CAN MERCK SURVIVE VIOXX?

The day Merck withdrew the painkiller Vioxx last year, amid concerns it increased heart-attack and stroke risks, the company lost $25 billion in market value. Now a Texas jury has awarded Carol Ernst, whose husband died after taking Vioxx, $253.5 million in the first liability trial. Merck's stock plummeted nearly 8 percent the day of the verdict; it's down 40 percent this year.

With more than 4,200 lawsuits pending, analysts have speculated that liability could top $18 billion. But the Ernst verdict won't be the end of Merck. The company, which did not respond to NEWSWEEK's queries, issued a statement that it plans to appeal. Even if it didn't, Texas limits punitive damages to $1.6 million, meaning the total award shouldn't be more than $26 million. Merck made $11 billion in sales in the first half of this year.

There's been speculation of a merger with Schering-Plough, already a joint-venture partner, to help absorb the hit. But vastly different corporate cultures make that unlikely. If its share price fell far enough, Merck could become a takeover target. "But they'd have to get pretty cheap," says Albert L. Rauch, an analyst at A.G. Edwards and Sons, since the buyer would assume the Vioxx liability.

A bigger problem? Merck's top sellers--the cholesterol-lowering Zocor and the osteoporosis drug Fosamax (expected combined sales this year: $8 billion)--will lose patent protection by 2008. An insomnia drug and others in the works aren't expected to make up for the losses. "You're looking at a company that won't have earnings growth for the rest of the decade," says Rauch. "It's not going to be good times."