98 Lawsuits Down, About 15,000 to Go

posted on:
August 2, 2007

author:
Staff

 Merck won a small victory in its Vioxx cases on Tuesday when an appellate court affirmed a judge's ruling that 98 people from England and Wales couldn't sue it in the U.S. Now the company only has to deal with another 15,000 or so cases in the New Jersey courts. 

The lure of punitive damages not available in the United Kingdom was one of the reasons the plaintiffs wanted a lawsuit in the U.S. The other reason was that the loser of a lawsuit pays all of the court costs in the U.K. The risk of having to pay Merck's large legal fees probably will be high enough to persuade some former Vioxx users to not file in their home country.

Merck pulled the painkiller off the shelves in 2004 after studies showed that it led to increased risk of heart disease. The company faces about 26,950 total lawsuits, including those in other states and federal court, from patients who think Vioxx caused their heart attacks or strokes.

So far Merck has won nine cases and lost five that have reached verdicts; it's appealing all of the losses. There's also an additional three cases that need to be retried.

If Merck continues to take on these trials one at a time, at the current rate, it would be dealing with the lawsuits until about the year 7397. All kidding aside, Merck will be dealing with lawsuits for a very long time. It claims it will fight each and every case, but I would guess that eventually there will be enough cases to figure out how likely it is to win the rest, and then it can settle a majority of them.

With potential lawsuits from its diabetes drug Avandia, GlaxoSmithKline (NYSE: GSK) should take note of Merck's delay strategy, because it seems to be working so far.

Merck has been saving up for inevitable future payments. In the most recent quarter, it put another $210 million into its reserves for defending itself against the lawsuits. These continued charges have hurt its bottom line even as it has experienced decent growth in sales.

The news caused the stock to go up 2.7% Tuesday. I think that for years we'll continue to see news of Vioxx decisions causing the stock price to jump around. While Merck is certainly making progress, the jury is still out on how much the final bill will be. That's not a reason to pass on the stock, but just realize that if you do buy, you're taking on the risk of a huge settlement.

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