IS IT JUST ME, OR IS THE VIOXX SITUATION HELPING MERCK?

On September 30th 2004, Merck experienced that most hated of experiences for any company – product withdrawal. Whether voluntary (as with Vioxx) or enforced, unexpected product withdrawal is catastrophic. So it proved for Merck. Their stock price fell from over $45 to around $30 and is still struggling to get back to $35. What many of us forget is that the year before the withdrawal of Vioxx was also not one to remember with pleasure in Whitehouse station. The unexpected failure of phase 3 compounds had already meant that the $45 stock price was a plateau at the very low end of their market value for the last 7 years.
So, here is a company with sales in excess of $22 billion, net income over $4.6 billion and a market cap of around $75 billion (3.5 times sales). Compare this to Guidant with sales of under $4 billion who were just bought for around $27 billion (over 6 times sales) and, in this aggressive and hungry industry, Merck looks like a pretty attractive acquisition target (at least a cheap way to gain over $20 billion in sales).
But that is not to be, and the reason is Vioxx. While the Vioxx case is undetermined the degree of liability for which Merck is exposed is also uncertain, and who is going to acquire a company with such a potentially large risk attached? Quite the opposite. I think that the very best Merck strategy right now is to extend the Vioxx case as long as possible so that their licensing and acquisition team can work their socks off trying to refill that pipeline! Just last week this policy was confirmed (the licensing piece) alongside a story saying that the next trials were being postponed.
I’m not suggesting that Merck did this intentionally, but Merck is, in effect, unacquirable whilst the trial continues, and they have that buffer in which to get the stock price back up to a point where they will not look like a pretty cheap way to acquire $20 billion+ in sales and over $4 billion in net income (before acquisition savings)!!