Vioxx expected to drag on Merck 2005 and play key role in 2006 performance

Vioxx is expected to drag down Merck & Co.'s 2005 earnings when they are reported Tuesday. But what's really frustrating analysts is their inability to assess the drug's potential liability and the toll that litigation preparations are taking on the company.Divining the impact of the approximately 9,200 suits filed over the now withdrawn blockbuster Vioxx may become easier in the next six months as a verdict pattern emerges from the 11 trials Merck faces in that period. The company has won one case, lost another and the third ended in a mistrial.At least one analyst expects Merck will take a charge this year to increase its legal reserves for the first time since 2004, to lift the amount beyond $675 million US. A charge for potential liability is also a possibility, said Jason Napodano, an analyst at Zacks Independent Research.Since Merck will be trying some of the cases simultaneously, some analysts worry the crush of litigation may drain executives' energy and concentration at a time when the firm faces numerous challenges.Scott Henry, an analyst at Oppenheimer & Co, said many drug companies are trading at low prices so there is no reason to buy Merck when the litigation risk is so cloudy.Today, Merck is slated to report 2005 results that will be hurt by the lack of Vioxx sales. Merck took the pain reliever off the market in Sept. 2004 after a study showed it doubled patients' risk of heart attack and strokes after 18 months of use. But the company still banked nine months of revenue. That was gone in 2005. Some analysts expect sales of cholesterol-lowering drug Zocor also fell last year, and will shrivel later this year because the drug loses patent protection in June.Last year was a tumultuous one for Merck. The company replaced its chief executive officer with former Merck manufacturing executive Richard Clark. Mr. Clark announced the company was eliminating 7,000 jobs, closing or selling 31 manufacturing plants and restructuring the company in an attempt to save $4.5 billion to $5 billion by 2010.