Q. What are the prospects for my shares of Merck & Co.? I'm devastated. -- J.B., via the Internet
A. The drug giant has suffered setbacks from continued litigation and a disappointing new-product pipeline.
It is experiencing the financial aftershocks of Vioxx, the painkiller used by millions of people that it removed from the market in 2004 after its study indicated increased risk of heart attack or stroke.
A federal appeals court, reversing a lower court decision, recently ruled that a Vioxx-related shareholder lawsuit seeking billions of dollars can move forward.
That is separate from a previous $4.85 billion Vioxx settlement between Merck and plaintiffs who filed personal injury lawsuits.
Shares of Merck & Co. (MRK) are down 54 percent this year following gains of 33 percent last year and 37 percent in 2006. The company has plenty of cash flow to cover litigation, excellent credit, a strong balance sheet and is completing a restructuring.
The company, however, is losing profits from some major drugs to generics and hasn't found replacements.
It halted development of experimental anti-obesity drug taranabant, which blocks brain receptors that regulate appetite, due to psychiatric side effects. In April, the Food and Drug Administration rejected an experimental cholesterol drug, and the company eliminated 1,200 jobs.
The New England Journal of Medicine also said test results could neither prove nor disprove a possible link to elevated cancer risk associated with Vytorin, a cholesterol drug produced jointly by Merck and Schering-Plough Corp.
On the plus side, about one in four U.S. girls 13 to 17 years old last year received at least one dose of the company's Gardasil cervical-cancer vaccine, according to a Centers for Disease Control and Prevention survey.
Sales of Gardasil have slipped this year but may be boosted because the FDA updated the label on Gardasil to note protective effects against two other gynecological cancers. Another promising drug is Januvia for diabetes.
Recommendations on shares of Merck by Wall Street analysts, according to Thomson Financial, are three "strong buys," four "buys" and 11 "holds."
Earnings are expected to rise 3 percent this year compared with 10 percent predicted for the major drug-manufacturing industry. Next year's expected increase is 9 percent, or about 1 point lower than the industry forecast. The five-year annualized growth rate of 6 percent lags its peers by 2 percentage points.
Q. Fairholme Fund was suggested to me as a fund that can withstand anything. Is this true? -- P.A., via the Internet