Merck wins crucial Vioxx trial

TRENTON, N.J. — Merck & Co.’s first victory in the massive litigation over its painkiller Vioxx gives the pharmaceutical company a psychological lift and a short-term stock boost — and also plenty of uncertainty as it still faces thousands of lawsuits.

What is certain, given Merck’s repeated assertions that it will fight the suits one by one, is that the world’s fifth-biggest drug maker will spend hundreds of millions of dollars to defend itself.

Barbara Ryan, pharmaceuticals analyst at Deutsche Bank North America, estimated the Whitehouse Station, N.J.-based company’s liability over Vioxx at $15 billion to $30 billion on Thursday, shortly after a state Superior Court jury in Atlantic City found Merck properly disclosed risks with Vioxx and was not liable for an Idaho man’s 2001 heart attack.

“I do think that Merck has a good defense in the litigation,” she said. “It’s still going to be a marathon.”

The verdict came 2 1/2 months after Merck lost a Vioxx case in Texas. While analysts had expected the New Jersey win, the split verdicts mean it will likely take at least several more cases for a trend to emerge. The first federal Vioxx trial is scheduled to start Nov. 28 in Houston, and three more cases are set for early in 2006.

Ryan and some other analysts said Merck’s win might discourage some future lawsuits by former Vioxx users who had cases similar to Frederick “Mike” Humeston, a Boise, Idaho, postal worker. That would include people who survived and who took the drug for less than 18 months, the point at which Merck’s own research showed Vioxx use doubled risk of heart attack and stroke; Humeston took it for just two months.

Merck general counsel Kenneth Frazier told reporters in a conference call he believes most cases filed so far — more than 7,000, with half filed in New Jersey state court — involve plaintiffs who took Vioxx for less than 18 months.

The company has set aside $675 million for defense costs, but hasn’t set up a reserve for jury awards or settlements because it’s too soon to estimate what’s needed, Frazier said.

“We do not intend to roll over in these cases when people bring insubstantial claims in an attempt to win money from Merck,” he added.

Merck’s win shows future plaintiffs will have a tough time proving Vioxx caused heart attacks, given that most people have cardiac risks such as obesity or high blood pressure, Raymond James analyst Mike Krensavage wrote in a research note. While Merck defends itself and cases drag out, he wrote, “it benefits from free cash flow of more than $5 billion a year.”

Independent health care analyst Hemant Shah of HKS & Co., said Thursday’s verdict was mostly a psychological boost for Merck.

“I don’t think it’s going to have any immediate impact” on the number of new suits filed, he said. “There are attorneys who are looking for work,” and plaintiffs don’t have to front any legal costs.

However, Shah said if enough future cases end with a Merck win, “I think the whole liability situation becomes manageable for Merck.”

A.G. Edwards & Sons analyst Albert Rauch wrote in a research note that with Merck’s New Jersey victory, lawyers may focus future cases on other states.

“It is still too early to know if (Merck) will be able to win cases on a consistent basis,” Rauch wrote, adding that Merck’s stock price will be volatile after courtroom wins and losses.

Caris & Company analyst Le Anne Zhao said she expects Merck’s stock will trade between $25 and $29 — well below the $45 level where it traded before Merck pulled Vioxx from the market last year — because of its other problems. Those include top drugs facing generic competition in the next two years, and a new product pipeline analysts consider weak.

“Likely by year’s end, they’ll announce another cost-cutting” round across the board, including job cuts, Zhao predicted.

As with the litigation, the future of Vioxx itself remains unclear.

Since Merck voluntarily withdrew the former blockbuster arthritis drug from the market, Frazier said, “we’ve heard from countless patients that they would gladly take the risk” posed by Vioxx.

“We have not made a decision to bring the drug back,” he said. “We are speaking to regulators” about the possibility.