Home > Class Action > Pharmaceutical Litigation > Vioxx, Bextra & Celebrex > Merck Settles Vioxx Suits for $4.85B

Merck Settles Vioxx Suits for $4.85B

November 9, 2007
Aaron Smith

Drugmaker aims to close door on 3-year legal battle by resolving claims by 47,000 groups of plaintiffs over blockbuster painkiller drug.

NEW YORK (CNNMoney.com) -- Merck & Co. announced Friday that it will pay $4.85 billion to settle as claims by as many as 47,000 groups of plaintiffs over injuries linked to its blockbuster Vioxx painkiller.

Merck's (Charts, Fortune 500) stock rose more than 3 percent to $56.50 in a down market at the start of trading.

The company said it will pay the money into a fund, and people who claim they were hurt by Vioxx can petition for money. The company said the deal was not a class-action settlement and individual cases will be examined before payments are made.

The claims include those filed in federal and state courts, including a large portion in New Jersey, where Merck is based, through Thursday. The plaintiff groups include former Vioxx patients or family members of patients who died.

To be eligible for settlements, plaintiffs must provide medical evidence they suffered heart attacks or strokes and proof of having taken Vioxx pills within 14 days of their illness and 30 pills in all, the company said. Awards will depend on how long a person took the medication and the severity of injury.

Schering's potential anti-clotting blockbuster

Vioxx became a popular pain medication after it was approved in 1999, with annual sales rising to $2.5 billion, and was used as an anti-inflammatory painkiller for arthritis patients. Merck pulled the drug from the market in September 2004 after a study linked it to an increased risk of heart attack and stroke.

The agreement announced Friday represents a change in stance for the drugmaker, which earlier had insisted it would fight each Vioxx case. Prior to the settlement, Merck had won 12 cases in court, and lost five, according to spokesman Kent Jarrell. They had taken an aggressive and risky courtroom strategy: It consistently denied allegations that Vioxx had killed anyone or that the company knowingly misrepresented the dangers of the drug.

"I would say that [the settlement] is a result of the [case-by-case] strategy and the number of very significant wins we were able to produce in a litigation context," said Ken Frazier, who was the company's chief counsel during much of the Vioxx litigation and was recently named president of global health.

The settlement - one of the biggest ever in civil litigation - comes after nearly 20 Vioxx civil trials were held over the last two years. But it pales in comparison to damage estimates from some analysts, which ranged as high as $30 billion.

Dangerous Pfizer effective: researcher "We believe the company's aggressive and successful defense strategy has given it a heavy hand in the bargaining process and produced a favorable outcome in the Vioxx settlement, at a cost that is clearly at the low end of general expectations," said Barbara Ryan, analyst for Deutsche Bank North America.

Ryan also said that the settlement is "completely manageable for the company," which has $5.4 billion in cash on hand. However, she added that the settlement will only be successful if 85 percent of the plaintiffs agree to it.

In fact, Merck general counsel Bruce Kuhlik said that if 85 percent of claimants don't sign up, Merck "can walk away from the agreement" and return to the previous strategy of fighting cases one at a time.

The settlement prompted Carol Levenson, analyst for the fixed-income research firm Gimme Credit, to upgrade the company's corporate bonds to "stable" from "deteriorating."

"The announcement at last of a settlement of most of its Vioxx cases has eliminated a huge legal overhang," said Levenson, in a prepared report. "It doesn't tie up all the strings, but at a relatively modest cost puts much of this nightmare behind the company."

Merck's decision three years ago to shut down the popular blockbuster resulted in a flood of lawsuits and a 40 percent freefall in the company's stock price. The Food and Drug Administration, which approved the drug for the U.S. market, also fell under a critical spotlight, and people began to question the agency's ability to screen for safety.

But Merck has made a comeback. Its shares have risen more than 100 percent since its lows in mid-November 2004. So far this year, the stock has climbed about 25 percent.

Merck, the third-largest U.S. pharma company behind Pfizer Inc. (Charts, Fortune 500) and Johnson & Johnson (Charts, Fortune 500), is still saddled with the some of the same problems plaguing the rest of Big Pharma: pressure from generic drugmakers. The cholesterol drug Zocor, once worth $5 billion-a-year in sales, lost patent protection in 2006, resulting in plunging sales. The patent on Fosamax, a $3 billion-a-year treatment for osteoporosis, expires in 2008.

To make up for lost sales, Merck CEO Richard Clark is cutting costs by an estimated $5 billion; the company is eliminating 7,000 jobs and closing several manufacturing plants.

Also, Merck recently launched several potential blockbuster products, including the 2006 market entry of the cervical cancer vaccine Gardasil and the diabetes drug Januvia. This year, the FDA approved Merck's HIV treatment Isentress, and the company is awaiting an FDA decision on its experimental cholesterol drug Cordaptive.