Verdict on Vioxx Casts Long Shadow

posted on:
August 22, 2005


Merck & Co could face decades of litigation and billions of dollars in damages, putting its stock price under pressure indefinitely after a Texas jury found the company liable in the death of a man taking its painkiller drug Vioxx.

John LeCroy, an analyst at Natexis Bleichroeder, called the Vioxx litigation a “10 to 20-year problem” for the company, which has had more than 4200 similar lawsuits filed against it.

“I had thought this would cost them around US$4 billion (NZ$5.81 billion), but now I don’t think US$10 billion is an unreasonable number,” he said.

The first verdict in a personal-injury case over the drug sent the company’s stock down US$2.35, or 7.7 per cent, to close at US$28.06 on the New York Stock Exchange.

A 12-member jury in Texas state court on Friday awarded US$24 million to Carol Ernst, the widow of Robert Ernst, for mental anguish and loss of companionship and US$229 million in punitive damages.

A Texas law limiting punitive damages is expected to reduce the latter amount.

Shaojing Tong, an analyst at Mehta Partners, put the likely damage at about US$5 billion.

Plaintiffs’ lawyers said the ruling bodes well for their clients.

“This was a conservative jury which makes this verdict more significant,” said Jere Beasley, with the Alabama law firm of Beasley, Allen, Crow, Methvin, Portis & Miles, which has taken on some 10,000 cases of Vioxx patients who suffered heart attacks or stroke.

“Merck claimed this was a weak case . . . It is clear that the jury was upset,” said Mitchell Breit, a lawyer at Milberg Weiss in New York.

Merck said it planned to appeal against the verdict.

“Had they won, the upside would be significantly greater than the downside we’re seeing . . . ,” said Brett Gallagher, a senior portfolio manager at Julius Baer who bought Merck shares after the downdraft and believes the stock is undervalued.

“It probably was the most expected outcome, and now unfortunately the uncertainty drags on,” he said.

David Dreman, who held at least 154,000 shares of Merck at June 30, said Merck was going to be in court for a long time but had the financial staying power to “ride this out”.

Others said last week’s verdict raised questions about Merck’s stated strategy of taking every Vioxx case to trial.

“Maybe this means that they selectively settle some cases,” Mr LeCroy said.

Susan Dwyer, a partner and head of the product liability defense group at New York law firm Herrick, Feinstein said Merck fought “tooth and nail” in the courtroom, but still did not fare well.

“There were a lot of bad documents, they started off poorly with their witnesses, company witnesses did not do well on the stand. I think they’ll be more polished next time.”

Nevertheless, Merck’s strategy of trying every case would probably be revisited, she said.

Mr LeCroy said litigation was part and parcel of doing business now for a pharmaceutical company.

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