It’s about the usual uncertainties: a meager pipeline, patent expirations, Vioxx litigation, investigations into sales and marketing practices, and a Canadian tax dispute. All of which means Merck has to continue to rely more on cost cutting, joint ventures and licensing.

And so, Merck’s issuer default rating went to ‘AA-’ from ‘AA’; senior unsecured dropped to ‘AA-’ from ‘AA’; and bank loan ratings fell to ‘AA-’ from ‘AA’. At the same time, Fitch affirmed Merck’s commercial paper rating at ‘F1+’. The ratings apply to approximately $5.99 billion of short- and long-term debt instruments. But the ratings outlook wass revised to stable from negative.

“Notwithstanding a significant corporate acquisition to bolster revenue and earnings growth, improvement to the credit profile is dependent on operating cost efficiencies gained from ongoing restructuring activities as well as strengthening equity income from its joint ventures, most notably the Merck/Schering Plough joint venture,” Fitch wrote.

“The final Vioxx liability damage amount and timing are highly uncertain and may be significant. Fitch will continue to monitor the progress of the trial calendar and take appropriate action if a global settlement is contemplated or damage awards begin to significantly constrain operating cash flow.”

File this one under realistic. This is a more sobering assessment than some of the Wall Street cheerleading of late, which has dubbed Dick Clark a turnaround specialist and propelled Merck shares back to pre-Vioxx scandal levels.

You can see the full statement here (registration may be required).
[tags]Fitch, Merck, Vioxx[/tags]