Merck tax disputes could cost $5.58 billion

updated 10:53 a.m. ET Nov. 8, 2006

WHITEHOUSE STATION, N.J. - Merck & Co. on Tuesday disclosed that liabilities from four tax disputes in the U.S. and Canada could total $5.58 billion, as the drug maker faces tens of thousands of lawsuits over its withdrawn painkiller Vioxx.

Merck said it is fighting the assessments, which were detailed in a quarterly filing with the Securities and Exchange Commission.

"While the resolution of these issues may result in tax liabilities which are significantly higher or lower than the reserves established for this matter, management currently believes that the resolution will not have a material adverse effect on the company's financial position or liquidity," Whitehouse Station-based Merck said.

The company, however, cautioned that an unfavorable resolution could affect results in a quarter in which it is recorded.

Merck isn't the only drugmaker hit with steep tax bills. In September, GlaxoSmithKline PLC agreed to pay the U.S. government $3.4 billion to settle a dispute over how to tax deals between the London-based company and its American subsidiary.

As of Sept. 30, Merck had $15.22 billion in current assets, including $6.22 billion in cash. At least one of the transactions in dispute also includes an income statement benefit, which could potentially be reversed depending on the outcome. In the third quarter, Merck earned $940.6 million on $5.41 billion in sales.

Merck already is facing liabilities that could reach tens of billions of dollars related to Vioxx, the painkiller it withdrew from the market in September 2004 after evidence that it increased the risk of heart attacks and strokes. Merck has been fighting the cases one by one. It has won five cases and lost four.

In a recent interview, Merck Chief Executive Officer Richard Clark said the company was "very conservative" in its tax practices, The Wall Street Journal reported on its Web site Tuesday. He also said the potential liabilities weren't a concern, given Merck's finances. "I don't lose any sleep over that," he said.

A Merck spokesman said the company believed the transactions are in "full compliance with IRS rules" and that it plans to contest the matter, the Journal said.

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