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Merck to Pay $4.85 Billion To Settle Most Vioxx Cases
By HEATHER WON TESORIERO and PETER LOFTUS
November 9, 2007 11:10 a.m.
 
Merck & Co. announced that it agreed to pay about $4.85 billion to settle a significant portion of the claims over injuries allegedly linked to its Vioxx painkiller after insisting for years that it would fight all 27,000 cases filed rather than compromise.
 
Shares of Merck rose $1.64, or 3%, to $56.41 in morning trading on the New York Stock Exchange.
 
The drug maker said if certain conditions under the agreement are met, Merck will pay a fixed amount of $4.85 billion into a settlement fund for qualifying claims that enter into the resolution process.
 
"This is a good and responsible agreement that will allow the company to concentrate even more fully on its mission of discovering, developing and delivering novel medicines and vaccines," said Chief Executive Richard T. Clark.
 
Negotiating teams met more than 50 times in eight states and spoke hundreds of times over the telephone to hammer out the deal, according to attorneys.
 
"I'm very happy with it,'' Chris Seeger, one of the six plaintiff lawyers who helped negotiate the settlement, said Friday. It's a tremendous way to resolve this litigation.''
 
Two Funds
Under the agreement, Merck will set up two funds, a $4 billion one for claims of myocardial infarction and a $850 million one for ischemic stroke claims. The amount awarded to individual plaintiffs will vary. The company said it does not know the number of plaintiffs covered by the agreement.
 
This is not a class-action settlement, Merck said, and claims will be evaluated on an individual basis. The company expects to record a fourth-quarter pretax charge of $4.85 billion to cover the cost of the agreement. Under the terms of the agreement, Merck does not admit fault or causation. The company said it will continue to defend all claims that are not included in the resolution process.
 
Vioxx was approved for sale in 1999 and quickly became a popular drug, with annual sales reaching $2.5 billion before the Whitehouse Station, N.J., company pulled it from the market in September 2004 amid cardiovascular-safety concerns.
 
Since then, Merck has won 11 cases that have gone to trial and lost five. What's more, the company won four of five cases considered to be bellwethers of how future cases would likely turn out, making the decision to settle somewhat surprising. U.S. District Judge Elden E. Fallon, who oversees the litigation, had said following those test cases that he wanted the parties to meet to gauge where things stood.
 
Conference Call
Merck $4.85 billion fund excludes some of the cases won by plaintiffs at trial because they are being appealed, a Merck attorney said Friday. On the company's morning conference call, outside Merck attorney Ted Mayer said the settlement doesn't include the cases of Frederick Humeston, who won a $47.5 million verdict against Merck in March, and the family of Robert Ernst, who won a $253 million verdict in the very first Vioxx trial in 2005.
 
Merck is in the process of appealing those cases, and will continue doing so to clarify "governing law going forward," Mr. Mayer said. Some other cases tried so far are excluded as well. The case of Gerald Barnett, however, who won a $51 million verdict last year, will be part of the settlement, Mr. Mayer said.
 
Merck has spent about $1.9 billion in defense costs for the Vioxx litigation since it withdrew the pain drug from the market, said Kenneth Frazier, head of Merck's human health unit and the former general counsel.
 
About 60,000 claims have been filed against Merck alleging injuries caused by Vioxx, said Bruce Kuhlik, general counsel. The company expects about 45,000 to 50,000 of them to be part of the settlement. Merck doesn't believe the remaining cases would be eligible for the settlement.
 
Good Omens
The drug maker has gotten some good omens of late. In September, New Jersey's highest court ruled that health insurers' lawsuits against Merck couldn't be consolidated into a nationwide class action, removing the company's greatest financial exposure from the Vioxx litigation. The suit sought reimbursement for as much as $9.6 billion of Vioxx purchases. And last April, a ruling by a Texas state court judge undercut the legal basis for the roughly 1,000 cases filed there.
 
Plaintiffs' attorneys have long said they wanted to engage in settlement talks with Merck. It is expensive to bring cases to trial and even when plaintiffs prevail, it often takes years for the suits to wind their way through the appellate process.
 
Merck's stock has rebounded significantly since the lows shortly after the company withdrew Vioxx. In late 2004, the stock fell to the high $20s. On Nov. 1, the stock hit a 52-week high of $58.36.
 
But the company has incurred considerable costs from the litigation. In its most recent earnings statement, Merck said it spent $160 million in the third quarter for world-wide Vioxx litigation costs. It also took a charge of $70 million to shore up its litigation coffers, and in the year-earlier period took a charge of $598 million. The company currently has set aside $720 million for its Vioxx legal defense costs, which doesn't include any potential damages to plaintiffs.
 
Vioxx was approved to relieve arthritis and other types of pain, and was taken by an estimated 20 million Americans. Its withdrawal drew questions from critics and government regulators about safety issues and marketing practices in the drug industry. Vioxx was one of three painkillers in the class of so-called Cox-2 inhibitors. Only Pfizer Inc.'s Celebrex remains on the market, and it now carries the Food and Drug Administration's strongest warning label. Bextra, also made by Pfizer, was withdrawn from the market.
 
Earlier this year, a regulatory panel voted against the approval of Arcoxia, Merck's follow-on Cox-2 inhibitor, which is sold abroad.
 
--Kathy Shwiff and the Associated Press contributed to this article.