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Theresa Agovino

The Associated Press

08-19-2005 

If the jury decides against Merck & Co. in the first wrongful-death case related to the painkiller Vioxx, it may open the legal floodgates and drive up the company's potential liability, already estimated at as much as $18 billion, analysts say.

But a win for Merck won't be considered a major victory, because the case against the New Jersey-based pharmaceutical company was widely considered weak. Analysts note that Merck still faces another 4,200 lawsuits, some presumably stronger than the first one.

"The negative if Merck loses is more important than the positive if they win," said Catherine Arnold, an analyst at Credit Suisse First Boston LLC. "This case was always a long shot in terms of the facts."

Bob Ernst had been taking Vioxx for about eight months when he died of a heart arrhythmia, or irregular heart beat, in 2001. His widow, Carol, is suing Merck in a trial that began last month in Angleton, Texas.

No studies have linked Vioxx to arrhythmias, which is why many thought the case couldn't be won. Merck removed the drug from the market last year after a study did find it doubled patients' risk of heart attack and strokes after 18 months.

Now some analysts believe Merck may lose, because plaintiffs lawyer Mark Lanier was skillful in presenting evidence suggesting that Ernst had a heart attack. Testimony from Dr. Maria Araneta, who performed Ernst's autopsy, said the former Wal-Mart produce manager could have died of a heart attack, damaging Merck's defense.

Evidence pointing to efforts by Merck to mute the risks associated with Vioxx is also problematic for the company. Marketing materials that taught sales representatives to dodge doctors' questions about the drug's cardiovascular danger and a letter from a top Stanford University doctor admonishing Merck's former chief executive for the company's attempts to quash Vioxx critics were among the documents that resonated with analysts.

"It certainly looks like Merck tried to minimize negative information," said David Moskowitz, an analyst at Friedman, Billings, Ramsey Group Inc.

Moskowitz estimates Merck's eventual liability in the face of the lawsuits to be $11 billion, an amount likely to increase if the company loses this case.

Analysts said a loss is priced into stock already, but it will probably still fall on a negative verdict -- especially if damages are large. Lanier asked for at least $40 million in damages.

Jason Napodano, an analyst at Zacks Investment Research Inc., says even a small damage award will weigh on Merck stock by encouraging others to sue the company.

"It is a psychological issue. There will be panic because they (investors) know a loss means more lawsuits," Napodano said.

Merck stock has dropped 34 percent since the weeks before it withdrew Vioxx on Sept. 30. Arnold said that if Merck loses several cases it may have to set aside money to pay verdicts, potentially jeopardizing the dividend that helps prop up the stock.

In the fourth quarter of last year, Merck set aside $675 million to cover legal fees for Vioxx cases.

A Merck victory will spark a relief rally, but analysts don't expect a major surge in the company's stock. The win may curb questionable lawsuits from being filed, but Merck still faces so many more cases, some presumably stronger than the Ernst case, analysts said.

Plaintiffs lawyers also say it takes time to learn the best way to try each case, noting they lost the first dozen or so asbestos cases before winning huge verdicts later on.

"A victory is a step toward vindication, but Merck won't be out of the dog house," said Moskowitz.

Less than three hours into deliberations, the jury sent a note asking state District Judge Ben Hardin to explain a question. Hardin said he has ordered that contents of all jury notes and questions remain under seal until the case concludes to avoid market repercussions or speculation into what those communications may mean.

Before he issued the order, jurors asked to see several documents including the 2001 letter to former Merck CEO Raymond Gilmartin from Stanford Medical School professor Dr. James Fries that alleged a then-top company researcher had called him to demand that he tell a colleague to stop expressing anti-Vioxx bias.

Fries said he was told that if he didn't intervene, the colleague would "flame out," and "there would be consequences for myself and Stanford."

Jurors also asked to see Vioxx's warning label and how it was changed to reflect the results of the Vigor study, which found that patients taking the drug had five times the rate of heart attacks as those taking naproxen. Vigor's results were released in 2000 but the label was not changed until 2002.

Also requested was the so-called "CV" card that Merck sales representatives showed to doctors in efforts to encourage them to write Vioxx prescriptions. The card indicated little difference in cardiovascular events between Vioxx and a placebo in clinical trials. Lanier alleged Merck pumped up the placebo's cardiovascular problems on the card to make Vioxx appear safer.