By Linda A. Johnson
AP Business Writer
Merck & Co. said Friday it will pay $4.85 billion to end thousands of state and federal lawsuits over its painkiller Vioxx in one of the largest drug settlements ever.
Company officials estimated the deal, if accepted, would end 45,000 to 50,000 personal injury lawsuits involving U.S. Vioxx users who suffered a heart attack or ischemic stroke, the type in which blood flow to the brain is blocked.
"Without this settlement, the litigation might very well stretch on for years," Merck executive vice president Kenneth Frazier said during a conference call.
He called the agreement "responsible and reasonable" and allows Merck to better quantify its liability, once estimated as high as $50 billion.
Negotiating teams met more than 50 times in eight states and spoke hundreds of times by telephone over many months to hammer out the deal, according to attorneys.
"I'm very happy with it," said Chris Seeger, one of the six plaintiff lawyers who helped negotiate the settlement. "It's a tremendous way to resolve this litigation."
Merck pulled Vioxx from the market Sept. 30, 2004 after its researchers determined the blockbuster arthritis treatment, then pulling in about $2.5 billion a year, doubled risk of heart attacks and strokes.
To qualify for a settlement, plaintiffs must have filed claims by Thursday and meet several criteria, including medical proof that they suffered a heart attack or stroke, that they received at least 30 Vioxx pills and that they received enough pills to support a presumption that they were ingested within two weeks before injury.
That is a big concession by Merck, which has long claimed that Vioxx caused harm only after 18 months of use. Those claims were dismissed by independent scientists and plaintiffs lawyers.
Merck stressed that the agreement is not a class action settlement and that it is not admitting fault.
Company executives and attorneys said as recently as last month that every case would be fought individually.
But on Friday, they said several factors made this "the right time" for the deal, including the expiration of the statute of limitations in 42 states.
Merck said it will take a pretax charge for the full $4.85 billion in the current quarter. It would not say whether insurance will cover any of that, but said much of the charge will be tax deductible.
Analyst Steve Brozak of WBB Securities called Merck's handling of the litigation "a Harvard casebook study of how to deal with a problematic product."
Investors seemed to agree, as Merck shares trading jumped nearly 5 percent, or $2.67, to $57.44 – near their 52-week high of $58.36.
After losing its first case in a $253 million verdict that was later sharply reduced, Merck has won a string of civil cases. It has won 10 of 15 court verdicts to date. Some of those cases will be excluded from the settlement, but appeals in others continue.
The company said last month it had added $70 million to its reserves for defending lawsuits. As of Sept. 30, Merck had reserved a total of $1.92 billion for legal expenses and spent a total of $1.2 billion.
The deal becomes binding only if 85 percent of the plaintiffs in key categories agree to the deal: all pending heart attack and ischmic stroke cases, all cases involving deaths and all cases alleging more than 12 months of Vioxx use.
"I'm not in the least bit of doubt that we'll do it," said Russ Herman, a New Orleans attorney who served as chairman of the plaintiffs negotiating committee. "This was a really, really tough litigation for both sides; this way you have some certainty."
The deal was finalized in the early morning hours after attorneys for Merck and the plaintiffs met with three of the four judges overseeing nearly all Vioxx claims.
Seeger said the deal was put in motion last December when three key judges pushed the parties to open out-of-court talks.
"Every claimant is going to be compensated" once their claim is validated, he said.
Seeger said this deal is larger that the original settlement in cross-state rival Wyeth's diet drug litigation, which was $3.75 billion initially but ballooned past $20 billion with repeated revisions.
Merck lawyers said they had closely scrutinized that and other cases to find ways to ensure that its settlement does not exceed the $4.85 billion, of which $4 billion will go to heart attack claimants and the rest to stroke claimants.
Among other things, potential claimants will have to have prior medical documentation of a heart attack or stroke, and they will not be able to later opt out of the settlement. Also, all law firms involved in the "steering committees" directing pretrial discovery and other coordination of both state and federal cases must get every one of their clients to settle.
Payments would vary, depending on severity of injuries, length of time that Vioxx was used and each person's risk factors for cardiovascular disease. A complex system would assign points to each claimant. Payments could start as early as August 2008.
Lawyers fees are to come out of the $4.85 billion fund, based on the percentage in their contingency agreements with clients; additional fees will go to the law firms that together amassed more than 50 million pages of documents for use by all plaintiffs' lawyers.
Attorneys for both sides presented the deal Friday morning to U.S. District Judge Eldon E. Fallon in New Orleans.
A total of about 60,000 personal injury cases have been filed, including thousands on hold under agreements suspending the statute of limitations, plus about 265 potential class action cases, some of which allege shareholder losses.
The deal does not include people in foreign countries, any with different injuries, any with stock-related claims or a group with no evident injuries that is suing for Merck to pay for medical monitoring.