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Suits Sprout at Merck

Jan 6, 2005 | www.thestreet.com

When Vioxx hit the market, Donald Wenk did the same thing he always does after he picks up a new prescription.

"I read everything I got from the drugstore," Wenk says. "I never noticed any heart warning."

Instead, the new drug yet to be thoroughly tested for cardiac risks sounded like a medication custom-made for Wenk. He suffered from arthritis and lingering pain from multiple knee surgeries. And he was prone to ulcers like those sometimes linked to older painkillers.

Thus, Wenk initially viewed Merck's new drug which promised pain relief without stomach bleeding as something of a miracle cure.

Then Wenk, now 46, landed in the hospital three separate times with chest pains and heart ailments. He became the first person in his entire family to suffer from a cardiac problem.

By now, Wenk has paid off thousands of dollars worth of heart-related hospital bills. He also spends about $85 a month on two heart medications he never needed before taking Vioxx. And he relies on his wife for financial support because, he believes, employers are reluctant to hire someone in poor health.

Before, he supervised six Valvoline oil-change stores. Now, he can't even get employers to call him back.

He remembers fuming after hearing about the Vioxx recall.

"I don't blame medications for most things," he said. "But I feel betrayed and upset. Here is a medicine that, I was told, was going to help me. And instead, my situation just got worse."

In the fourth of five articles probing Merck's troubles, TheStreet.com takes a look at the lawsuits being filed by former Vioxx patients and how the company and its investors could fare in the courthouse.

Serious Damage

Medical experts believe that as many as 160,000 people have similar horror stories to share.

Merck's stock, down 3 cents to $31.10 on Wednesday morning, currently reflects Vioxx exposure that's about half that amount, analysts say.

"Assuming plaintiffs are in a strong position, the best available data suggests a feasible liability of roughly $38 billion," wrote Bernstein analyst Richard Evans, who has a market perform rating on the stock. But "negligence on Merck's part would raise this estimate to as high as $55 billion."

Currently, Merck has $2.67 billion in cash on its balance sheet.

If Merck winds up paying out jury awards, rather than less-expensive settlements, Evans believes the company's legal bills could soar past even his highest estimate. Ultimately, Merck's past behavior will play a major role in the outcome.

"It's likely that punitives either apply to the majority of plaintiffs or they don't -- with little, if any, middle ground," Evans wrote.

To be fair, Merck insists that it withdrew Vioxx as soon as it learned of the drug's health risks. Moreover, the company could persuade the courts that other factors besides Vioxx triggered heart attacks and strokes among the drug's users. After all, both ailments are fairly common among the elderly population that tended to rely on Vioxx for arthritis pain relief.

Still, Vioxx-related lawsuits could very well define the drugmaker's future. Legal challenges have sent some companies, such as Dow Corning, spiraling into bankruptcy before they could even prove their innocence. And massive litigation takes an expensive toll on companies whether they emerge victorious or not.

Just a month after the recall, Merck faced 375 lawsuits representing 1,000 different plaintiff groups as a result of its popular painkiller. It has been served with multiple class-action lawsuits as well. The company, which has only $630 million worth of product liability insurance to cover any Vioxx claims, has established no reserves for the litigation.

Sympathy Pains

Already, Merck is fielding sympathy from some pretty powerful friends. During a special November hearing, Sen. Orrin Hatch a Utah Republican with close ties to the drug industry voiced more concern about the company than about those who used its dangerous painkiller.

He cited an advertisement seeking Vioxx plaintiffs with particular alarm.

"Let me just read you the headline: 'Get Your Million Dollars From Vioxx Lawsuit,'" Hatch said. "It's worse if you read the whole advertisement. And it's just one of, really, hundreds I've seen on television all over the country."

By now, lawyers have already scored huge sums by targeting deep-pocketed drug companies.

In the past, plaintiffs have even secured payments after using products that caused no clear health problems. Perhaps most famously, Dow Corning shelled out $3.2 billion and wound up in bankruptcy protection because of lawsuits stemming from silicone breast implants that were ultimately deemed safe.

An attorney who successfully defended drugmaker Merrell Dow, offers Merck some advice. For starters, he says, Merck should try to get the cases in a federal court rather than a state court, like those in Mississippi, which are known for runaway jury awards. By doing so, he says, the company can take advantage of a ruling secured during the Merrell Dow case that prevents plaintiffs from introducing "junk science" to the court.

He points to animal studies as a form of such faulty science. He also mentions studies that show a small less than twofold risk posed by a drug. He managed to bar both types of studies when defending his client.

Unfortunately for Merck, however, plaintiffs have already cited human studies showing significant health risk when filing their cases.

Moreover, the company cannot rely on a well-connected regulator for help. In mid-November, Daniel Troy, general counsel for the Food and Drug Administration, stepped down from his post. Before then, Troy attracted harsh criticism for offering legal assistance to drug companies the agency is supposed to regulate.

Congress could wind up shifting directions as well. Prior to the Vioxx recall, lawmakers were seriously weighing lawsuit protection for drugs with FDA approval. But some clearly have new concerns that could derail the legislation and affect Merck and the entire industry in the process.

Meanwhile, trial lawyers can now step up their argument that drugmakers like Merck should be held accountable.

"We've got another pharmaceutical company that put profits before principles," Strong declared. "If only Merck had just been honest."


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