Merck's financials hurt by Vioxx recall

Merck is reporting today that its financial situation will deteriorate during 2005 due to the recall of Vioxx. Merck anticipates fourth-quarter 2004 earnings per share (EPS) of $0.48 to $0.53, which includes the impact of approximately $700 to $750 million in foregone sales of VIOXX and potential additional fourth-quarter costs for the withdrawal of VIOXX.

Like in any press release related to financials of a company, Merck has tried to put a positive spin on almost everything. Merck also says, "This guidance does not reflect the establishment of reserves for any potential liability for settlements relating to the VIOXX lawsuits." In today's statement, the company didn't disclose plans to set aside money to cover potential settlements. In other words, the company is trying to create an impression that Vioxx liabilities are not an issue to be bothered with at this time, though everyone knows that everything could fall apart if Vioxx victims can prove that the company knowingly sold a deadly drug. (Related article: Merck's Vioxx liabilities could be $38 billion)

Patrick Kaser of Brandywine Asset Management in Wilmington, Delaware, is quoted by Bloomberg as saying, "Merck can handle $10 billion to $20 billion (in Vioxx liabilities) easily without breaking a sweat in terms of balance sheet strengths. The bigger concern for Merck is what multiple do you put on it when earnings growth may be nonexistent for several years." In simple words, investors are worried that the impact on Merck will be far greater than the company is prepared to admit.

Recommended article: Merck Board decides to review handling of Vioxx recall