Monday, October 4, 2004
Merck may have to pay $10 bn
Christopher Bowe / New York October 4, 2004
Vioxx legal liabilities may hit firm hard.
Merck could face legal liabilities of up to $10 billion following its worldwide withdrawal of blockbuster pain drug Vioxx, according to some analysts' estimates.
The US drugmaker on Thursday voluntarily pulled Vioxx off the market, forgoing at least $2.5 billion in annual sales, after a three-year clinical trial showed it doubled the risk of users having a heart attack or strokes after 18 months.
Vioxx was used by about 2 million patients, and has been used roughly on some 70 million-80 million patients worldwide since its launch in 1999.
Drugs withdrawn from the market, particularly in the litigious US, generally draw a raft of lawsuits and Vioxx is expected to be no different.
Vioxx, used by about 20 million US patients since its launch, is already the subject of two class action suits and numerous lawsuits. Within hours of Merck's announcement on Thursday, a new lawsuit was filed in Oklahoma, charging Merck with misleading patients on Vioxx's safety.
Preliminary Wall Street estimates on the scope of Merck's potential liability vary widely. The key to Merck's liability is whether plaintiffs can prove two things: that Merck suppressed negative data on Vioxx or acted improperly, and that Vioxx can be directly linked to a patient's heart attack or stroke.
Both are considered difficult to prove. Nevertheless, analysts warn that it is still unclear what plaintiffs could find or prove. Steve Scala, analyst at SG Cowen, estimates that Merck's potential liability could reach $10 billion or more.
His estimate is based on between 400,000 and 600,000 Vioxx users suffering from cardiovascular problems. Given 600,000 lawsuits, he estimates a 12 per cent success rate in trials, with an average payout of $150,000.
George Grofik, analyst at Citigroup, who warned any potential liability would frighten investors and act like a cap to the share price put his highest estimates at $8.2 billion.
Tim Anderson, analyst at Prudential, estimated a potential 16,632 lawsuits. He said Vioxx's legal liability would likely be less than US drugmaker Wyeth's nearly $17 billion costs due to a flood of litigation over diet drug combination fen-phen.
"Merck is widely considered an ethical, above-board company and we sense that the company was as forthcoming as possible with any Vioxx-related safety data but we cannot be 100 per cent certain of this," he said.
Kenneth Frazier, Merck's general counsel, has stressed that Merck believes its defence is strong, and that it would vigorously defend itself in all cases.
But plaintiffs attorneys will challenge. Andy Birchfield, a lawyer representing 58 Vioxx cases, said: "The withdrawal of Vioxx is a good move but much too late."