Will Vioxx recall bankrupt Merck?

"Absolutely not," Merck CEO Raymond Gilmartin said, when asked by CBS Marketwatch (a financial news website) if Merck faces bankruptcy. "Anyone who looks at the strength of our balance sheet and our cash flow will see that."

Several analysts have been speculating that Merck may have to declare bankruptcy for the following reasons:

1. Merck's Vioxx liabilities are expected to be very high. While no accurate estimates are available since it all depends on how many class action lawsuits are filed and what awards the plaintiffs get from juries, but current estimates range all the way from $18 billion to $55 billion.
2. Merck has made no provisions whatsoever for its Vioxx liabilities. Since the settlements will be spread out over years and Merck has the resources to delay the settlement (and drag Vioxx litigation for a long time), the company is betting that it need not scare investors right now by talking about its liabilities. It may be noted that Merck shareholders are not that naive and many of them have already filed class action lawsuits alleging that Merck did not disclose vital information related to side effects of Vioxx.
3. The number of Vioxx class action lawsuit plaintiffs is now being estimated to be in tens of thousands, according to some Vioxx lawyers. According to an analysis by the Associated Press, as many as 700 lawsuits worldwide have been filed against Merck, though Merck disclosed only 575 as of December 31, 2004.
4. Vioxx attorneys are actively interviewing patients who may be eligible to join class action lawsuits.
5. Merck is also being investigated for violations of laws by the US Department of Justice (DOJ), Securities & Exchange Commission (SEC), and the United States Congress. All of these investigations could mean a lot of legal trouble for the firm. (Related article: SEC is investigating Merck in Vioxx recall case)

Analysts have also been speculating that Merck may be acquired by another firm since it does have some good drugs in its portfolio and is working on a few other good drugs. Plus, it also has an excellent pool of scientists despite a massive layoff recently. Gilmartin, however, denied in his interview that any merger was in the works. This is fairly typical and it does not mean that Merck will not be acquired. (Related article: Vioxx recall hurts Merck financially)

If Merck does get acquired, very likely the new company will simply settle the lawsuits and move on. Merck has refused to express any regret so far for being responsible for as many as 140,000 injuries in America alone. On the other hand, Merck has mounted an aggressive campaign against Vioxx victims. (Related article: Merck shows no sympathy for Vioxx victims)

MassHighTech, a technology journal, is reporting that Gilmartin did not even use once the word "Vioxx" while he spoke at Northeastern University's CEO Breakfast Forum this morning, held in Boston.

According to an analysis of Merck's balance sheet, it is fairly clear that the company has deep pockets and may be able to meet its Vioxx liabilities. Plus, it is also very likely that President Bush may be able to change the US laws making it harder for Americans to sue Merck. The President again mentioned it in his State of the Union address and Business Roundtable (an association of chief executive officers of leading U.S. corporations) President John J. Castellani welcomed his comments, "We are focused, as is the President, in reducing costs to business and consumers by curbing lawsuit abuse. This abuse costs our economy $246 billion per year, and has increased a hundredfold over the past 50 years. The real tragedy is that those harmed get less than 50 cents on the dollar in today's court system." (Related article: Merck vows to fight Vioxx class action lawsuits vigorously)

In a related development, Pfizer Chief Executive Henry McKinnell told Dow Jones Newswires on Wednesday that the company has no plans to recall Celebrex from the market.

Recommended article: Vioxx litigation update