With Merck ( MRK) these days, Wall Street is focusing more on processes, like cost-cutting, and events, like Vioxx lawsuits, than it is on products. For the company, whose stock continues to stumble 13 months after it removed the arthritis drug Vioxx from the market, this is a fact of life. The stock fell to $33 on Sept. 30, 2004, the day Merck announced the drug was being pulled, from the previous day's close of $45.07. In trading Friday, the stock was below $27. Merck investors will find out Monday if the drugmaker has anything to offer that might jump-start the shares. The company will report its earnings before the opening bell, and for the just-completed quarter, analysts expect a profit of 62 cents a share before items and revenue of $5.45 billion, according to Thomson First Call. For the same period last year, Merck earned 60 cents a share on revenue of $5.54 billion. Analysts' opinions for the third quarter don't vary much, with the individual earnings predictions in a range of 58 cents to 64 cents.
named to the job in early May to replace Raymond Gilmartin, who departed 10 months ahead of schedule. Clark has said little to the financial community, and he skipped the second-quarter financial briefing in July. In a letter to shareholders last month, Clark said Merck must reduce its cost structure "over and above what we have achieved to date."
Merck hasn't issued a comprehensive cost-containment strategy since the Vioxx withdrawal, Catherine Arnold of Credit Suisse First Boston wrote in a recent research report, and she said margin erosion continues to be her key fundamental concern. Arnold suspects Clark "has had ample time to do a diagnostic on Merck's expense structure," and he may unveil plans for controlling costs. Investors should pay attention to any Merck remarks about inventories, Vioxx legal defense plans and restructuring, she said. Arnold doesn't own shares, and her firm does and seeks to business with companies mentioned in research reports.
Analysts said then that investors shouldn't leap to conclusions, and that's what they're saying now. At this point, we continue to believe that it's too early to quantify Merck's Vioxx liability exposure," Tim Anderson of Prudential Equity Group wrote in a recent report. Anderson doesn't own shares, and his firm doesn't have an investment banking relationship with Merck. The second case, in a New Jersey state court, is continuing. An Idaho man who took Vioxx is claiming that it caused his heart attack. "The latest case, in our opinion, is significantly weaker than the one in Texas," Michael Krensavage of Raymond James wrote in a recent research report. The first federal case, in which procedures are stricter than in state courts, is scheduled to start late next month. "Appeals of any losses are likely to delay payments for years," says Krensavage. He doesn't own shares, but his firm says it expects to receive or intends to seek investment-banking compensation in the next three months. Krensavage says the company's best strategy is to oppose the certifying of class-action lawsuits and to litigate individual cases, thus forcing individual plaintiffs' lawyers to run up bills that won't be repaid unless they win. If Merck wins the New Jersey case, he says, Merck's stock could move toward his 12-month price target of $42.