Merck Falls as E-Mails Suggest Vioxx Smoking
Gun
Mon November 01, 2004 04:28 PM
ET
By Ransdell Pierson
NEW YORK (Reuters) - Merck & Co. Inc.'s Vioxx recall is
mushrooming into a product-liability nightmare that erased another
$23 billion of
the company's valuation on Monday, but analysts said it will likely
withstand the crisis.
Merck shares fell as much as 10.5 percent after the Wall Street
Journal published e-mails from company officials that suggested
Merck knew about the heart-attack risks of the arthritis drug years
before the recall.
The stock has fallen almost 38 percent since Vioxx was recalled
on Sept. 30, its lowest since November 1995. The shares closed down
$3.03, or 9.7 percent, at $28.28 on Monday.
"If the e-mails actually exist and say what they are purported to
say, they appear at least superficially to be a smoking gun that
lawyers could pull up as evidence against Merck," said Trevor
Polischuk, a drug analyst for Orbimed Advisors.
Polischuk said the e-mails will encourage more patients to sue
Merck, claiming the $2.5 billion-a-year drug harmed them.
"But it will probably be very difficult for plaintiffs to prove
Vioxx hurt them because many patients probably had pre-existing
heart problems," said Polischuk.
He said Merck shares have been "oversold," and are now
an opportunity at a price that represents a 30 percent discount to
stocks of rivals -- based on projected company
earnings.
An estimated 20 million Americans have taken Vioxx since it was
launched in 1999 because it caused fewer ulcers and gastrointestinal
problems than standard arthritis treatments.
The Journal said an e-mail dated March 9, 2000 suggested Merck
recognized Vioxx increased heart risk. The e-mail -- written by
research chief Edward Scolnick -- said cardiovascular events "are
clearly there."
The article said another e-mail, written years ago by Merck
research executive Alise Reicin, suggested people at high risk be
excluded from a trial so the rate of cardiovascular problems of
Vioxx patients and others "would not be evident."
Merck recalled Vioxx after it was shown to double the risk of
heart attack and strokes in patients that had taken it for over 18
months to prevent recurrence of colon polyps.
On Friday, Merck -- citing documents that had been made public --
issued a statement saying it acted "responsibly and appropriately"
in developing and marketing Vioxx.
A Merck spokeswoman declined to comment on the stock decline, or
say whether its comments on Friday referred to the e-mails described
in the Journal.
Mehta Partners analyst Shaojing Tong said the e-mails suggest
Merck withheld information. He said the company's financial
liabilities could approach the $16 billion already paid out by drug
maker Wyeth following its 1997 recall of two diet drugs used in the
"fen-phen" diet cocktail.
"I previously had no reason to suspect misconduct by Merck. But
the e-mails move things one step closer to fen-phen in terms of
misconduct and hiding facts," Tong said.
Tong said the company's now-decimated share price probably
assumes the company will eventually pay out $5 billion in Vioxx
liabilities.
"If it becomes clear that the payout will grow to $15 billion or
so, the share price could fall another 5 or 10 percent," Tong added.
Jon Fisher, fund manager at Fifth Third Bank, said there is no
reliable way to predict future product-liability costs.
"If it rises to $50 billion, Merck's stock could go a lot lower,"
said Fisher, who added it might wind up being only a fraction that
amount.
Fisher, whose bank owns 2.5 million shares of Merck, said it is
also too early to assume the e-mails will incriminate Merck.
Standard & Poor's on Monday said it may cut its ratings on
Merck, citing increasing concern about possible litigation.
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