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When the next courtroom round of the Vioxx saga starts next month,


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will need to be more effective in communicating its case and its science to jurors.

The company got clobbered Friday in a Texas courtroom, losing a $253.4 million verdict in a wrongful death case. Although Merck will appeal and the $229 million punitive-damage award should be reduced substantially because it exceeds state law, analysts say the company must dilute the anti-Merck sentiment that emanated from the Texas trial.

"The next case will go a long way in offering additional insight into the total liability that Merck may face," says Albert L. Rauch, of A.G. Edwards, who says he expected Merck to lose -- but with a total penalty of $5 million to $20 million.

"If Merck can successfully defend itself, then that would be a big plus," says Rauch in a Monday research report in which he kept his hold rating. "But another negative outcome and big monetary award mean a change in the way that Merck plans to manage the lawsuits." Rauch now believes Merck's legal bill could exceed $25 billion and go as high as $50 billion.

Once the Texas case goes from the drama of the trial court to the dispassionate chambers of an appeals court, Merck and its supporters say the company will prevail. "We believe that the plaintiff did not meet the standard set by Texas law to prove that Vioxx caused Mr. Ernst's death," a member of the Merck defense team said on Friday.

Carol Ernst, the widow of Robert Ernst, sued Merck for wrongful death. Her husband died of an irregular heartbeat in 2001 at the age of 59. He had been taking Vioxx for eight months.

"Junk science was permitted to trump good science in this case," says the American Tort Reform Association, a vigorous proponent for changing personal injury laws and a vigorous opponent of the American Trial Lawyers Association, whose members represent the Vioxx plaintiffs.

"While some argue that justified verdicts can be corrected on appeal, the harm to a company's reputation and its shareholders is evidenced by the initial hit

to Merck's stock in this case," the ATRA's general counsel, Victor E. Schwartz, said Friday.

Substance, Science & Style

In terms of style, media accounts of jurors' comments and legal experts' Monday-morning quarterbacking indicate that Merck's attorneys conducted the trial with the soft touch of a blacksmith.

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Observers cited Merck's presentation as being stiff, technical, sometimes confusing and sometimes combative compared with the personable approach of Mark Lanier, the attorney for Carol Ernst. Lanier used internal corporate documents and emails to persuade jurors that Merck placed profits over patients.

Lanier overcame some theoretical weaknesses in his case, namely the fact that a coroner's report said Robert Ernst died of an irregular heartbeat and the fact that Ernst took Vioxx for eight months. Merck's clinical trials show Vioxx posed a cardiovascular risk only after patients took the drug for more than 18 months, and its research shows no link to an irregular heartbeat.

But Lanier tracked down the coroner who had performed Ernst autopsy. The coroner, who had moved to the United Arab Emirates, testified that Ernst may have had a blood clot.

This testimony will be part of Merck's appeal. Merck says it is examining various issues for appeal such as an "undisclosed surprise witness and expert testimony contrary to Texas law."

Many analysts believe Merck has a good case. "Since this verdict appears to be based more on the emotional pleas of the plaintiff's lawyer to 'punish' the company for its marketing tactics and profits associated with Vioxx, ... we believe that Merck has a clear basis for an appeal," says C. Anthony Butler, of Lehman Brothers, in a report to clients on Monday.

"No scientific evidence was presented connecting the death of Mr. Ernst to the Vioxx he was taking," says Butler, who attended some of the trial and who has an equal-weight rating on the stock.

The Next Round

The key challenge for Merck is whether it can avoid the expense of appeals court filings by winning at the trial-court level. Next month, in a state court in Atlantic City, N.J., Merck will defend itself against claims from an Idaho postal worker who had a heart attack four years ago and lived. He had been taking Vioxx for two months. The suit was filed in New Jersey, which is Merck's home state.

The heart attack gives a scientific edge to this plaintiff vs. the Texas plaintiff. The New Jersey case plaintiff took Vioxx for much less time than Merck says cardiovascular risk would be present. Since the Texas jury wasn't swayed by this issue, Merck's lawyers must make it more acceptable in New Jersey.

In November, Merck will defend itself in the first federal case, which will be held in New Orleans. The company is being sued by the widow of a man who died of a heart attack at age 53 in 2001. He had been taking Vioxx for one month.

For investors betting on Merck, the case will be subject to stricter rules of evidence and procedure than found in state courts. For those betting against Merck, the case involves another claim of a Vioxx-linked heart attack. In addition, Orleans Parrish was branded one of the biggest "judicial hellholes" of 2004 by the ATRA.

"If anything is easy in the Big Easy, it is certainly getting huge jury awards and giant settlements on questionable facts and law," says an ATRA report, which focuses on what it considers state-court abuses.

"Personal injury lawyers seek out these places because they know that they will produce a positive outcome -- an excessive verdict or settlement, a favorable precedent, or both," the ATRA says in its description of plantiff-friendly venues.

And speaking of ATRA's "judicial hellholes," Hildalgo County, Texas, made the group's list for 2002 and 2003, but not last year. Edinburg, the Hidalgo County seat, will be the site of a Vioxx trial due to start in October. The suit was filed by the family of a 39-year old woman who died of a blood clot four years ago after having taken Vioxx for a month. The attorney is Mark Lanier.

(None of the analysts quoted in this article owns Merck's shares. Lehman Brothers has a noninvestment banking relationship with the company.)