Dow 30 component and Motley Fool Income Investor recommendation Merck (NYSE:MRK) announced today that clinical study results detected "cardiovascular events, such as heart attack and stroke, beginning after 18 months of treatment in the patients taking Vioxx compared to those taking the placebo." Yikes! In a classic understatement, the company said it was making a "voluntary" worldwide withdrawal of the drug.

Launched in 1999, Vioxx was the company's leading drug for pain due to arthritis, menstruation, and, as of March, migraines. The loss of Vioxx sales, which totaled $1.3 billion in the first six months of 2004 (11% of sales), caused Wall Street to create quite a headache for Merck shareholders -- an almost 30% drop in the stock's price today.

In last quarter's earnings report, the company was still looking for "new populations" in order to "extend the clinical benefits" of Vioxx. Dash that expectation. Dashed too is earnings guidance. Originally forecast at $3.17 for 2004, the company now expects to reduce that number by up to $0.60 a share (19%).

For those wondering if this news creates a buying opportunity in Merck, review fellow Fool Ben McClure's recent evaluation. With a weak pipeline, only three new products launched since 2000, and the 2006 loss of patent protection for Zocor, the company's blockbuster, cholesterol-lowering drug, Merck already sells at a discount to its peers. Don't expect that to change anytime soon.

Speaking of those peers, Pfizer (NYSE:PFE), with painkillers Celebrex and Bextra, appears to be the best positioned to benefit from the Vioxx withdrawal.

But, before you invest your hard-earned cash in pharmaceutical companies like Pfizer, Eli Lilly (NYSE:LLY), and Bristol-Myers Squibb (NYSE:BMY), consider the business realities these companies face. With skyrocketing R&D costs, the political football of "drug costs," and extreme competition, this is a tough business with no easy path to increasing earnings.

Merck investors need to look beyond the $802 million it costs to develop a new prescription drug, and consider the "L" word -- lawyers. Phones are ringing across America as lawyers try to find victims of Vioxx. It is the expectation of what could happen in America's courts that will keep producing migraines for Merck shareholders.

And speaking of headaches, Merck's stock has fallen from $96.69 in November 2000 to a new 52-week low of $32.46 a share today. Ouch! Now that hurts!

However, despite today's pain, Merck's big dividend payouts don't appear to be in jeopardy at the moment. That's good news for Mathew Emmert and other lovers of income investing, who appreciate the company's now-4.63% yield

Fool contributor W.D. Crotty is recovering from a headache called Hurricane Jeanne -- and four days without power.