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Although Merck’s Decision to Press Ahead with Vioxx Defense is Fraught with Risk, It May Be the Company’s Best Hope for Survival

Sep 11, 2005 | In the world of high stakes head-to-head Texas Hold’em Poker, the ultimate bluff or sign of confidence, as the case may be, is for a player to go “all in.”

Before doing so, however, a player will ponder the odds very carefully since the move is a decisive one after which the players simply stand up to watch the hand be dealt out face up. If the player who went “all in” wins, he doubles his money. If he loses, he leaves the table with nothing.

In the legal equivalent of going “all in,” Merck has presumably pondered the odds and decided to let billions of dollars in potential liability hinge on one jury trial that begins tomorrow in its home state of New Jersey. Make no mistake; the outcome of this case will either put Merck back in the game or threaten the pharmaceutical giant’s very existence.

As I have pointed out in previous articles and editorials, it should not have come as a surprise to Merck to find itself in the serious predicament it now faces.  Merck can take the position that it was always concerned with safety and that it only pulled Vioxx off the market after there was evidence that a cardiovascular risk existed, but the mountain of evidence is clearly to the contrary.

Thus, Merck has had to make a decision as to whether to put each case to the test at trial or to settle the bulk of the cases and try only the cases that are least likely to succeed.

Even a decision that the company is “in this for the long haul” doesn’t mean that at all. If Merck were to lose the next several trials, the war would be over.  Merck would have to fold its tents and settle the rest of the cases.

Here is what Merck now faces:

•Almost 5,000 U.S. personal injury cases split between a class-action and individual lawsuits;
•Cases from England;
•Cases from Australia;
•Cases from Israel;
•Cases from Canada;
•An action by the state of Texas charging Merck defrauded the state out of hundreds of millions of dollars in Medicaid payments by misrepresenting the safety of Vioxx for several years.

In addition to $168 million in damages, the state is seeking additional civil penalties. Texas Attorney General Greg Abbot believes the state can prove total damages in excess of $250 million including treble (triple) reimbursement of $56 million (or $168 million) for five years of filled Vioxx prescriptions. Other states are planning to follow Texas’ lead.

•A national class-action covering every private third-party payer that allowed members of its health benefits plan to buy Vioxx. Merck could face a judgment of billions of dollars if it loses the case brought by the International Union of Operating Engineers Local 68 Welfare Fund.

Most Vioxx purchases were made through health plans run by insurance companies and health maintenance organizations and the union's case could therefore encompass millions of consumers who took the popular painkiller that's been linked to increase risk of heart attack and stroke. Unlike the individual personal injury cases, Local 68 lawyers do not have to prove any physical injury.

Under state law, all that needs to be shown is that third-party payers were influenced by unconscionable Merck business practices, such as deceptive marketing and promotion of Vioxx (and is there plenty of that). If the union wins, all third-party payers nationwide can recoup payments to Merck as well as treble damages and attorney fees. These money damages could run as high as $10 billion or more.

•Congressional investigations; and
•Potential stockholder derivative lawsuits on behalf of investors who regard Merck’s actions with respect to Vioxx as having seriously diminished the value of their investments in the company  as well as the reputation and stability of the company itself.

There are additional factors that make this next trial a huge gamble for Merck.

The plaintiff is an ex-Marine, who received two Purple Hearts for battle injuries received in Vietnam, who was taking Vioxx for knee pain related to one of those wounds.

Moreover, unlike the Texas case that involved an arrhythmia, or irregular heartbeat and not a heart attack, this plaintiff suffered a myocardial infarction (heart attack) which is precisely the injury Vioxx use has been linked to.

Originally, Merck had taken the position that it intended to litigate every case to conclusion. Following the $253 million Texas verdict, the company’s lead attorney hinted at the possibility of settling some cases.

As numerous additional class-actions started to take shape in England, Australia, Canada, and Israel, however, settlements may no longer have seemed a viable way to approach the problem. The domino-effect would set billions of dollars in exposure in motion.

Between all of the actions outlined above, the price tag for buying out of the debacle could actually approach the astronomical figures speculated about by financial and legal experts for the past year. $20, $30, or even $50 billion would no longer be out of the realm of possibility.

Such amounts could easily exceed Merck’s insurance coverage and financially cripple the world’s third largest drug maker. They could hamper product development as well as Merck’s ability to partner with smaller companies in joint ventures.

Massive settlement payments could also enrage disgruntled shareholders who have already suffered significant losses since last October.

Thus, while the downside risks to Merck are great, the company’s decision to return to its hard-line position is not all that surprising.

If Merck is able to win this second trial in its home state, where a local jury might not want to bring one of the state’s largest private employers to its knees, the tide would change dramatically.

No longer would the first trial be looked upon as the beginning of the end. It could now be explained away as little more than an aberration wherein a working-class jury ignored science and medicine in favor of sympathy and suspicion.

That verdict might even be reversed on appeal since the injury was not among the ones attributed to Vioxx.
To help put the best possible team on the field; Merck (and its insurers) added Philip Beck to its legal team. Beck represented President Bush in the 2000 election fight.

A win would change everything. Plaintiffs and their attorneys would have to consider the potential of losing their cases. Moreover, smaller settlements would then be possible. Merck would regain leverage and stabilize the litigation mess it finds itself in around the country (and world).

Of course, a loss would raise the specter of an avalanche of unfavorable (and quite large) verdicts. Future trials might become little more than “rearranging deck chairs on the Titanic.” The possibility of small, or even reasonable, settlements would evaporate.

There would also be the potential that courts (especially in Texas and New Jersey) would start applying the doctrine of “collateral estoppel” to specific issues involving Merck’s liability thereby preventing the company from re-litigating them over and over again hoping to convince different juries to reach different results on the same evidence.

Fraud actions by medical insurers, unions, and state Medicare systems would zero in for the kill. Merck shareholders would be making battle plans. Indeed, for Merck a loss would be like having one foot in the grave and the other on a banana peel.

So, while the game will only be starting on Monday morning, Merck has already decided to go “all in.”

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