Painkiller’s Maker Merck Limits Potential Legal Liability with New Fund

posted on:
November 10, 2007

author:
Staff

Merck & Co.'s agreement to pay $4.85 billion to resolve lawsuits over its Vioxx painkiller offers certainty of a payday to thousands of plaintiffs who no longer must prove the drug caused their heart attacks or strokes.

Merck, the No. 3 U.S. drugmaker, spent $1.2 billion (all figures US) fighting 26,500 lawsuits over claims Vioxx caused cardiovascular injuries before the company withdrew it in 2004. Merck battled each case that went to trial since 2005, winning 11 of 16 and refusing to pay on those it lost while appealing the verdicts.

By agreeing Friday to pay as much as $4 billion to heart attack victims and $850 million to stroke victims, Merck reached a truce and agreed to start writing cheques. The company also succeeded in limiting its potential legal liability, which analysts once estimated as high as $20 billion.

"Merck is gaining certainty, and plaintiffs are gaining reasonable compensation," said plaintiffs' attorney Andy Birchfield, who helped negotiate the accord. "Merck has clearly shown that they could win trials involving people who took Vioxx and had heart attacks."

The company will record a fourth-quarter 2007 pre-tax charge of $4.85 billion to cover the agreement. Merck had $4.4 billion in profit last year.

"Merck followed a very sensible strategy," said Calvert Crary, an analyst at Litigationnotes.com in Westport, Conn. Its decision "not to settle but to put every plaintiff individually to his proof, a kind of tobacco-style defence, is what kept the numbers within reason."

The settlement followed 11 months of secret negotiations prompted by a federal judge in New Orleans and state court judges in New Jersey, California and Texas who are overseeing the cases.

Lawyers said that about 29,000 heart attacks patients and 17,000 stroke victims who blamed their injuries on Vioxx are eligible to seek compensation. The agreement outlines a three-step system for how Brown Greer, a law firm in Richmond, Va., will evaluate injuries.

Plaintiffs must prove they actually had a heart attack or stroke, that they took at least 30 Vioxx pills and that they took the medicine within 14 days of their injury. If they pass those three tests, they enter either the $4-billion heart attack pool or the $850 million stroke fund for further evaluation.

"They do have to come forward with specific evidence to show they suffered the injury," said Ted Mayer, a Merck attorney at Hughes Hubbard & Reed who helped broker the accord. "They don't have to prove specific causation.

That's something that's a real benefit to the plaintiffs."

Merck rose $1.13 to $55.90 in New York Stock Exchange composite trading after touching $57.32. The stock has gained 31 per cent this year, making it the top performer in the 14-member Standard & Poor's 500 Pharmaceutical Index. Merck trails Pfizer Inc. and Johnson & Johnson, the largest and second-largest drug companies.

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