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Biotech / Medical : Biotech Valuation -- Ignore unavailable to you. Want to Upgrade?

To: Doc Bones who wrote (14554)	12/8/2004 6:14:49 AM
From: Doc Bones	Respond to of 52153

Taking Its Medicine [WSJ] AHEAD OF THE TAPE By JUSTIN LAHART December 8, 2004; Page C1 In the months since Merck took its painkiller, Vioxx, off the market, its stock has been suffering from severe withdrawal symptoms. On Sept. 30, the day Merck pulled Vioxx after a clinical trial showed that patients on the drug were at increased risk of heart attack or stroke, more than a quarter of its shares' value got chopped away. Another sharp jog down came a month later, when The Wall Street Journal reported that internal e-mail and other documents suggested that the company had publicly played down the dangers of Vioxx even as evidence mounted that the drug might pose a risk to patients. Merck said that the documents cited lacked the context of the millions of pages from which they had been culled, and that it had acted correctly in the development and marketing of Vioxx. All told, Merck shares have fallen 38% since the Vioxx announcement, closing yesterday at $27.89. Its market capitalization has fallen by $38 billion. The investors who tune into Merck's 2005 financial- guidance conference call today won't be a happy lot. The drop makes Merck's stock look like a bargain. It trades at 11 times next year's expected earnings -- the cheapest it has been in a decade. The problem with cheap stocks, however, is that they can get cheaper. This can be particularly true when it comes to companies with big legal risks. Consider how low valuations drew investors into the shares of tobacco companies and companies with asbestos exposure. The major difference for Merck is that its legal risks are more definable. While the company hasn't come up with a price tag for how much it expects to pay out to Vioxx plaintiffs, analysts can and have been coming up with a range of estimates -- some as high as $38 billion. "It's something, if you put your mind to it, that you can get your arms around," says Jeff Matthews, head of the hedge fund Ram Partners, which has no position in Merck. "You might be wrong, but at least you can put your arms around it." Reed, Conner & Birdwell chief investment officer Jeff Bronchick, who has owned Merck shares through the decline, says he is less worried about litigation risks than he is about Merck's ability to generate cash over the next five years. He hopes that Merck's troubles will make it more forthright on products it has under development when it makes its annual business briefing Tuesday. online.wsj.com