, N.Y., company "remains committed to its practice of providing full and fair disclosure of its results," it's going to stop providing Wall Street with earnings guidance.

"It has become increasingly difficult to provide per-share earnings forecasts with any reasonable precision as our business, and our entire industry, undergoes a complex and rapid transformation," Perez said. "In light of this and our focus on the key digital metrics, I have decided to stop the practice of providing per-share earnings forecasts."

In light of Kodak having missed estimates by an average of 29 cents a share over the last two quarters, that's probably not a bad call.

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Dumb-o-Meter score: 73. Tony, don't take our Kodachrome away.

To view Colin Barr's humorous video take on Kodak's refocusing and cropping, click here

.

4. Ill Winds

Flu bugs are having a field day with

Chiron

(CHIR) - Get Report

.

The Emeryville, Calif., biotech firm got stung this past week with another vaccine-making screwup. Chiron discovered that some of its Begrivac flu vaccine, which is made in Germany and sold overseas, was contaminated. The company slashed planned Begrivac shipments for next flu season by at least two-thirds, to 4 million doses or fewer.

Of course, Chiron has spent nine months trying to recover from an even bigger debacle. Shares plunged last October after regulators shuttered Chiron's Fluvirin plant in Liverpool, England, over a failed safety inspection. The move forced the company to write off its entire inventory of Fluvirin and halved the U.S. flu vaccine supply. The company has since cut back Fluvirin sales projections, and only now is the Food and Drug Administration inspecting the Liverpool plant to certify manufacturing practices there.

Chiron denies there's any link between the U.K. and German manufacturing problems. What's more, despite admitting it will record no sales of Begrivac during the third quarter, Chiron maintained full-year earnings guidance.

How does that work? Well, Chiron says it's moving to "mitigate" the impact of the reduced Begrivac supply on patients in the U.K. and Germany "by reallocating non-U.S. vaccine doses among affected markets."

If that sounds slightly ominous and conjures up visions of a big company shifting vaccine supplies around solely for the sake of its bottom line, think again, a spokesman urges. Emphasizing that "we have not made any decisions," the Chiron rep says the company is considering increasing production at other plants to make up for lost doses, as well as switching doses from non-European countries to make up the supply in the U.K. and Germany.

"Our position is that we are not going to reallocate flu doses away from countries and leave them in the lurch," the spokesman says. He adds that Chiron is determined to "do it in a responsible manner" that won't "leave any countries short."

That sounds nice, but we'll see how it works out.

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Dumb-o-Meter score: 73. Maybe Chiron could avoid this sort of mess by running those vaccine plants in a more responsible manner.

5. Breeding Ground

The American Stock Exchange was taking it on the chin again this week, but that didn't make them any less proud down on Trinity Place.

The Barclays Global Investors unit of

Barclays

(BCS) - Get Report

said Wednesday that it would

move its popular iShares exchange-traded funds to the NYSE over the next two years. Exchange-traded funds, of course, offer mutual fund-like diversification while still trading much like stocks.

Barclays' decision comes as a major setback for the Amex, which has increasingly depended on ETFs and similar securities as its common stock listings have plummeted.

Indeed, it has been years since the Amex was seen as the nation's No. 2 stock exchange, behind the NYSE. Big tech stocks, from

Microsoft

(MSFT) - Get Report

and

Intel

(INTC) - Get Report

to

Dell

(DELL) - Get Report

and

Cisco

(CSCO) - Get Report

, famously chose the tech-friendly

Nasdaq

. And it was only last fall that the Amex surrendered the heavily traded Nasdaq 100 contract, then called the QQQ and now redubbed the QQQQ, to Nasdaq itself.

But Amex wasn't worrying about little details like that. "We take great pride in the significant contribution we have made to the success of the iShares product line and our support of BGI's efforts to build their brand," said Cliff Weber, senior vice president of the Amex's ETF marketplace. "The Amex has never been just a listing venue for ETFs, it has always been known as the premier breeding ground for innovation and intellectual capital in the ETF industry. We wish BGI well in their efforts."

We're sure the feeling is mutual.

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Dumb-o-Meter score: 68. Yes, the Amex has long been synonymous with innovation and intellectual capital.

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