Merck hit by double legal setback over Vioxx

By Peter Henderson

NEW ORLEANS (Reuters) – Merck & Co. on Thursday suffered a
double setback when a federal jury awarded $51 million to a
former user of its withdrawn pain medicine Vioxx, and a New
Jersey judge threw out a Vioxx verdict that had favored the
drug maker and ordered a new trial.

The news sent its shares down 5.7 percent, and evened the
score between Merck and plaintiffs in Vioxx cases at four
victories apiece.

The company is facing at least 14,200 other lawsuits from
people who say they were harmed by the drug, but Merck vowed to
continue defending itself on a case-by-case basis.

In the second federal trial involving a Vioxx
product-liability lawsuit, a New Orleans jury found that Merck
had knowingly misrepresented or failed to disclose a material
fact to the plaintiff’s physicians. It also found that doctors
in the case and the plaintiff himself were not at fault.

The plaintiff, Gerald Barnett, a 62-year-old retired
Federal Bureau of Investigation agent who had a heart attack in
2002 after taking Vioxx for 31 months, was awarded $50 million
in compensatory damages and $1 million in punitive damages.

Barnett, who used Vioxx for pain caused by a car accident,
is a resident of South Carolina, where the suit was originally
filed and which bases punitive damages on the conduct and
business of the defendant solely in that state, rather than in
the entire country.

Merck lawyers said three more federal Vioxx cases will go
to trial this year, after which the New Orleans federal judge
overseeing the federal Vioxx caseload will take stock of how
future cases should be handled.

In New Jersey, Judge Carol Higbee threw out a state jury
verdict that had favored Merck in a case brought by 60-year-old
postal worker Frederick Humeston, who claimed Vioxx caused his
heart attack.

The Atlantic City jury decided last November that Merck
provided adequate warning to doctors about health risks from
Vioxx and did not commit consumer fraud in marketing the drug.

The victory had taken place in Merck’s home state, where
many other large drugmakers have their headquarters and where
Higbee is presiding over thousands of Vioxx lawsuits.

Higbee cited new evidence in granting Humeston a new trial,
which is expected to occur in January with other Vioxx trials
on Higbee’s calendar.

“It’s a setback in their (Merck’s) home court,” said Jon
LeCroy, an analyst with Natexis Bleichroeder.

Higbee’s clerk said the new evidence involves concerns
expressed last December by the New England Journal of Medicine
about how Merck evaluated the safety of Vioxx in an important
trial.

The journal said Merck had inappropriately deleted data
about three heart attacks among patients who had taken Vioxx in
the so-called VIGOR trial. Results of the trial were published
in the same medical journal in 2000, only months after Vioxx
was launched.

Authors of the trial, however, said the heart attacks were
not included in the trial because they occurred after a
deadline for inclusion of such data.

MERCK TO APPEAL

Merck vowed to appeal Thursday’s verdict in New Orleans,
saying the finding and the damages “were totally uncalled for”
because Merck acted appropriately.

The pain and arthritis drug had annual sales of $2.5
billion before it was recalled in 2004 after results of the
VIGOR trial were disclosed.

“This verdict (in New Orleans) will remind people that
Merck still faces significant potential financial liability for
Vioxx, which could wind up being at least $5 billion in the
long run,” said Shaojing Tong, an analyst with Mehta Partners.

Even so, Tong said he was not overly concerned with the
jury award because Merck, through its appeal, will likely
reduce the size of the judgment.

Money manager David Dreman, whose Merck shares form a major
holding of his $17 billion portfolio, said the verdict was not
all that surprising because New Orleans juries have a history
of favoring plaintiffs over companies.

“This one is coming from a district that has always been
anti-corporate,” said Dreman, who predicted the judgment will
“probably get knocked down on appeal.”

Barnett’s attorney, Mark Robinson, said the jury award was
“appropriate” and had sent a message to the company and other
pharmaceutical firms, although the punitive damages award was
less than the $25 million he had asked for.

“Merck is going to take this to heart,” he said.

Merck shares fell $2.35 to $38.83 on the New York Stock
Exchange.

The stock plunged when Vioxx was recalled two years ago,
but before Thursday’s double dose of bad Vioxx news, it had
nearly reclaimed almost all lost ground — in large part due to
enthusiasm for the company’s new Gardasil cervical cancer
vaccine and its experimental Januvia diabetes treatment.

Merck shares have now risen about 22 percent this year,
outperforming a 7.5 percent rise for the American Stock
Exchange Pharmaceutical Index of large drug makers.

(Additional reporting by Edward Tobin, Herb Lash, Ransdell
Pierson and Lewis Krauskopf)