In the spirit of the Winter Olympics, The Motley Fool is pitting companies against one another. The writers will outline why their company should win, and our very own panel of judges will decide the winner after a period of deliberation. Stay tuned for more!
Bode Miller straddled the gate and was disqualified. Speed skater Apollo Ohno stumbled. Johnny Weir had a "black aura" in an error-filled figure skating performance. Even Lindsey Jacobellis underestimated her competition when she took an unnecessary gamble as she neared the snowboardcross finish line.
These were all surely disappointments earlier this month during the Winter Olympics, but they've got nothing on Merck (NYSE:MRK). When the pharmaceuticals giant hits the slopes and wipes out, we're not talking about a few broken bones or frames of "agony of defeat" footage; we're talking about billions in potential litigation damages.
In 2004, Merck pulled its Vioxx drug after it was shown to double the risk of heart attack and stroke incidents for patients taking the painkiller. That's about the same time that "Vioxx attorney" became a popular business card imprint.
Merck is just starting to battle the individual lawsuits by people who were affected by the drug's shortcomings. Over the weekend, Merck was successful in defending itself against one such case -- its first win on the federal court level -- but the victim in this case had only been taking Vioxx for a month. The real legal benchmarks will come from those who took Vioxx for 18 months or longer.
Vioxx isn't the only reason that Merck is the poster child for disappointment. Even before the unwelcome news on Vioxx, shares of the drug maker were already trading in the mid-$40s. That's half of what they were fetching when Merck's trading had peaked just four years earlier.
The new millennium just hasn't been all that it was cracked up to be for Merck and many of its big pharma peers. Seen as defensive stocks through most of the 1980s and 1990s, the health-care sector used to be ablaze with market-crushing performance thanks to gargantuan drug makers like Merck, Pfizer (NYSE:PFE), and Bristol-Myers Squibb (NYSE:BMY). Times have changed and, yes, Merck misses the 20th century.
This doesn't mean that all hope is lost for Merck. It may be a few more years before we get some clearer visibility on how damaging Vioxx will be to Merck, but at least investors will be compensated for their patience. The stock yields a beefy 4.2% at the moment. Despite the Vioxx fallout, Merck is still a major battler for those tackling high cholesterol, hypertension, and heart failure.
With almost $15 billion in cash coasting on its balance sheet while the company generates roughly $5 billion in annual free cash flow, Merck may seem like the consummate pinata. But that also opens up the possibilities for it to acquire promising upstarts. That's why Merck has the time, energy, and finances to keep its current presence strong as it bankrolls its drug pipeline. Yes, Merck is a disappointment to those who figured they were banking on a sure thing -- nearly six years ago -- at prices nearly three times higher. It hasn't exactly panned out for Income Investor subscribers, either. The stock was recommended two years ago. Since then, the steady flow of dividends has helped offset some, though clearly not all, of the carnage.
Sorry, Merck. Better luck next century.
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Longtime Fool contributor Rick Munarriz has no problem with buying into stocks that rhyme with "jerk," but he does not own any of the companies mentioned in this story. The Fool has a disclosure policy. Rick is also part of the Rule Breakers newsletter research team, seeking out tomorrow's ultimate growth stocks a day early.
