Dear Mr. Berko: My broker wants me to sell my 600 shares of Merck because he believes that the company will be sued by people who have consumed beef cattle that were fed with Merck's Zilmax. The literature says this drug produces bad side effects on cattle, and it could produce dangerous thalidomide-like effects on people who eat meat tainted with this drug. He says this suit could crash the stock. He wants me to buy 20,000 shares of Zogenix with the money from the sale of Merck. Zogenix is a small specialty drug company. His research department believes that it has a sensational narcotic that is a new formulation of hydrocodone. He says that this pain drug will "enormously boost" sales and profits and that the stock should increase in price to $6 or $7 a share in the next six months. He also says that Zogenix's research department is partnering with a big drug company on a "special research project" and that this big drug company may make an offer and buy all the shares of Zogenix at $9 to $11 a share. He would charge us only $1,375 to sell 600 Merck shares and buy 20,000 Zogenix shares. Does this sound good to you?
— SG, Boca Raton, Fla.
Dear SG: Do you know that Schwab, Fidelity and Vanguard would charge you less than $18 for the entire transaction? Anyway, how did a chump like you come to own 600 shares of Merck (MRK-$58)? This broker of yours is part of the army of flimflam artists who ooze from fancy multistory office buildings on Maggot Mile in downtown Boca Raton; he certainly has an overactive imagination and a silver tongue.
The newly formulated opioid, called Zohydro ER, was approved by the Food and Drug Administration last February, causing the share price of Zogenix (ZGNX-$1.33) to rise to $5. However, a union of influential consumer groups, drug and alcohol prevention types, froufrou do-gooders, and drug treatment facilitators petitioned the FDA to reverse its approval. They and a phalanx of attorneys general from 28 states claimed that Zohydro ER, the only extended-release (12 hours) man-made opiate, would be too easy to abuse. And they're right as light because its 50-milligram dose is five times the strength of current immediate-release hydrocodone pills. So the FDA's committee voted 12-2 against approval. Committee members noted that opioids caused 17,000 deaths in 2012 and were concerned Zohydro ER would be easy to overdose on and increase the addiction rate among our young.
Still, many of us know people for whom Zohydro ER would be a godsend. The FDA's denial, to protect the well-being of a few abusers, is senseless when there are many users whose lives could be pain-free and tolerable. Forget ZGNX.
Thalidomide?! What a blast of bunk! This flimflammer ought to have his tongue roasted. Merck's Zilmax is in the beta-agonist class of drugs and used to treat asthma. Back in 2006, feedlots began to mix Zilmax with cattle feed several weeks (corn was too expensive and needed for ethanol) before the cattle were consigned to the slaughterhouse. Zilmax ($160 million in 2012 revenues) promotes the growth of lean muscle instead of fat and adds about 30 pounds to an animal's final weight. Though some studies show that Zilmax has no side effects, other studies have detailed multiple and severe reactions. And though Zilmax is not considered toxic to humans, I recall commercials during the 1940s, '50s and '60s in which doctors recommended smoking as a healthy activity. Corporate advertising has seldom been applauded for full disclosure.
There are no lawsuits against MRK with respect to Zilmax, and other pharmaceutical companies are selling similarly laced additives. I try to avoid genetically modified food, though I doubt MRK is as duplicitous as the tobacco companies, and I trust MRK's research. And I'd not sell the stock, as growing revenues, earnings and dividends should move MRK's shares higher during the next few years.
Malcolm Berko addresses questions about stocks. Reach him at P.O. Box 8303, Largo, FL 33775 or email@example.com.