Merck Recalls Vioxx
Spencer Platt  /  Getty Images file
Approved by the FDA in 1999, Vioxx was sold as an alternative to other over-the-counter pain relievers that was easier on the stomach.
By John W. Schoen Senior producer
msnbc.com
updated 12/12/2005 4:44:36 PM ET 2005-12-12T21:44:36

In some legal cases, a mistrial is as good as a win for the defendant -- a sign that the evidence isn't strong enough to convince a jury. But Monday’s jury deadlock in the latest lawsuit over a pain reliever called Vioxx is hardly good news for Merck & Co. Inc., the drug’s maker. With the company’s overall sales sliding, more than 6,000 other Vioxx cases pending against it, and the recent claim by a respected medical journal that it withheld key evidence of the drug’s heart attack risks, Merck faces a potentially life-threatening legal battle.

“The Vioxx product liability exposure is difficult to predict with a high degree of accuracy,” wrote Bear Stearns analyst John Boris in a recent research note. “But we peg the liability at $10 billion.”

Approved by the Food and Drug Administration in 1999, Vioxx was sold as an alternative to other over-the-counter pain relievers that was easier on the stomach. Backed by a heavy advertising and promotion campaign, the drug became an industry blockbuster – eventually showing up in the medicine cabinets of more than 20 million people and generating more than $2.5 billion in sales in 2004 alone.

But Merck pulled the drug off the market last year after studies showed Vioxx could double the risk of a heart attack or stroke if taken for 18 months or longer. Last Thursday, the New England Journal of Medicine published an editorial accusing the company of withholding damaging data about the drug’s safety from an article that was published in 2000 by the journal, a widely respected source of information for doctors prescribing the medication.

That disclosure came in the middle of the first Vioxx lawsuit to reach federal courts, in which a judge Monday declared a mistrial after the nine-member jury deadlocked in the case of the heart attack death of a Florida man in 2001. The timing of the report may have played into the judge’s decision to declare a mistrial, Mark Lanier, an attorney who won the first Vioxx trial in Texas this summer, told CNBC.

“We are absolutely convinced Merck knew Wednesday afternoon the Thursday article was coming out" and closed its arguments to keep the report from the jury, he said. "The judge may be saying. 'Let's do this again and play fair.'”

In the meantime, Merck says it plans to continue to prepare for a retrial of the latest case.

"If a retrial is scheduled we will be right back with the same facts," Kenneth Frazier, Merck's general counsel, said in a statement.

Digging in
Merck took a big financial hit when it pulled Vioxx off the market last year. The company's revenues for all of 2005 are expected to fall 5 percent from last year's $22.9 billion, and then fall another 5 percent in 2006, according to Standard & Poor's.

Faced with the loss of one of its biggest-selling drugs and the potential multi-billion-dollar cost of defending or settling thousands of lawsuits, Merck late last month announced a major restructuring to strengthen its financial footing. The company said it would cut 7,000 jobs, or about 11 percent of its workforce, and close five of its 31 manufacturing plants and one of its research sites. The company has told analysts it expects the moves will save nearly $4 billion over the next four years.

Though its potential bill for its Vioxx liability is huge, Merck is still very profitable. Bear Stearns’ Boris figures the company is churning out as much as $2 billion a year in cash -– on top of the $3.3 billion it pays in shareholder dividends and the $1.4 billion in capital spending, mostly on research to find new drugs.

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And if the going gets tougher, Merck has more than $10 billion in cash to fund its legal war chest. A series of legal victories by the company could make it more difficult for future plaintiffs to win and could reduce the size of any future settlements. 

“Merck wants to try and keep the flood gate from opening from lawyers bringing suits merely because it looks like settlement will be easy," said Lanier.

But analysts say the mistrial in the latest case does not bode well for Merck’s prospects in defending against the the long line of cases yet to come.

In July, in the first case to go to trial, a Texas state jury hit Merck with a $253 million verdict for negligence in the 2001 death of a Texas man who took the drug for eight months. Then in November, Merck evened the score with a victory, after jurors in New Jersey said the company was not liable in the case of an Idaho man who survived a heart attack after taking the drug intermittently for two months.

The latest case, in federal court, was expected to be easier for Merck to win. For one thing, procedures in federal courts are more stringent, which was supposed to help Merck in its defense. Merck also argued that Vioxx was not a factor in Richard Irvin's 2001 death because he only took the drug for a few weeks, saying his fatal heart attack was the result of clogged arteries and a blood clot.

But that defense may now have been seriously undercut as juries hear testimony that Merck withheld damaging information about the drug from a medical journal.

“The fact that a prominent medical journal is accusing Merck of hiding information about Vioxx goes straight to the heart of their defense that they did nothing wrong,” said Howard Erichson, a professor at Seton Hall law school.

(The Associated Press contributed to this report.)

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