Friday, February 03, 2006

Vioxx seen hurting Merck 2005 earnings

Press/NEW YORK
By THERESA AGOVINOAP Business Writer
Vioxx seen hurting Merck 2005 earnings

JAN. 30 5:40 P.M. ET 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Divining the impact of the approximately 9,200 suits filed over the now withdrawn blockbuster Vioxx may become easier in the next six months as a verdict pattern emerges from the 11 trials Merck faces in that period.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. 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 company faces numerous challenges. They are telling clients to avoid Merck stock until the Vioxx outlook comes into focus.
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. "Why bother with Merck?" asks Henry. "How many venues can they (Merck) really concentrate on?"
Ted Mayer, lead outside counsel for Merck, said the Vioxx litigation was expensive and time-consuming. However, he noted the company knew it would be facing a crush of trials and is very well-prepared. He said there are several scientists well-versed in the Vioxx situation to give testimony. Meanwhile, there are thousands more back at the labs working on new drugs to sell.
"The bench is deep," Mayer said.
On Tuesday, 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.
Prudential analyst Tim Anderson expects 2005 earnings will be essentially flat at $2.36 a share, including expenses for stock options.
Last year was a tumultuous one for Merck. The company replaced its chief executive officer with former Merck manufacturing executive Richard T. Clark. During the fourth quarter, 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.
Most analysts believe Merck's vaccine to prevent cervical cancer will be another blockbuster but are divided about other products' prospects.
With all Merck must accomplish to turn itself around, Napodano views the Vioxx litigation as a significant distraction. "If Dick Clark is spending 20 percent of his time on Vioxx, that is 20 percent too much," said Napodano.
The first of the 11 new cases began last week in Texas, and a retrial of the first federal case is slated to begin in New Orleans next week. Two cases are slated to be jointly tried in New Jersey in late February.
At least Merck has one less case to worry about: On Monday, Superior Court of New Jersey Judge Carol Higbee dismissed the case of a man who blamed Vioxx for his gastrointestinal problems. According to her motion, Higbee dismissed the case because the plaintiff testified that he would have continued to take Vioxx if he was warned about Vioxx's potential side effects. Merck believes it is the first case dismissed since the drug was pulled.

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.
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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. 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 company faces numerous challenges. They are telling clients to avoid Merck stock until the Vioxx outlook comes into focus.
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. “Why bother with Merck?” asks Henry. “How many venues can they (Merck) really concentrate on?”
Ted Mayer, lead outside counsel for Merck, said the Vioxx litigation was expensive and time-consuming. However, he noted the company knew it would be facing a crush of trials and is very well-prepared. He said there are several scientists well-versed in the Vioxx situation to give testimony. Meanwhile, there are thousands more back at the labs working on new drugs to sell.
“The bench is deep,” Mayer said.
On Tuesday, 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.
Prudential analyst Tim Anderson expects 2005 earnings will be essentially flat at $2.36 a share, including expenses for stock options.
Last year was a tumultuous one for Merck. The company replaced its chief executive officer with former Merck manufacturing executive Richard T. Clark. During the fourth quarter, 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.
Most analysts believe Merck's vaccine to prevent cervical cancer will be another blockbuster but are divided about other products' prospects.
With all Merck must accomplish to turn itself around, Napodano views the Vioxx litigation as a significant distraction. “If Dick Clark is spending 20 percent of his time on Vioxx, that is 20 percent too much,” said Napodano.
The first of the 11 new cases began last week in Texas, and a retrial of the first federal case is slated to begin in New Orleans next week. Two cases are slated to be jointly tried in New Jersey in late February.
At least Merck has one less case to worry about: On Monday, Superior Court of New Jersey Judge Carol Higbee dismissed the case of a man who blamed Vioxx for his gastrointestinal problems. According to her motion, Higbee dismissed the case because the plaintiff testified that he would have continued to take Vioxx if he was warned about Vioxx's potential side effects. Merck believes it is the first case dismissed since the drug was pulled.

Former Merck CEO agrees to testify at N.J. Vioxx trial

Former Merck & Co. Chairman and Chief Executive Raymond Gilmartin has agreed to a plaintiff lawyers' request that he testify at a Vioxx trial slated to begin in Atlantic City in late February, both sides said. Plaintiff lawyer Mark Lanier said he requested Gilmartin's presence and intends to call him because "when you have to look a jury in the eye it is harder to fudge."

Gilmartin has given testimony in videotaped depositions, but Lanier said that it is always better to have a live witness than a tape. He called the depositions "canned speeches" and said it is harder for witnesses to give soliloquies or avoid questions in the presence of a judge. Lanier said he intends to ask Gilmartin questions that weren't asked in depositions but wouldn't specify what they were. A Merck official said the company believes Gilmartin will be a strong witness, noting his performance in front of a Senate committee hearing in late 2004, when he answered questions about the withdrawal of the pain reliever in September 2004. The drug was taken off the market after a study showed it doubled patients' risk of heart attacks and strokes when taken for longer than 18 months. Gilmartin retired last year and was head of the company when Vioxx was pulled. "Mr. Gilmartin has a good story to tell about Merck's responsible actions concerning Vioxx and the voluntary withdrawal of the product," said Kent Jarrell, a Merck spokesman. Earlier Tuesday, Merck said the number of lawsuits filed against it in connection with the drug has risen to about 9,650 from about 9,200. Merck also announced it had sent aside an additional $295 million for litigation expenses, bringing the total amount it has earmarked for legal costs to $970 million. However, the company said it spent $285 million on defense costs last year, leaving it with $685 million, which it believes will last through 2007. Lanier won the first Vioxx trial last summer. Since then, Merck has won a case while the third ended in a mistrial. A fourth case started in Texas earlier this month. The upcoming trial in New Jersey is slated to combine two plaintiffs, each a man who suffered a nonfatal heart attack after taking Vioxx for more than 18 months. Lanier represents one of the men.

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.

Merck Profit Up, Adds to Vioxx Legal Funds

Merck & Co. said Tuesday its profit edged up 2 percent in the fourth quarter on flat sales as the drug company set aside an additional $295 million for legal defense costs related to its withdrawn painkiller Vioxx Vioxx.
Excluding charges for restructuring and taxes associated with repatriating foreign profits, Merck earned 64 cents a share in the latest quarter. That beat by two cents the consensus estimate of analysts surveyed by Thomson Financial.
Shares of Whitehouse Station, N.J.-based Merck shares rose 10 cents to $34.56 in afternoon trading on the New York Stock Exchange New York Stock Exchange. They are near the upper end of their 52-week range of $25.50 to $35.36.
Sales of Zocor, a cholesterol-lowering treatment, fell 18 percent to $1.1 billion in the quarter. The drug will lose patent protection in June.
Merck withdrew Vioxx from the market in September 2004 after a study showed it increased patients‘ risk of heart attacks and strokes. On Tuesday, Merck announced the number of lawsuits filed against it rose to about 9,650 from about 9,200.
Merck also announced its received a subpoena from Attorneys General of 31 states and the District of Columbia who are investigating whether the company violated state consumer protection laws when marketing Vioxx.
Despite the strong quarter, some analysts can‘t figure out how Merck will obtain such growth with its current pipeline and the upcoming loss of exclusivity on Zocor and eventual generics competition for osteoporosis drug Fosomax.
Merck said it is in discussion with over 40 companies about possible deals. However on the conference call, Merck CEO Richard Clark said the estimates didn‘t include any acquisitions or other types of arrangements. He reiterated earlier comments that the company would be interested in purchasing a biotechnology firm, adding that he would prefer one with existing revenues.

Popular Drugs May Fight Arthritis & Breast Cancer

There's more evidence that the same controversial prescription pain relievers, suspected of raising heart attack risk, may actually help prevent certain cancers.A new study found that women who took the drugs Celebrex or Vioxx every day for two years were up to 71 percent less likely to develop breast cancer.Other anti-inflammatory pain relievers were also found to lower breast cancer risk but the greatest reduction was seen in Celebrex and Vioxx users.And a new study says conventional tests may miss heart disease is as many as three million women.Instead of developing blockages in the main arteries like men do, women tend to experience plaque buildup in smaller blood vessels which are harder to detect.Experts fear that many of these women who come to the doctor complaining of symptoms may be sent away undiagnosed, not realizing that they're at high risk of having a heart attack within the next few years.And another new study finds that cholesterol-lowering drugs called statins may help treat rheumatoid arthritis.Researchers found that in lab test, those drugs prompted the death of certain joint cells linked to the condition. Experts say more studies need to be done to confirm these findings in people who actually have arthritis to see if it can help ease their symptoms.

Merck's Fundamentals Improving Despite Vioxx Headlines

Standard & Poor’s Equity Research analyst Herman Saftlas raised the target price for Merck shares to $34 from $30 citing “improving fundamentals” after the drug manufacturer reported fourth-quarter 2005 earnings on Tuesday. Merck (nyse: MRK - news - people ) reported fourth-quarter earnings of 64 cents per share, matching the analyst’s estimate. “Results benefited from strong growth in joint venture income and cost controls,” the analyst said in a report. “Although the loss of patent protection on Zocor is expected to lower 2006 earnings per share, we think new drugs and cost cuts should facilitate strong [earnings] growth over the rest of the decade, before restructuring charges,” said the research analyst. In addition, he noted that Merck’s stock remains “vulnerable to Vioxx headlines.” The analyst reiterated a “hold” opinion on Merck.

Fitch Affirms Merck's Senior Unsecured Debt At 'AA'; Outlook Negative

Fitch has affirmed the ratings for Merck & Co. (Merck) as follows:
-- Issuer Default Rating (IDR) 'AA';
-- Senior unsecured 'AA'
-- Bank loan 'AA';
-- Commercial paper 'F1+'.
The Rating Outlook remains Negative. The ratings apply to approximately $7.32 billion of long- and short-term debt instruments.
Merck faces a host of business risks, most notably potential revenue and cash flow losses due to U.S. patent expirations of key products in the intermediate-term and litigation exposure arising from Vioxx product liability. The Negative Rating Outlook reflects these risks to cash flow generation in addition to possible penalties or fines from investigations by government and regulatory agencies worldwide.
Merck's intellectual property position will be significantly compromised in the 2006-2008 timeframe beginning with the U.S. base patent expirations of Zocor and Proscar in June 2006. Fitch estimates that the revenues and earnings losses from patent expirations (and the global Vioxx withdrawal in September 2004) will not be offset by key product sales and commercialization of the R&D pipeline until 2008, notwithstanding significant business development activity. However, income is expected to be boosted by equity income from Merck's partnerships, especially from the joint venture with Schering-Plough driven by strong sales of Vytorin and Zetia. Fitch will monitor Merck's ability to stabilize total revenues and cash flows, which Fitch anticipates to occur in 2008.
Approximately 9,650 cases alleging personal injury from the use of Vioxx have been filed against Merck by the end of 2005. Fitch favorably views Merck's intention to individually litigate the claims as opposed to offering a global settlement. As a result of this approach, only three cases have been tried over the past six months, with no damages paid by Merck to-date. However, final Vioxx damages and timing of cash outflows are highly uncertain. Fitch will continue to collect information as the litigation progresses through the legal system to ascertain a range of possible exposure which may be significant.
Merck's superior liquidity and light long-term debt maturity schedule will serve to support the company's credit profile in the midst of the operational challenges in the intermediate-term. At the end of the third quarter of 2005, Merck had greater than $14 billion in cash and short-term investments, a $1.5 billion U.S. credit facility, a $3 billion foreign commercial paper program, and free cash flow generation of $2.71 billion (cash flow from operations of $7.71 billion less dividends of $3.49 billion and capital spending of $1.51 billion) for the latest 12-month period ending Sept. 30, 2005. Although free cash flow generation has weakened considerably since the Vioxx market withdrawal, Fitch believes that free cash flow will approximate or exceed $1 billion annually in the intermediate-term, despite Merck's commitment to maintaining its large dividend.
Liquidity is supported by a large domestic cash balance given Merck's repatriation $15.9 billion of foreign earnings in 2005 under the Jobs Creation Act of 2004. Merck had cash, net of debt, of $6.71 billion at the end of the third quarter of 2005. Merck does not have a significant debt maturity until 2008, at which time a $1.38 billion note payable to AstraZeneca matures. Additionally, Merck has the option in 2008 to require a guaranteed payment of $4.7 billion (approximately $3.3 billion, net of the AstraZeneca loan) from AstraZeneca for certain rights and interests pertaining to their joint venture agreement. Fitch estimates that Merck will have cash, net of debt, exceeding $6 billion in the intermediate-term, barring significant acquisition activity and recognizing a commitment to actively repurchasing common shares.
Merck continues to consummate a higher degree of external licensing deals to bolster the late-stage R&D pipeline, which is weaker compared to its peers. Given Merck's expected large domestic cash balance by the end of 2005, large acquisition opportunities may be considered that may assist in strengthening the R&D program and/or transforming a maturing product portfolio. The acquisition strategy of the new CEO, Richard Clark, departs from the anti-merger philosophy of his predecessor, Ray Gilmartin. Fitch anticipates that a large corporate acquisition target may be sought in the intermediate-term.
Fitch's rating definitions and the terms of use of such ratings are available on the agency's public site, www.fitchratings.com. Published ratings, criteria and methodologies are available from this site, at all times. Fitch's code of conduct, confidentiality, conflicts of interest, affiliate firewall, compliance and other relevant policies and procedures are also available from the 'Code of Conduct' section of this site. The issuer did not participate in the rating process other than through the medium of its public disclosure.

Vioxx's next battlefield: New Orleans

NEW YORK (CNNMoney.com) - The next big battle over Vioxx takes place in New Orleans, a city mired in its own conflicts with nature, the government and itself.
The retrial of Merck v. Plunkett is scheduled to begin Monday in New Orleans -- less than two months after a trial, presided over by U.S. District Judge Eldon Fallon in Houston, ended in a hung jury on Dec. 13.
The Big Easy is Fallon's judicial headquarters, but his entire court was displaced to Texas for the first federal trial due to the damage inflicted by Hurricane Katrina last summer. Fallon, who has consolidated thousands of Vioxx-related lawsuits under federal litigation, wants to stay in New Orleans for the duration.
But is this possible? Will the court be able to assemble a jury from the flood-ravaged city, which saw hundreds of thousands of its residents scattered across the country following Katrina's destruction?
"I've heard through the grapevine that it is going to be difficult to put a jury pool together, and I don't know if they're going to be able to get one," said James McHugh, head of the mass tort department for The Beasley Firm, which represents about 500 plaintiffs who sued Merck in New Jersey state court and about 50 plaintiffs in federal court.
Evelyn Irvin Plunkett of St. Augustine, Fla., sued Merck for the 2001 death of her husband Richard Irvin, who took Vioxx, an arthritis painkiller, for about one month before his fatal heart attack. Merck pulled Vioxx, worth $2.5 billion in annual sales, off the market in 2004 after a study showed links to heart attacks and strokes in patients who took the drug for at least 18 months. However, Merck has said consistently that Vioxx did not cause anyone's death.
Plunkett's case is one of thousands consolidated in federal court, though thousands of suits have also been filed against Merck in the company's home state of New Jersey as well as other state courts. At last count, the Vioxx-related cases against Merck totaled 9,650.
One loss, two wins
Merck lost its first case in Texas but won the second in New Jersey. The third case was Plunkett's mistrial. A fourth case is ongoing in southern Texas.
In a fifth case in New Jersey on Jan. 30, state Superior Court Judge Carol Higbee shot down the lawsuit from plaintiff Edgar Lee Boyd with a summary judgment. Court documents say Boyd failed to show that he was injured by Vioxx.
Lawyers are trying to gauge what kind of jury pool they'll get in a post-apocalyptic city where the poor neighborhoods located near burst levees were emptied, but more affluent neighborhoods on higher ground remained, more or less, intact.
"I would expect they're going to have real difficulty putting a jury pool together," said Jeff Cooper, managing partner for Simmons Cooper, a firm representing about 800 plaintiffs who have sued Merck in New Jersey state court. "If people are back in New Orleans, they're going to be rebuilding their homes or businesses or both. "
Though many residents have left New Orleans forever, others have decided to come back, and still more potential jurors are moving to the city for the first time. This could harm efforts to assemble a jury pool, or help them, depending on who you talk to.
"I don't think they're going to have a difficult time assembling a jury," said Phil Anthony, chief executive officer of DecisionQuest, a trial consulting firm. "While there are a number of citizens who've been displaced, there are also a number of jurors who have moved back in."
To further complicate projections of a jury pool, New Orleans' beating from nature isn't over. On Thursday morning, the city was lashed with severe rainstorms that tore part of the roof off a concourse at Louis Armstrong International Airport and collapsed a house in a hurricane-damaged lakefront neighborhood. Also, a tornado reportedly touched down in the city.
So when, or if, the court manages to assemble a jury, the jurors might not be in the greatest of moods.
'Angry at a lot of things'
"The citizens of New Orleans have been through enormous displacement and generally speaking they're bursting at the seams with anger," said Anthony of DecisionQuest, who has defended drug companies but is not involved in the Vioxx trials. "They're angry at a lot of things. They're angry at no one in particular and everything in general."
Also, jurors might not want to spend weeks sitting in a trial "at a point in their lives where they're trying to rebuild their lives and careers," said Anthony, who said this creates a "dangerous concoction" for Merck.
Some experts believe that jurors frustrated by the government's incompetence in preparing for and responding to Hurricane Katrina might channel their frustrations against Merck and see the drug maker as an enemy, even though Merck had nothing to do with the storm.
"This is a group of people who really feel that not only the government, but corporate America, has really bailed out on them," said Cooper of Simmons Cooper, referring to troubles that residents have had with insurers.
Merck will also have to contend with an editorial from The New England Journal of Medicine. Right after the non-sequestered jury began deliberations in the first Plunkett trial, the prominent medical journal published an editorial reporting that Merck deleted information regarding Vioxx-related deaths from a study it provided the journal in 2000. Merck denied the claim.
"Merck and the authors did everything in a proper scientific manner," said Merck spokesman Kent Jarrell.
Fallon's court verified Thursday that Dr. Gregory Curfman, an editor from the Journal of Medicine, will testify at the retrial. McHugh of The Beasley Firm said this could bode badly for Merck.
"You have Merck saying we submitted the right data; you have the plaintiff saying they didn't," said McHugh, who compared the lawsuit to a traffic case, with an eyewitness acting as tie-breaker. "And then you have the most prestigious medical journal in the world saying 'No, Merck, you ran the red light.'"
Merck spokesman Jarrell said that Fallon has told both sides that a fair jury will be selected, and selection will begin Monday. The plaintiff's lawyer, Andy Birchfield of Beasley Allen, was not permitted to comment on the case, according to his firm.
To find out how much Merck spent on Vioxx litigation last year, click here