Merck Gets Walk

In trial No. 2, a jury rejects a plaintiff's claim that Vioxx was the cause of his heart attack.
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Updated from 3:37 p.m. EST

An Atlantic City, N.J., jury handed a major victory to

Merck

(MRK) - Get Report

on Thursday in the second product liability case concerning former blockbuster arthritis drug and pain reliever Vioxx.

The jury found that Vioxx wasn't the "proximate cause" of a man's heart attack, rejecting the contention by plaintiff Frederick Humeston that Merck failed to adequately warn physicians about the product's potential cardiovascular risks.

Jurors also disagreed with the claim by Humeston that Merck had engaged in consumer fraud in marketing Vioxx to doctors.

The verdict caused a spike in Merck's shares, which climbed as high as $30.90. The stock closed at $29.48, up $1.07, or 3.8%. About 38 million shares traded, more than four times the average daily volume.

"We presented a case that was solidly based on scientific evidence," Jim Fitzpatrick of the law firm Hughes Hubbard & Reed and a Merck defense attorney, said in a prepared statement. "Frederick Humeston would have suffered a heart attack when he did, whether he was taking Vioxx or not. In addition, Merck presented evidence that it carefully studied Vioxx before and after

Food and Drug Administration approval, and consistently made the results of those studies available to the FDA and the medical community."

Humeston, an Idaho postal worker, met with reporters after the case was over, saying that while he was disappointed with the jury's decision, he felt the "system has worked." He also said he didn't want other plaintiffs to be discouraged because he lost his case.

He added that even though he believed Vioxx to be a "bad product," his lawsuit against the company "wasn't an indictment against the scientists at Merck in general."

Appealing Texas

Now the Whitehouse Station, N.J., drugmaker is batting .500 in Vioxx lawsuits. Merck lost a case in August when a Texas state court jury awarded $253.4 million in actual and punitive damages to the widow of a man who took the drug. Merck says it will appeal that verdict. Even if Merck loses the appeal, the award will be reduced by at least 90% because Texas law places a limit on punitive damages.

Although it's hard to make predictions based on two jury verdicts, that won't stop financial analysts and legal commentators from doing just that. Investors have been keeping a close eye on the Vioxx trials because Merck has signaled it won't settle the lawsuits filed over its handling of the drug.

Kenneth C. Frazier, Merck's senior vice president and general counsel, reiterated that strategy to reporters Thursday afternoon, saying the company stands by its plan to "defend these cases one by one."

As of Sept. 30, Merck says there were about 6,400 U.S. individual personal injury lawsuits pending, as well as 160 class-action personal injury cases. In addition, Merck faces an unknown number of personal injury suits filed in foreign countries, as well as shareholder litigation and other financial claims in the U.S.

Also, no one knows how many more suits will be filed, although some analysts suggested that Merck's New Jersey victory might deter some potential plaintiffs. Frazier said he wouldn't speculate on the strategies of trial lawyers. "Each case is a unique case," he said in a telephone conference call with reporters.

Merck continues to monitor the costs of litigation, but for now it's not changing the $675 million reserve set aside for courtroom battles, Frazier said. Merck hasn't established a liability reserve, and it has "no intention in the current timeframe" of doing so because "it is not appropriate," he added.

Analysts' estimates of Merck's potential liabilities have run as high as $55 billion, but many predict the cost will be $10 billion to $20 billion.

More Trials

The next test comes Nov. 28 when the first federal court Vioxx trial begins in Houston. Legal and financial experts say stricter rules of evidence and procedural requirements in federal court could provide Merck with an advantage.

The first federal case involves a claim by Evelyn Irvin Plunkett, on behalf of her late husband Richard Irvin Jr., who died from an apparent heart attack. He took Vioxx for about a month. Frazier said there is "no scientific link" between Irvin's death and Vioxx.

Three other federal trials are scheduled for February, March and April. Two more Texas state court trials are slated to start in March and April.

But a lot will depend on each plaintiff's case whether in state courts or federal courts. Theoretically, the worst plaintiff vs. Merck would be an otherwise healthy person, with no history of heart disease, who took recommended doses of Vioxx for more than 18 months, and who suffered cardiovascular injury or death.

The 18-month cutoff represents the guideline that Merck cited in the clinical trial that prompted the company to remove Vioxx from the market on Sept. 30, 2004. Patients who took Vioxx for less than a year and a half didn't exhibit statistically significant cardiovascular risks from patients who were given a placebo.

The Vioxx risk only showed up after long-term use, according to Merck's research. Critics say other tests showed that Vioxx exhibited signals of cardiovascular risk much earlier than 18 months.

Neither the Texas plaintiff nor the New Jersey plaintiff used Vioxx for 18 months. The late Robert Ernst, whose family sued and won in Texas, took the drug for eight months. Humeston took Vioxx for two months.

Frazier said he had "no reliable information" on how many plaintiffs took Vioxx consistently for more than 18 months. He added that it is "my strong belief" that most plaintiffs took the drug for less than 18 months.

Many analysts said Merck appeared to have a stronger case in New Jersey than in Texas, but as the seven-week trial dragged on, some worried that the company's legal strategy in the Garden State was similar to its tactics in the state trial it lost.

New Jersey is an important state for Merck, because around 2,750 Vioxx cases have been filed there. Another 2,800 cases have been filed in federal courts, and the rest have been filed in other state courts.

Merck's lawyers clashed periodically with the judge in the Atlantic City case. State Superior Court Judge Carol Higbee is expected to hear a number of other Vioxx-related cases.

Frazier said he "respectfully disagrees" with some of the judge's rulings, especially those restricting how much information jurors could hear about the FDA's analysis of risks linked to short-term use of Vioxx and other pain relievers.