Merck May Face Pressure to Settle After Vioxx Loss
By Sophia Pearson and Jeff Feeley

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 diedin 2001 at age 59 after taking Vioxx for eight months. Merck’scosts may be reduced to 10 percent of that amount because of astate cap on punitive damages. Even the lesser award suggests thethird-largest U.S. drugmaker must add to the $675 million it setaside for Vioxx-related legal costs, investors and lawyers said.

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

The litigation is hindering efforts by Merck Chief ExecutiveOfficer Richard Clark to turn around the company since replacingRaymond Gilmartin on May 5, Fisher said. Under Gilmartin, Mercklost its rank as the world’s largest drugmaker. In July, thecompany reported its eighth straight decline in quarterlyearnings.

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

In the next three months, Merck, based in Whitehouse Station,New Jersey, is scheduled to defend at least three more trials oflawsuits that allege Vioxx caused heart ailments in users. In theAtlantic City case, set to start Sept. 12, former U.S. MarineFrederick Humeston claims the drug caused his heart attack in2001.

“If they lose these next three cases, Merck will be in deeptrouble," said Michael Kelly, a lawyer with McCarter & English, aNewark, New Jersey, firm that represents drugmakers such asAstraZeneca Plc. “They will have given the plaintiffs a road mapon how to successfully try these cases, and the pressure for aglobal settlement of these suits will start to grow."

Merck withdrew Vioxx, which accounted for 11 percent of lastyear’s sales of $23 billion, in September after studies showedusers 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 atMiller Tabak & Co.

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

Vioxx was used by about 20 million people in the U.S. afterits introduction in May 1999. Government regulators estimatedduring U.S. Senate hearings in November that the drug hurt orkilled as many as 139,000 people.

“If I were advising the company, I would tell them to settlethis fast," said Robert Zito, a partner at New York-based lawfirm Schiff Hardin who defends companies in civil suits. “This isnot going to get any better."

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

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

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

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

“Any time you bring one of these cases to a jury you seeanger coming out," said Greene, who is representing plaintiffs in12 Vioxx cases.

Peisch, Zito and other lawyers, including Lanier, said theTexas award will probably be reduced, because it exceeds capsimposed 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 dietcombination, has been forced to set aside $21.1 billion to resolvelitigation since withdrawing the medicines in 1997 after evidencelinked them to heart-valve problems and lung disease. The company,based in Madison, New Jersey, lost the first four cases that wentto trial over the drugs between 1999 and 2001.

Merck’s defeat may deter drugmakers from contesting productliability lawsuits, choosing to settle in jurisdictions wherepunitive damages aren’t capped, the Financial Times said, citingVictor Schwartz, general counsel for the American Tort ReformAssociation.

”The industry has learned from the Wyeth fen-phen litigationto fight it tooth and nail," said Michael Zbinovec, apharmaceutical 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 heinjured in Vietnam. His lawsuit, one of about 2,200 pending beforestate Superior Court Judge Carol Higbee, alleges that Merckdefectively designed Vioxx and failed to warn consumers about itscardiovascular risks.

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

Mosquito Bite Humeston, a U.S. Postal Service mail handler and father offive from Boise, Idaho, intermittently took Vioxx in 25- and 50-milligram doses for several months. A Merck lawyer, in pretrialquestioning of Humeston’s physician, Dr. Gregory Lewer, suggestedthat his patient’s heart attack was caused in part by stress fromthe Postal Service’s secret videotaping to see if he had faked aknee 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 andAngelina Gomez in state court in Texas. The couple blames Vioxx for the heart attack that killed their 39-year-old daughter AnaMaria Guerra in May 2001. Guerra had a history of cardiac diseaseand hypertension, the 2002 suit said.

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

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

“Merck has been banking on the idea that the plaintiffscouldn’t prove that Vioxx caused a particular heart attack," saidBirchfield, of Beasley, Allen, Crow, Methvin, Portis & Miles inMontgomery. “This verdict proved that’s not the case."