Merck's Legal NightmareSep 3, 2004 | Forbes Merck's recall of its popular painkiller Vioxx after a big study found it increased the risk of heart attacks and strokes could set off the next big class-action feeding frenzy.
Virtually every time a drug has been recalled because of side-effect problems in recent years, the companies have faced legal liability. The question for Merck (nyse: MRK - news - people ) and its investors now is, How big will its legal bill be? The answer is unknown but could potentially be huge, because Vioxx was a popular drug used by millions of consumers. Overall, 84 million people worldwide have taken Vioxx worldwide since it was approved in 1999.
"This is going to be a nightmare of unbelievable proportions in terms of legal liability" for Merck, says independent analyst Hemant Shah of Warren, N.J., who was one of the first to predict that Wyeth (nyse: WYE - news - people ) would face enormous legal liability from its recall of the diet drugs fenfluramine (part of the fen-phen combo) and Redux in 1997.
Shah says that the extent of the liability will depend on whether plaintiffs' lawyers are able to find "smoking gun" e-mails or internal memos from Merck officials privately acknowledging the possibility for heart risk in the years before the recall. If such documents exist, "the liability potentially could be greater than for fen-phen" and Redux, Shah says. If there are no embarrassing documents, then the liability would be much more manageable.
Shah says the rise and fall of Vioxx "is one more example of how analysts and the media jumped on the bandwagon and hyped a drug." When Merck started selling Vioxx in 1999, the new drug was often dubbed a "super-aspirin" in the media, even though there was never any evidence that it was more effective than older, non-steroidal anti-inflammatory drugs such as ibuprofen. But the potential for Vioxx-related heart problems first surfaced in a big Merck study published in The New England Journal of Medicine in 2000. But it was largely ignored until 2001, when two cardiologists at the Cleveland Clinic, Steven Nissen and Eric Topol, stuck their necks out and wrote a big article in The Journal of the American Medical Association warning of the potential for heart side effects.
Merck said that prior to the recall, two lawsuits alleging cardiovascular side effects from Vioxx and seeking class-action status had been filed, in addition to numerous other individual lawsuits. The first of those lawsuits could go to trial as soon as next year. "We anticipate that additional lawsuits alleging personal injury from Vioxx may be filed," says Tony Plohoros, a Merck spokesman.
Until now, some plaintiffs' lawyers have shied away from bringing Vioxx-related lawsuits, seeing the issue of whether Vioxx might cause heart attacks as murky. The recall should open the floodgates.
"One of the first questions a judge asks is, Is the drug still on the market?" says New York attorney Jerrold Parker of Parker & Waichman. His firm, which has been investigating the Vioxx-heart attack connection for three years, has over ten ongoing Vioxx patient-injury cases and hundreds more in the works. In the few hours since the recall was announced, the firm had already received over 100 calls and e-mails from patients alleging harm from Vioxx, he says.
Some experts said it is far too soon to assume that Merck will face a giant legal bill. Because Merck moved quickly to withdraw the drug after getting conclusive evidence that Vioxx raised the risk of heart attacks, "this will be an uphill battle" for plaintiffs' lawyers to win huge settlements, says Anthony Sabino, a business law professor at St. John's University, who adds that he owns a small amount of Merck stock. "This is not a death knell for Merck."