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S&P: Merck on Watch for Debt Downgrade


By Arthur Wong On Nov. 1, 2004, Standard & Poor's Ratings Services placed its 'AAA' corporate credit and senior unsecured debt ratings on Merck & Co. (MRK) on CreditWatch with negative implications. At the same time, Standard & Poor's affirmed its 'A-1+' short-term corporate credit and commercial paper ratings on Merck.

The actions reflect Standard & Poor's increasing concern about the magnitude of possible litigation against the Whitehouse Station, N.J.-based pharmaceutical company after its withdrawal of COX-2 inhibitor Vioxx. The drug, which generated roughly $2.5 billion in annual sales, was taken off the market after studies showed an increased risk of cardiovascular events among patients. Merck estimates that 20 million patients have taken Vioxx in the U.S.

Separately, the U.S. Food and Drug Administration has recently requested additional safety and efficacy data on Arcoxia, Merck's second-generation COX-2 inhibitor and one of its few near-term product prospects, that will further delay the marketing approval of the drug.

The company continues to maintain an excellent position in the high-margin pharmaceutical business. However, it faces several challenges, including the looming patent expiration on its best-selling drug Zocor, which brings in $5 billion a year in sales. Merck also has a relatively light near-term product pipeline and there are concerns about litigation related to Vioxx.

Before resolving the CreditWatch listing, Standard & Poor's plans to meet with Merck's management to discuss the drug company's long-term ability to retain its credit strength. Wong is a credit analyst for Standard & Poor's Ratings Services


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