Liablity could Reach $17.6B

posted on:
November 5, 2004

author:
Staff

 Already wounded by the withdrawal of its Vioxx pain reliever from the market, Merck & Co. must now contend with hundreds of lawsuits over the drug’s side effects – lawsuits that threaten to further damage the company’s finances and reputation. 

Wall Street analysts are concerned about Merck’s potential legal liability. This week, Standard & Poor’s Corp. warned that it might downgrade its ratings on Merck’s debt because of the huge payouts the company might be forced to make.

Merck withdrew Vioxx from the market Sept. 30 because the drug doubled the risk of heart attacks and strokes in patients taking it longer than 18 months.

Richard Evans, an analyst at Stanford C. Bernstein Research, estimates Merck’s legal costs could reach $12 billion.

A new analysis by Merrill Lynch concludes Merck’s liability could be as high as $17.6 billion over the next decade or so. The estimate is based on the possibility of nearly 51,000 successful lawsuits with jury awards or settlements of $100,000 to $300,000 for patients claiming heart attacks or strokes, plus another $1 billion to $2 billion for nuisance lawsuits. That would be slightly offset by Merck’s liability insurance of $650 million.

If plaintiffs win, and prove their allegation that Merck put profits before patients’ welfare, the company’s reputation will also suffer. “This has a credibility cost. Merck’s brand and stature are tarnished by this,” said David Moskowitz, an analyst at Friedman, Billings, Ramsey.

Plaintiffs’ lawyers said at least 700 Vioxx-related lawsuits have been filed against Merck so far and one analyst estimated the number at more than 1,000. Merck says 300 suits have been filed. Legal experts said lawyers suing Merck must prove two primary assertions: That the drug played a role in causing heart attacks or strokes, and that the company understood the risks and downplayed them.

The Lancet analysis

A new analysis published online yesterday by the British journal The Lancet could help fuel the lawsuits. Swiss researchers led by Peter Juni of the University of Bern pooled results from 29 studies of Vioxx and found that people who took it had more than double the risk of heart attack than those given dummy pills or other painkillers.

The drug “should have been withdrawn several years earlier,” the researchers conclude.

“The unacceptable cardiovascular risks of Vioxx were evident as early as 2000,” Lancet editor Dr. Richard Horton wrote in a commentary. He faulted Merck for “astonishing failures” in monitoring the safety of its drugs and the U.S. Food and Drug Administration for “lethal weaknesses” in oversight.

A federal judge in Alabama has ruled that Merck needed to be ready for trial after Dec. 13 in a case brought by William Cook, a retired miner who had been taking Vioxx for about a year when he suffered a heart attack in 2000. The case was filed before Merck pulled Vioxx from the market. However, Merck filed a motion with the Judicial Panel on Multi-district Litigation in Washington, D.C., to consolidate all the federal cases in one jurisdiction, which could delay Cook’s trial, said his lawyer, Andy Birchfield.

The case that goes to trial first will be closely watched by other plaintiffs, who are hoping for a precedent for future lawsuits. Fordham University law professor Benjamin Zipursky suggested the perfect patient for plaintiff lawyers would be a young person who took Vioxx for 18 months and had no other conditions that might trigger a heart attack or stroke.

That would make it easier to prove Vioxx caused the plaintiff’s illness and a big settlement might push Merck to settle more cases.

‘Not a slam dunk’

However, many patients taking Vioxx for arthritis were older people who are generally more prone to heart attacks and strokes, so establishing the connection between their illnesses and the drug could be difficult.

“The more common the adverse effect, the more difficult the case could be to win,” said Frank McClellan, a law professor at the Beasley School of Law at Temple University in Philadelphia.

Merck general counsel Kenneth C. Frazier said heart attacks happen frequently in the general population and there are numerous factors, including obesity and age, that increase the risk.

“These cases are not a slam dunk,” Frazier said. He said when all the facts are before a judge it will be clear that “Merck acted responsibly every step of the way.”

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