Merck (NYSE: MRK) lost a lot of legal cases over whether its arthritis drug caused heart problems in patients. It even spent $4.85 billion to settle a lot of the claims against it. But, that did not end every suit, and the company is faced with new data that raises questions about the dangers of the drug.

Tough for Merck. But, putting out dangerous drugs can have side affects for both patient and company. According to Reuters, " A long-term analysis of people who took the arthritis drug Vioxx confirms it doubles the risk of strokes and heart attacks."

Most of these lawsuits come down to "did the company know of the danger, and, if so when?" Merck probably did not settle so many cases because it believed it was entirely in the right. It is hard to imagine that it did not have some sense that the data from the new study is true. It did test its own drug before it went on the market. But, did it test it well? Or, did it find that there were possible health risks but that they were acceptable? At least from a monetary standpoint.

The cynical observers of drug company practices say that the firms balance litigation costs against the money that they get from sales. If a product has some danger, it does not matter too much if it makes a great deal more money than the cost of legal consequences.

If the cynics are right, Merck has a tough road ahead.

Douglas A. McIntyre is an editor at 247wallst.com.

Merck & Co (NYSE: MRK) shares are trading higher today after a Citi Investment Research analyst initiated coverage on the stock with a "Buy" rating, saying the company will benefit as rivals' drug patents expire in the coming year. This is despite news that came out today that Merck will soon start to send out almost $5B in Vioxx settlement checks. If you think that the stock won't fall by too much in the coming months, then now could be a good time to look at a bullish hedged trade on MRK.

After hitting a one-year high of $61.62 in December, the stock hit a one-year low of $34.49 in June. MRK opened this morning at $37.12. So far today the stock has hit a low of $36.60 and a high of $37.38. As of 1:05, MRK is trading at $37.38, up 42 cents(1.1%). The chart for MRK looks neutral and improving, while S&P gives the stock a neutral 3 Stars (out of 5) Hold rating.

For a bullish hedged play on this stock, I would consider an October bull-put credit spread below the $32.50 range. A bull-put credit spread is an options position that combines the purchase and sale of put options to hedge risk in case the stock doesn't do what you think but still leverage nice returns. For this particular trade, we will make a 16.3% return in just three months as long as MRK is above $32.50 at October expiration. Merck would have to fall by more than 13% before we would start to lose money. Learn more about this type of trade here.

MRK hasn't been below $34.50 at all in the past year and has shown support around $37 recently. This trade could be risky if the company's earnings (due out 7/21) disappoint, but even if that happens, this position could be protected by the support the stock might find at its year low, which is just below $35.

Brent Archer is an options analyst and writer at Investors Observer.

DISCLOSURE: Mr. Archer owns and/or controls diversified portfolios of long and short stock and option positions that may include holdings in companies he writes about. At publication time, Brent neither owns nor controls positions in MRK.

Well, one step at a time, Merck & Co. (NYSE: MRK) is trying to get past the Vioxx saga. Back in 2004, after over 20 million Americans had used the painkiller drug, Merck pulled it from the market following a study that found that Vioxx doubled the risk of heart attack and stroke in patients who took it for at least 18 months.

Immediately, Merck was hit with nearly 27,000 lawsuits. In November 2006, the company agreed to a $4.85 billion settlement. Merck now says that about 94% of the plaintiffs have chosen to participate in the settlement. I'm not sure the Garza family could have chosen to be part of the settlement or not (as the case was decided before the settlement was agreed), but if they family could, they might be sorry today they didn't do so.

A Texas appeals court overturned a multimillion-dollar verdict against Merck Wednesday. In April 2006, a jury awarded 71-year-old Leonel Garza's widow $32 million (which were later cut to about $7.75 million). The reason cited by the court was that Garza's family failed to provide evidence that Garza's long-standing heart disease could not have been the cause of his fatal heart attack in 2001.

It appears that some of the medical reviews of Merck's (NYSE: MRK) controversial drug Vioxx were not written by doctors at all. The company found "ghost writers" to put together evaluations for medical publications. Some physicians appear to have signed those reviews.

According to The New York Times "In an editorial, JAMA (The Journal of the American Medical Association) said the analysis showed that Merck had apparently manipulated dozens of publications to promote Vioxx."

The news marks another hideous chapter in the history of Vioxx, a drug which was found to cause heart attacks. A number of suits were initiated by patients who had suffered this side-effect.

While it is not clear whether Merck will be punished for participating in shaping reports about its own drug, the doctors involved should be charged with fraud, at the very least.

Vioxx turned out to be a dangerous drug. More detailed research may have discovered that. Even if more careful work would not have uncovered the problems with the drug, no one will ever know. The well was poisoned long before the patients taking Vioxx began to get ill.

Douglas A. McIntyre is an editor at 247wallst.com.

Merck (NYSE: MRK)'s pain killer Vioxx allegedly caused a number of deaths and illnesses. Eventually 27,000 lawsuits were filed against the company, causing a potentially catastrophic liability.

Today, it appears that Merck will settle most claims for $4.85 billion. According to The Wall Street Journal, "an agreement is expected to be announced Friday morning in New Orleans, where a federal judge is overseeing the litigation." The litigation over the effects of the drug have dragged on for three years. The paper adds that "the company currently has set aside $720 million for its Vioxx legal defense costs, which doesn't include any potential damages to plaintiffs."

Some suits are not part of the settlement, but the accord would end the great majority of cases.

Did Merck pay too much for relief of its litigation problems? Perhaps. Based on the company's financial information, the Vioxx matter was costing the company over $600 million a year. And it might have lost some of the cases. But $4.85 billion covers a lot of legal fees over the next decade, and Merck has won several high-profile Vioxx cases in the last year or so.

But the settlement does give the company some peace and the chance to move forward with its normal business without the cloud of liabilities from Vioxx hanging over its head. From that standpoint, Merck may have gotten off cheap.

Douglas A. McIntyre can is an editor at 247wallst.com.

The earnings crunch continues to roll along, and here are a some highlights of this past week's earnings coverage from BloggingStocks:

• Aetna Inc. (NYSE: AET) beat expectations and raised its full-year guidance.
• Amazon.com Inc. (NASDAQ: AMZN) beat estimates by a penny and offered a poor outlook.
• American Express Co. (NYSE: AXP) delivered a positive surprise, with profits up 10%.
• Amgen Inc. (NASDAQ: AMGN) beat estimates, but revenue was flat.
• Anheuser-Busch Cos. (NYSE: BUD) beat expectations on strength of international sales and partner brands.
• Apple Inc. (NASDAQ: AAPL) blew past expectations. See our conference call live blog.
• Avery Dennison Corp.'s (NYSE: AVY) net sales up, EPS down, both due to the Paxar acquisition.
• Baidu.com Inc. (NASDAQ: BIDU) beat expectations, but wariness about its growth potential lingers.
• Boeing Co. (NYSE: BA) beat expectations but lowered its guidance.
• Bristol-Myers Squibb (NYSE: BMY) beat expectations on the strength of Plavix sales.
• CNH Global's (NYSE: CNH) profit nearly doubled, beating estimates by 15%.
• Coach Inc. (NYSE: COH) beat estimates by a penny, but offered a conservative outlook for the holidays.
• Comcast Corp. (NASDAQ: CMCSA) met EPS expectations but cut its cash flow forecast.
• Countrywide Financial Corp. (NYSE: CFC) reported a $1.2 billion loss, but predicts a profit in the next quarter.

The earnings season crunch is underway once more, and among companies reporting next week are Merck & Co. (NASDAQ: MRK) and AT&T Inc. (NYSE: T).

In its second quarter report in July, Merck reported earnings per share of 82 cents, beating Wall Street's expectations by 13.9 percent, up from 73 cents in the same period the previous year. Merck had one-year earnings per share growth of 16.9 percent, which was better than the S&P 500 and the pharmaceutical industry average. For the third quarter, analysts surveyed by Thomson Financial expect Merck to report earnings per share of 69 cents.

Analysts surveyed by Thomson Financial recommend buying Merck: 3 rate it a strong buy, 10 a buy, and 8 a hold. The share price has been creeping back up toward its 52-week high of $55.14 last May, and closed Friday at $53.11.

For more on Vioxx and other pharma news that may affect Merck's results, check out BloggingStocks' Merck coverage.

Now that Merck & Co. (NYSE: MRK) and Schering-Plough Corp. (NYSE: SGP) both posted better-than-expected second quarter earnings, will investors show some love to big pharma?

Shares of Merck are down about 5% over the past three months while Schering-Plough has eeked out a mere 2.5% gain. Perhaps investors are worried about Merck's Vioxx legal battles, which so far it has largely won, and the controversy surrounding its cervical cancer vaccine Gardisal. Schering-Plough's $14.4 billion acquisition of Akzo Nobel's Oreganon unit may also be concerning some people. Maybe people think that if Pfizer Inc. (NYSE: PFE) is up the creek, all big drug companies are in the same boat.

Regardless, both companies posted impressive numbers that should quell the concerns of investors. Their stocks remain pretty cheap. Merck trades at a forward price-to-earnings multiple of 17, slightly cheaper than Schering-Plough's 20.

Merck, based in Whitehouse Station, New Jersey, reported net income of $1.65 billion or 77 cents, up from $1.5 billion, or 69 cents a year earlier. Revenue jumped 5.9% to $6.1 billion fueled by demand for blockbusters such as the high-cholestoral treatment Vytorin which it makes in a joint venture with Schering Ploug. Excluding some costs, Merck earned 82 cents, beating the 72 cent-average estimate of analysts surveyed by Thomson Financial. The revenue figure also beat the $5.77 billion, analysts had expected.

Vytorin also boosted results at Kenilworth, NJ-based Schering Plough. Net income climbed to $539 million, or 34 cents a share, more than doubling from $259 million, or 16 cents. Revenue jumped 14% to $3.2 billion. Excluding some costs, profit was 41 cents, beating the conesensus forecasts of 35 cents. Revenue also beat expectations of $3.07 billion.

You can't go to a drugstore and not notice the name Merck & Co. Inc. (NYSE: MRK). Maker of many proprietary drugs, Merck was recently slammed by a stream of patent expirations, the bane of any pharmaceutical company. Why buy full price drugs when you can get the same, generic version for a fraction of the cost?

The biggest of these, in 2006, was the expiration of the patent on its successful cholesterol drug, Zocor, which fed coffers at Merck to the tune of more than $4 billion in 2005. The losses will continue into the future. In 2008, it will lose osteoporosis drug, Fosamax, and glaucoma drug Cosopt, and in 2010, the patent for anti-hypertensive drug, Cozaar.

Further, lawsuits against Merck for its arthritis drug, Vioxx, will continue to cost the company massive amounts in the upcoming years. Analysts predict that the suits will cost Merck hundreds of millions of dollars, if not billions. Merck withdrew the drug in 2004 due to concerns about increased risk of heart attacks among those who took it. It had been one of the most widely prescribed drugs in the country up until then.

Hoorah, now that this earnings period is starting to wind down, I can highlight some non-earnings events to look out for next week.

Monday May 14

• Hitachi Ltd (NYSE: HIT) Strategic Storage Announcement conference call at 8am.
• Aircastle Limited (NYSE: AYR) to report Q1 earnings; conference call at 11am.
• Another Vioxx trial starts for Merck and Co Inc (NYSE: MRK) in Texas.

Tuesday May 15

• Motorola Inc (NYSE: MOT) mobile experience at 10am.
• Yamana Gold Inc (NYSE: AUY) to report Q1 earnings; conference call at 11am.

Wednesday May 16

• Southwest Airlines (NYSE: LUV) shareholder meeting at 11am.
• Hewlett-Packard Company (NYSE: HPQ) to report Q2 earnings; conference call at 5pm.

Thursday May 17

• JC Penney Company Co Inc (NYSE: JCP) to report Q1 earnings; conference call at 9:30am.
• Liz Claiborne Inc (NYSE: LIZ) annual shareholder meeting at 10am.
• Biogen Idec (NASDAQ: BIIB) research and development day at 8:30am.

Friday May 18

• British Airways (NYSE: BAB) to report preliminary Q4 earnings; conference call at 9am.
• Federated Department Stores Inc (NYSE: FD) shareholder meeting at 11am.

On a day that looks to be pretty ugly for the market, Merck & Co. (NYSE: MRK) could see some price gains following this morning's first quarter earnings release.

The drug maker announced that it saw a 12% jump in its first quarter profit. This jump can mainly be attributed to higher sales for asthma and cholesterol drugs. The company shattered estimates for total sales in the quarter with $5.77 billion, which showed a 7% jump from the same period a year ago of $5.41 billion. Analysts had been expecting the company to post sales of $5.36 billion.

On an earnings per share basis, the company reported that excluding a 6 cents per share restructuring charge, earnings would have come in at 84 cents per share. This matched what analysts had been expecting to see from the company.

A big reason for the company's strong sales growth comes directly from their cholesterol drugs Zetia and Vytorin. The combined sales of these drugs totaled $1.2 billion, which represents a 47% increase. Merck sells these drugs in partnership with Schering-Plough (NYSE: SGP) and the two companies share in those revenues.

When Merck and Co. (NYSE: MRK) took a nose dive upon news of the the Vioxx (TM) 'scandal' and the stock plunged rapidly in the usual panic that besets such stories, I received a call from my mother-in-law. She is a long time Merck shareholder and she asked me what to do. I immediately said buy more - and she did, at $28 if memory serves me correct.

Now to the average contrarian, value investor or fool, buying at this time (catching a falling knife) may result in a less than satisfactory financial position and the risks could be high. But sticking your neck out to make this call when it's your mother-in-laws retirement money and you are making on the spot calculations, could lead to some very unpleasant and long lasting situations. Like on every phone call or family get together forever.

Actually I was recommending Merck to my whole family and have been for some time but this one was both the easiest and the toughest because even if you are right the downside risk was higher than usual.

Oh well, I am right for this moment in time and she still loves me. Things could change, but so far so good...and getting better it seems. A late breaking report by the Associated Press Merck Soars to Post-Vioxx High reviews the days legal events.

Merck Closed today up $3.85 today at 50.21 but reached an interim day high of $50.80, the highest it has been in years. And as I do like to look at the funny analysts from time to time several investment houses either started Merck as a buy or changed their calls from sell to buy. For myself, it is a hold. I hate to buy in the midst of such euphoria and absolutely would not follow any analysts calls.

If you are interested in long-term value investing read Chasing Value.

Sheldon Liber is the CEO of a small private investment company and the vice president for design and research at an architecture & planning firm. Check out my other posts for BloggingStocks here.

Merck & Co., Inc. (NYSE: MRK) has headed back to the Food and Drug Administration with a drug that is meant to replace Vioxx. [subscription required] The Big Pharma company is still facing a number of lawsuits over whether Vioxx caused heart problems and stroke in some patients.

Merck's new drug is called Arcoxia and it is from the same category of drugs that Vioxx is, but the company has done extensive testing and is already selling the drug outside the US. Still, Arcoxia appears to have problems of its own as it has caused high blood pressure in some patients who are taking it in the trials.

Vioxx brought in $2.5 billion in revenue for Merck in 2003. However, the potential liability of the lawsuits against Merck could be as much as $15 billion.

Merck is left with a tough decision. Even if its new drug is approved for use in the American market, it would appear that it is not without side effects. And, side effects are already costing Merck a bundle, if only in legal fees.

Douglas A. McIntyre is a partner at 24/7 Wall St.

Merck & Co. Inc. (NYSE: MRK) opened at $43.76. So far today the stock has hit a low of $43.52 and a high of $43.76. As of 12:05, MRK is trading at $43.84, up $0.61 (1.4%).

The stock has held to a tight range over the past several months, hitting a one year high of $46.55 in January. The company announced yesterday that they would cease development of a new sleeping pill, but most analysts that cover the stock are not concerned about this move hurting Merck's numbers. The stock dipped slightly yesterday, but its opening price showed the stock has already recovered from yesterday's loss. MRK is also getting some positive results recently in its Vioxx court cases, with the count now 10 verdicts in favor of Merck and five for the plaintiffs. The technical indicators for MRK have been neutral and improving, while S&P gives the stock a positive 4 STARS (out of 5) buy rating.

For a bullish hedged play on this stock, I would consider a May bull-put credit spread below the $40 range. MRK hasn't been below $40 since August and has shown support around $43 recently. This trade could be risky if the company's earnings (due out 4/19) disappoint, but even if the stock slips a little, it could find support from its 200 day moving average, which is just above $42.

Brent Archer is an options analyst and writer at Investors Observer (Free Subscription). DISCLOSURE: Mr. Archer owns and/or controls diversified portfolios of long and short stock and option positions that may include holdings in companies he writes about.

Merck & Co., Inc. (NYSE:MRK) made the decision to litigate any claims that consumers have about the side effects of it drug Vioxx. There were studies that indicated that the drug could cause heart attacks in some patients.

Merck is facing 27,000 lawsuits from patients who posit that Vioxx caused them health problems. The company has decided to try the cases instead of attempting to enter into one large settlement covering all claims. Not unlike Altria Group, Inc.'s (NYSE:MO) Philip Morris and its tobacco litigation, Merck knows that the cost of bringing suit against it is substantial, so if the company wins a number of early cases, other plaintiffs may back off.

A jury in New Jersey has now found that Merck did recklessly promote the drug and awarded a patient $47.5 million. Merck will obviously appeal the case.

The brilliance of Merck's move to try cases with the goal of wearing down Vioxx claims may be the company's downfall. A raft of "wins" against the company could drive its liability into the billion of dollars. At that point, the company's future could be at stake.

Douglas A. McIntyre is a partner at 24/7 Wall St.