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Epic Vioxx Victory for Merck

Merck (NYSE: MRK  ) scored a major victory in its Vioxx saga in the courtroom on Thursday and, in doing so, emboldened investors, who pushed shares 2% higher in early afternoon trading action. New Jersey's Supreme Court ruled against the prospects of a nationwide class action lawsuit against Merck over its withdrawn COX-2 inhibitor, Vioxx. The ruling reversed two lower court decisions.

Shares of Merck have been on a tear of sorts over the past 52 weeks, appreciating about 23%. Yesterday's victory, in combination with last month's victory over foreign nationals, should help to remove the legal cloud that nonbelievers had cast over the company since Vioxx was withdrawn from the market in 2004. Vioxx pulled in $2.5 billion in sales the year before the company yanked it from the shelves and left Pfizer's (NYSE: PFE  ) Celebrex as one of two surviving COX-2 inhibitors on the market. (Pfizer's Bextra was later pulled from the market.) In the year following Merck's recall, investors watched a precipitous drop in the price of Merck shares to the tune of approximately 40%. Only recently have shares been knocking on the door of pre-Vioxx recall levels.

Had the company failed to prevail in New Jersey, it would have faced an almost insurmountable barrier to proceeding with its strategy of taking on Vioxx lawsuits individually. Merck has amassed a 10-5 record in these cases thus far. Estimates as to what the case could have cost Merck have ranged from $15 billion to $18 billion due to the fact that New Jersey's consumer fraud law allows for treble damages. That would definitely put the company in a bind, given that its total revenue last year amounted to $22.6 billion and its current assets are $15.2 billion.

With an annualized 3% dividend yield and momentum on its side, this stock appears poised to roll. The company's new HIV drug received backing for accelerated FDA approval, and the company is expecting a decision from the FDA next month.

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Fool contributor Billy Fisher does not own shares of any of the companies mentioned. The Fool has a disclosure policy.

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Related Tickers

10/27/2016 4:00 PM
MRK $61.29 Up +0.42 +0.69%
Merck and Co. CAPS Rating: ****
PFE $32.48 Up +0.08 +0.25%
Pfizer CAPS Rating: ****