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Merck hit by double legal setback over Vioxx

Posted on: Thursday, 17 August 2006, 16:51 CDT

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- Merck & Co. on Thursday suffered a double setback when a federal jury awarded $51 million to a former user of its withdrawn pain medicine Vioxx, and a New Jersey judge threw out a Vioxx verdict that had favored the drug maker and ordered a new trial.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

Source: REUTERS

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