Merck may Face Pressure to Settle after Vioxx Loss

posted on:
August 22, 2005

author:
Staff

 Merck & Co.’s loss in the first trial over the painkiller Vioxx may put pressure on the company to settle 4,000 similar lawsuits as well as future claims as it prepares for the next court battle in Atlantic City, New Jersey. 

A jury in Angleton, Texas, ordered Merck on Aug. 19 to pay $253 million to the family of Robert Ernst, a marathoner who died in 2001 at age 59 after taking Vioxx for eight months. Merck’s costs may be reduced to 10 percent of that amount because of a state cap on punitive damages. Even the lesser award suggests the third-largest U.S. drugmaker must add to the $675 million it set aside for Vioxx-related legal costs, investors and lawyers said.

“Merck is going to fight an uphill battle every time they step in the courtroom,” said Jon Fisher, who helps manage about $22 billion at Fifth Third Asset Management, including Merck shares. “They have a long legal harangue ahead of them.”

The litigation is hindering efforts by Merck Chief Executive Officer Richard Clark to turn around the company since replacing Raymond Gilmartin on May 5, Fisher said. Under Gilmartin, Merck lost its rank as the world’s largest drugmaker. In July, the company reported its eighth straight decline in quarterly earnings.

The shares fell 7.7 percent to a six-month low of $28.06 the day of the verdict, shaving $5.2 billion from Merck’s market value. Today, Merck’s German shares dropped to $27.78 at 12:59 p.m. in Frankfurt.

In the next three months, Merck, based in Whitehouse Station, New Jersey, is scheduled to defend at least three more trials of lawsuits that allege Vioxx caused heart ailments in users. In the Atlantic City case, set to start Sept. 12, former U.S. Marine Frederick Humeston claims the drug caused his heart attack in 2001.

‘Deep Trouble’

“If they lose these next three cases, Merck will be in deep trouble,” said Michael Kelly, a lawyer with McCarter & English, a Newark, New Jersey, firm that represents drugmakers such as AstraZeneca Plc. “They will have given the plaintiffs a road map on how to successfully try these cases, and the pressure for a global settlement of these suits will start to grow.”

Merck withdrew Vioxx, which accounted for 11 percent of last year’s sales of $23 billion, in September after studies showed users had a five times greater risk of heart attacks and strokes. The company’s liability for the drug, used by 20 million people, may reach $10 billion, said Les Funtleyder, a health strategist at Miller Tabak & Co.

Sanford C. Bernstein & Co.’s Richard Evans said the company may eventually have to defend more than 100,000 suits from Vioxx users and could face total liability of more than $12 billion.

Vioxx was used by about 20 million people in the U.S. after its introduction in May 1999. Government regulators estimated during U.S. Senate hearings in November that the drug hurt or killed as many as 139,000 people.

‘Settle This Fast’

“If I were advising the company, I would tell them to settle this fast,” said Robert Zito, a partner at New York-based law firm Schiff Hardin who defends companies in civil suits. “This is not going to get any better.”

Merck spokeswoman Cynthia Smith said the company will stick to its strategy of defending each case. She declined to comment on whether Merck plans to boost its reserves for legal costs. Merck said it will appeal the Texas case.

The Texas jurors voted for the verdict after reviewing internal documents on what the company knew and disclosed about Vioxx’s dangers. They said they set the verdict high to send Merck a message. Mark Lanier, the Ernst family’s lead lawyer, accused Merck during the trial of rushing Vioxx to market in an attempt to beat Pfizer Inc.’s competing painkiller, Celebrex.

The company played down studies that showed heart risks of Vioxx to boost sales, Lanier said. Merck said it conducted dozens of tests on Vioxx that showed no heart risk.

A 1997 internal e-mail from researcher Alise Reicin alerting Merck officials to the potential dangers of the treatment helped sway the verdict against Merck, the Wall Street Journal said, citing jurors. Reicin proposed that people with a risk of heart problems be excluded from a test of Vioxx.

Settlement Pressure

The Texas verdict may prompt Merck to start considering a settlement, said Thomas E. Peisch, who defends companies in product-liability cases at Conn Kavanaugh Rosenthal Peisch & Ford in Boston. Ernst’s case was one of the weaker ones against the company, said Browne Greene, an attorney with Greene, Broillet & Wheeler in Santa Monica, California.

“Any time you bring one of these cases to a jury you see anger coming out,” said Greene, who is representing plaintiffs in 12 Vioxx cases.

Peisch, Zito and other lawyers, including Lanier, said the Texas award will probably be reduced, because it exceeds caps imposed by Texas law on damages and others recommended by the U.S. Supreme Court. Zito estimates the final verdict at $26 million to $30 million.

Wyeth, which made drugs used in the fen-phen diet combination, has been forced to set aside $21.1 billion to resolve litigation since withdrawing the medicines in 1997 after evidence linked them to heart-valve problems and lung disease. The company, based in Madison, New Jersey, lost the first four cases that went to trial over the drugs between 1999 and 2001.

Merck’s defeat may deter drugmakers from contesting product liability lawsuits, choosing to settle in jurisdictions where punitive damages aren’t capped, the Financial Times said, citing Victor Schwartz, general counsel for the American Tort Reform Association.

‘Tooth and Nail’

“The industry has learned from the Wyeth fen-phen litigation to fight it tooth and nail,” said Michael Zbinovec, a pharmaceutical analyst at Fitch Ratings in Chicago.

In the Atlantic City case, Humeston, a Purple Heart recipient, says he took the drug for pain in his knees, one of which he injured in Vietnam. His lawsuit, one of about 2,200 pending before state Superior Court Judge Carol Higbee, alleges that Merck defectively designed Vioxx and failed to warn consumers about its cardiovascular risks.

“This is a real mainstream, plaintiff-friendly case, which is a good litmus test,” said Humeston’s attorney, Chris Seeger of Seeger Weiss, a New York law firm.

Mosquito Bite

Humeston, a U.S. Postal Service mail handler and father of five from Boise, Idaho, intermittently took Vioxx in 25- and 50- milligram doses for several months. A Merck lawyer, in pretrial questioning of Humeston’s physician, Dr. Gregory Lewer, suggested that his patient’s heart attack was caused in part by stress from the Postal Service’s secret videotaping to see if he had faked a knee injury.

“This is a man who’s been in combat,” Lewer responded. “Having somebody take a video is like a mosquito bite.”

Merck is also set to defend against claims from Guadalupe and Angelina Gomez in state court in Texas. The couple blames Vioxx for the heart attack that killed their 39-year-old daughter Ana Maria Guerra in May 2001. Guerra had a history of cardiac disease and hypertension, the 2002 suit said.

In Merck’s first federal case, set to start Nov. 28, Evelyn Irvin Plunkett, the widow of a 53-year-old former college football player, says Vioxx caused the heart attack that killed Richard Irvin Jr., a father of four, in May 2001. Irvin, the manager of a wholesale seafood business in St. Augustine, Florida, died a month after he began taking Vioxx.

The Texas verdict shows that Merck is vulnerable, said Andy Birchfield, a lawyer for the Irvin family.

“Merck has been banking on the idea that the plaintiffs couldn’t prove that Vioxx caused a particular h
eart attack,” said Birchfield, of Beasley, Allen, Crow, Methvin, Portis & Miles in Montgomery. “This verdict proved that’s not the case.”

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