Merck & Co.: Surprising Mixed Verdict in First Phase MORGAN STA
2007-03-04 21:17 (New York)
March 4, 2007
(MRK.N) Merck & Co.
Merck & Co.: Surprising Mixed Verdict in First Phase
Jami Rubin +1 (1)212 761 4651 Morgan Stanley & Co. Incorporated
Shibani Malhotra (212) 761 6349 Morgan Stanley & Co. Incorporated
Louise Chen Morgan Stanley & Co. Incorporated
Michael Rockefeller Morgan Stanley & Co. Incorporated
Quick Comment: : We were surprised (and frankly delighted) by the split
verdict in the dual Vioxx trial in Atlantic City despite MRK's hands being tied
behind their backs. (1) Firstly, since the failure to warn discussion was so
generalized, (and likely illegal, according to our consultant) we anticipated a
negative verdict for both plaintiffs; (2) secondly, the jury apparently was able
to distinguish between the plaintiff's timelines, (i.e, when they had their
heart attacks) which sends a strong legal precedent that Vioxx users post the
Vigor label change stand little chance of winning; and (3) MRK only faces
Humeston, a 4 month intermittent Vioxx user with multiple CV risk factors, in
the next phase. He has lost once already, both on failure to warn and
causation. The other plaintiff, Kathleen Hermans Messerschmidt, who filed on
behalf of her brother, (and represented by Mark Lanier) and who died from his
heart attack after allegedly taking Vioxx for 20 months, has essentially lost,
with the exception
of the consumer fraud verdict. While the jury will weigh the out- of -cost
expenses for both Hermans and Humeston, only Humeston will be able to seek
compensatory or punitive damages in the second phase of the trial. It will be
easier for MRK to argue factual causation against one plaintiff versus both
since it won't look like they're denying all causation claims.
What's New:The jury in the Atlantic City, NJ cases found that MRK did not fail
to provide an adequate warning to doctors about an increased risk of heart
attacks from Vioxx prior to Sep-02, but did fail to do so prior to Sep-01. The
jury found MRK violated a state consumer statute, but has not yet assessed
damages. The trial now continues into the second phase, which will address the
claim that Humeston's prescribing doctor would not have prescribed Vioxx had his
doctor been warned differently. It also will address whether Vioxx was a
substantial contributing factor in his heart attack.
Implications: We maintain our Overweight on the MRK shares with a $53 target.
Stock Rating: Overweight
Industry View: In-Line
Share Price: USD 44.19 (Mar 2, 2007)
Target Price: USD 53.00
Market Cap: (mm) USD 96,000
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