Wyeth Marches On, but Lawsuits Linger

The company has been dealing with litigation for years over its diet drugs, and there's no sign that will change soon.
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Far from the media glare of

Merck's

(MRK) - Get Report

latest Vioxx verdict, another Big Pharma company is dealing with a lot more personal-injury litigation while receiving a lot less public attention.

The company is

Wyeth

(WYE)

, which has attracted thousands of lawsuits on account of diet drugs that were withdrawn from the market in 1997. After nine years of litigation and more legal action on the horizon, Wyeth's courtroom appearances have become routine.

While Merck was being tracked closely

by the national media during one New Jersey trial with two defendants, Wyeth was dealing with 30 diet-drug cases during the first quarter. Wyeth won 10 jury verdicts and three summary dismissals, and 11 cases were dismissed by plaintiffs. One case was settled before the trial. Wyeth lost five trials with an average verdict of $84,840.

According to Wyeth, 5.8 million people took fen-phen, a combination of the company's Pondimin and a non-Wyeth drug, phentermine. Wyeth withdrew Pondimin and another drug, Redux, from the market in 1997. Lawsuits allege that the Wyeth drugs separately, or in combination with phentermine, caused serious injuries and even death.

Plaintiffs claim the drugs caused heart-valve damage and primary pulmonary hypertension, or PPH, a rare and dangerous disease in which the blood pressure in the pulmonary artery rises significantly above normal levels.

Wyeth has set aside $21.1 billion in reserves for the diet-drug litigation. Under one proposed settlement of many cases, payments could be made as late as 2018. Medical claims covered by this proposal could be filed as late as 2015.

"While it appears as if the diet-drug litigation reserves may be adequate, additional reserve increases are possible -- we assume another $1.2 billion," said Andrew Oh of Leerink Swann in a recent research report.

"Payouts to litigants over the next several years will likely hinder Wyeth's investment options and place the company at a strategic disadvantage, even though the financial impact should be manageable," said Oh, who has a market-perform rating on the stock. He doesn't own shares. His firm has had a noninvestment-banking relationship with the company.

"The launch of the next generation of blockbuster products ... would help ensure that Wyeth's long-term business profile can continue to offset the financial uncertainty of the litigation," said a

Standard & Poor's

report earlier this year. S&P said the diet-drug litigation "is a lessening concern, in terms of pace of cash outflows."

However, the ratings firm said fen-phen remains a "long-term uncertainty" because the final cost is unpredictable.

With that uncertainty as a backdrop, Wyeth will issue its first-quarter results on Friday. The Wall Street consensus predicts first-quarter earnings of 73 cents a share, excluding one-time items, and sales of $4.88 billion. For the same period last year, Wyeth earned 80 cents on revenue of $4.58 billion.

Of the analysts who cover Wyeth, 10 have buy ratings and 13 have neutral ratings, according to Thomson Financial. A look at several recent research reports suggests that analysts are devoting more of their time to existing drugs, such as the antidepressant Effexor, and experimental compounds, like the schizophrenia treatment Bifeprunox, than to fen-phen.

A considerable amount of fen-phen closure could be achieved during the current second quarter or in the third quarter if Wyeth and plaintiffs' attorneys get court approval of a settlement affecting some 53,000 people, said John Boris of Bear Stearns. The settlement would cost $1.28 billion.

"Wyeth's cash sources should easily allow the company to fund its diet-drug liabilities," Boris said in a research report last month. "We expect Wyeth to make meaningful diet-drug progress in 2006."

Boris has an outperform rating because Wyeth has "one of the most diverse product portfolios in the industry." He doesn't own shares, but his firm has had a noninvestment-banking relationship.

Even if the settlement is approved, Wyeth will be embroiled in lawsuits for many years with plaintiffs who won't settle. The company also is appealing some cases, most notably a 2004 jury verdict granting plaintiffs $113.4 million in compensatory damages and $900 million in punitive damages. The Texas state court jury blamed Wyeth for the wrongful death of a woman, who died of PPH, citing her use of Pondimin.

Wyeth also is trying to engineer other settlements, saying it has an agreement to reach a deal with another 30,000-plus plaintiffs. Both the company and the trust that's administering the settlement claims are investigating the activities of certain cardiologists and lawyers who have brought claims against the trust. The investigation has led the trust to file fraud lawsuits against two cardiologists.

Vowing to fight cases in court, Wyeth "believes it can marshal significant resources and legal defenses to limit its ultimate liability," the company says in its latest 10-K filing with the

Securities and Exchange Commission.

Noting that "it is not possible to predict the ultimate liability," Wyeth tells the SEC that additional reserves "may be required in the future, and the amount of such additional reserves may be significant."