With Merck’s (NYSE:MRK) victory in the first state court case to go to trial in the coordinated New Jersey litigation over its Fosamax drug, the company may be ready to begin lifting the fog hovering over the company’s share price.
At the end of last September, approximately 1,180 cases, which include approximately 1,560 plaintiff groups, had been filed and were pending against Merck in either federal or state court. Plaintiffs are patients who say they developed jawbone problems after taking Merck’s Fosamax, a drug used to treat and prevent osteoporosis in women.
Including the latest victory in state court, four Fosamax suits have gone to trial, and Merck has to be encouraged by the results. The company won the first. The second resulted in a plaintiff verdict, which has since been reduced by the judge and which Merck is appealing. In the third case, Merck prevailed. Winning three of four is nothing to scoff at.
If past drug lawsuits are any indication, at some point Merck is likely to sit down with lawyers for Fosamax plaintiffs and negotiate settlements. But that won’t happen until the “bellwether” cases have gone to trial. The outcomes of these trials indicate to lawyers on both sides the strengths of their respective positions.
So is Merck ready to shake off its recent doldrums and return to the days of yesteryear, when it was Americas “Most Admired Company”? The signs are encouraging — the last five analysts to change their rating on the company all upgraded the stock.
In the past six months, Merck has traded as high as $37.06, but has since eased to the low-$30s. At that price, it offers a sweet dividend yield of 4.7%, more than the average company in the S&P 500. Analysts estimate Merck will earn $3.69 in 2011. So at its current share price, that’s a price-to-earnings ratio of just under 9, well below its average P/# of 16 during the past five years.
Of course, the big dollars for any research-based pharmaceutical company like Merck is in finding an effective drug for a widespread disease — and enjoying the protection of a patent. Although it’s still early in the game, Merck might be on the right track with anacetrapib, which treats cardiovascular disease. In a small trial study of 1,623 at-risk patients, the administration of anacetrapib in conjunction with regularly-prescribed statins showed a 40% decrease in LDL, or harmful cholesterol, as well as a massive 138% increase in HDL or “good” cholesterol.
A final clinical trial on anacetrapib will begin this year and include 30,000 high-risk patients. If that trial proves successful, Merck could be adding a drug with multi-billion dollar potential over its life. Moreover, the company has 19 other drugs and drug combinations in its pipeline and invests $2 billion annually in research and development.
In addition, Merck’s 2006 acquisition of the small biotech firm GlycofiIn also gives the company a leg up on its competitors in the emerging — and profitable — field of biologic medicines.
Even with all the uncertainty facing all health-care companies, as well as Merck’s specific exposure in the Fosamax litigation, this pharmaceutical giant certainly appears to be worth a hard look.
