Vioxx verdict surprise

05 September 2005 00:01  [Source: ICB Americas]

In the wake of the breathtaking $253 million verdict in the Vioxx product liability trial, Whitestone, N.J.-based Merck & Co. Inc. may be rethinking its defense strategy. The company continues to insist that it will fight every case “one by one,” but it appears to be considering settling a small group of cases. Analysts say the outlook for Merck is murky, as no one can predict just how long—or how much cash—it will take to put the thousands of Vioxx cases in the past.

Sending a strong message that could further tarnish Merck’s public image, a Texas jury deliberated for less than 11 hours before awarding the widow of Robert Ernst, who died of a heart arrhythmia after taking Vioxx for eight months, punitive damages to the tune of $229 million.

Merck says it plans to appeal the what was the first Vioxx product liability case to go to trial. “There is no reliable scientific evidence that shows Vioxx causes cardiac arrhythmias, which an autopsy showed was the cause of Mr. Ernst’s death, along with coronary atherosclerosis,” Jonathan Skidmore of Fulbright & Jaworski, a member of Merck’s legal team, said in a statement after the verdict.

The company also claims that even if it were to lose its appeal, punitive damages would be likely in the range of $2 million under Texas law caps, bringing the total verdict to $26 million.

Though shares of Merck were down just over 8 percent the day the Texas verdict was announced, analysts agree that the huge award in the Texas case is not necessarily a harbinger of what’s to come in the remaining cases.

“We believe it is wrong to extrapolate … to the additional 4,200 (and growing) cases given the numerous factors … that tilted the Ernst case in favor of the plaintiffs,” says Morgan Stanley analyst Jami Rubin.

Goldman Sachs analyst James Kelly agrees that “multiplying this verdict across open cases,” is not useful. However, he notes that “the duration that this cloud sits over Merck” could have long-term implications for the company.

Despite the likelihood of a much more manageable outcome, the initial blow of the $253 million figure appeared to have knocked some of the wind out of Merck’s tough legal strategy.

The company has consistently said it will “vigorously defend individual Vioxx cases one by one,” but it now appears to softening its stance. Last week, the company indicated that it may be willing to settle cases involving patients who took Vioxx for over 18 months and had no other risk factors for heart attacks or strokes.

Vioxx, which at its peak drew in $2.5 billion in sales, was withdrawn from the market in September 2004 after studies showed taking the drug for more than 18 months almost doubled the risk of heart attack and stroke. However, a large portion of the thousands of Vioxx cases involve plaintiffs claiming they had cardiovascular events after taking the drug for just weeks or months.

The next big test for Merck will be a case in New Jersey, in which the plaintiff suffered a heart attack, which he survived, shortly after he began taking Vioxx in 2001. Superior Court Judge Carol Higbee, who is to preside over 2,500 Vioxx cases, rejected the company’s motion to postpone the trial by 45 days in response to the media spree following the Texas verdict.

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