Novice Investing

Date: Friday 29th 2008f August 2008 12:48:16 PM

The $ 250 Million Question - 08/22/2005

By: Novice Investing Staff

On Friday August 21th 2005, Our portfolio recommendation, Merck Co & Inc. was hit by a punitive damage of $ 253 Million from Jury in Texas. Here is the news of the verdict. Fear not. According to Texas judiciary system, the amount of the verdict is capped at $ 2 million. You can click here for the information.

While $ 2 million seems puny in comparison to Merck's annual profit, please note that the company has more than 4200 similar lawsuits waiting. There will also be more lawsuits being filed if Merck kept losing. Therefore, the estimated lawsuit cost for Merck right now is at least $ 8.4 Billion. This is still below our estimate of $ 10 Billion for Merck's potential liability.

What is next? While the verdict is a set-back for Merck, we believe the outcome of the federal case will tell us how much damage Merck will eventually pays. The first federal case will start in November 05 in New Orleans. If the outcome is favorable, there is a big chance that those 4200 pending lawsuit will slowly disappear as plaintiff feels that they do not have a strong case to win against Merck. We will be watching for the New Orleans' outcome..

As we have warned, MRK's share price will be volatile due to Vioxx's trial outcome. It may fall to $ 25 or $ 20 in the short-term. However, right now, MRK's potential liability is still within $ 10 Billion that we predicted back in July 2005. Please click here for the article. Watch for the New Orleans trial set to begin in November 2005. If MRK win, potential liability will be greatly reduced, perhaps to less than $ 5 Billion.

END

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Disclaimer: The sole purpose of this article is educational. This article is merely the opinion of the writer and is not in any way a buy/sell recommendation regarding Merck Co & Inc.(MRK) or other securities.

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