Split Verdicts in New Jersey Vioxx Trials Reveals the Hopelessness of Merck’s ‘Try Every Case’ Position

By Steven DiJosephSince Merck (through its attorneys) announced its litigation position, vis-à-vis Vioxx, was to try every case to verdict rather than settle any of them, legal and financial experts have questioned the soundness of the strategy.

While forcing plaintiffs to prove their cases (on liability and damages) is a viable strategy when a “deep pocket” defendant is faced with one, or no more than a few, serious cases, the wisdom of a “damn the torpedoes, full speed ahead” approach becomes shaky at best when the number of cases is in the thousands.

Merck’s problem is that three virtually insurmountable obstacles are simultaneously pushing the company toward a financial catastrophe.

In addition to some 10,000 unresolved personal injury and wrongful death claims, Merck also faces a massive class-action brought by drug plans and insurance carriers that could expose the company to a treble damage, multi-billion dollar verdict.

There is also the matter of state Medicare claims that also expose Merck to billions of dollars more in potential verdicts.

Thus, for Merck’s “no pay” strategy to have had any chance of success, the pharmaceutical giant would have had to win virtually every one of the 10,000 individual cases and then to have hoped that such success would serve to defeat the claims by Medicare and healthcare plans.

The fundamental flaw in Merck’s defiant position, however, has always been that there are simply too many cases, both in number and type, to justify it.

It should not have come as a surprise to Merck to find itself in the serious predicament it now faces. Merck can take the position that it was always concerned with safety and that it only pulled Vioxx off the market after there was evidence that a cardiovascular risk existed, but the mountain of evidence is clearly to the contrary.

In fact, even Merck admits that long-term Vioxx users (over 18 months) were specifically vulnerable to an increased risk of cardiovascular problems.

Thus, the thousands of cases involving such plaintiffs were, at best, a toss-up regardless of how impaired the patients’ health was – separate and apart form the complications alleged to have been the result of Vioxx use.

The short-term use cases, although more easily defended, still had a significant risk of failure associated with them because many of those plaintiffs were otherwise healthy. There was also the truism, which Merck apparently chose to ignore, that, out of thousands of cases, different juries, in different places, presented with different evidence will render different verdicts.

Merck also failed to appreciate the fact that each case it won was not in any way the equivalent of each case it lost. Wins were merely dust in the wind, while losses were nails in its coffin. Each win was still an expensive, time-consuming exercise from which remaining plaintiffs and their attorneys could learn. Each loss was equally expensive and time consuming; however those outcomes also carried with them hefty damage awards and potential appeals.

Between the huge number of losses Merck had to realize it would face in the personal injury and death cases (unless the company and its attorneys were completely out of touch with reality and living in a state of total denial), the private third-party health benefits plans class-action, and the state Medicare lawsuits, Merck’s exposure could actually soar to the astronomical figures of $20 to $50 billion (or more) once predicted by legal and financial analysts.

Such amounts could easily exceed Merck’s insurance coverage and financially cripple the world’s third largest drug maker. They could hamper product development as well as Merck’s ability to partner with smaller companies in joint ventures.

There is also the fact that any punitive damage awards based on Merck’s willful marketing of Vioxx notwithstanding its awareness of the increased risk of heart attacks and the mountain of evidence that it may have manipulated, withheld, and even tampered with clinical study results are not covered by insurance and would have to be paid directly by Merck.

Massive judgments and settlement payments could also enrage disgruntled shareholders who have already suffered massive losses to the value of their investments in the company since October of 2004. (Shareholders of Elan, the manufacturer of the embattled MS drug Tysabri just released its 2005 Annual statement that revealed its shareholders have already commenced derivative suits accusing it of fraud and other wrongdoing that compromised the value of that company’s stock value.)

There would also be the potential that courts (especially in Texas and New Jersey) would start applying the doctrine of “collateral estoppel” to specific issues involving Merck’s liability thereby preventing the company from re-litigating them over and over again hoping to convince different juries to reach different results on the same evidence.

Merck would have to go on the greatest winning steak in the history of litigation (10,000-0) to stave off a financial catastrophe since each negative verdict has the potential of being in the millions of dollars. Even scattered losses for Merck can add up to a financial disaster.

Is such a possibility realistic? Not even Merck’s attorneys could believe that. Shortly after the first verdict in Merck’s favor we spoke with several seasoned trial and appellate attorneys who were all of the same opinion; Merck’s victory meant little, if anything, to the overall litigation situation the company faces. This was especially true since Merck had repeatedly stated that it intended to fight each case individually.

The reason for the attorneys’ opinion was that each case Merck wins only serves as a victory on the particular facts of that case since every plaintiff’s claim is factually different and the law allows each injured party to have a chance to prove his or her case.

Each case that Merck loses, however, has a cumulatively negative effect since it has gotten another chance to prove its lack of culpability and has failed. As one attorney put it: “Each plaintiff has only one chance to prove he’s right in order to win, but Merck has to show it’s right several thousand more times in order to walk away without being liable. The likelihood of that is zero.”

Yesterday’s double verdict (one win and one loss) illustrated the hopelessness of Merck’s position to litigate every case.

Jurors awarded $4.5 million to a 77-year-old man after finding the painkiller contributed to his heart attack.

More damaging, however, was the jury’s finding that Merck failed to provide appropriate warning of the increased cardiovascular risk posed by Vioxx. That finding demonstrates the difficulty juries are having with Merck’s “good guy” defense. In fact, in this case the jury found inadequate warnings even as to the plaintiff who lost on the heart attack issue.

Thus, fact that the same jury found that the drug did not contribute to the other plaintiff’s heart attack was of little or no significance in terms of the long-term litigation outlook for Merck.

As Sherwood Small, a fund manager with Boston Private Value, was quoted as saying after the verdicts: “There’s no way that (Merck) is going to continue to pursue this strategy of trying every case. It would be foolhardy and very expensive. This (split verdict) doesn’t put Merck in a great position.”

Since previous trials involved short-term use, Merck had been able to argue that there was no evidence of increased heart risk associated with such use of Vioxx. In this case, however, that “defense” was unavailing since long-term use was involved.

Future cases where long-term use is the issue will likely follow the same scenario since the study that led to the withdrawal of the drug from the market showed Vioxx doubled the risk of heart attack and stroke among people who used it for at least 18 months. Merck may win some of these cases where the plaintiffs had significant collateral health problems; however, it must be prepared now to lose the bulk of the “long-term use” trials.

Even if only half of the cases involve long-term use and only half of those are successful the resulting 2,500 verdicts could be in excess of $11 billion. Given the first verdict of $253 million (that will ultimately be reduced to about $25 million) and the possibility of significant punitive damage awards, the $11 billion figure is conservative.

The class-action that would include all non-governmental health plans that paid for members’ Vioxx prescriptions alleges that Merck misrepresented the safety profile of the expensive painkiller, ignoring clear and early warning signs of its risks in order to continue its sale.

The health plans contend that, had they been properly informed of the facts, they would not have included Vioxx on their lists of approved medicines or agreed to reimburse their members for its high cost.

Many experts and consumer advocates maintain that in addition to its higher risk for heart-related problems, Vioxx (and the other COX-2 inhibitors, Celebrex and Bextra) were no more effective than far less expensive painkillers already on the market.

In seeking reimbursement for medical plan payments, the plaintiffs will not have to prove Vioxx caused any specific personal injuries or deaths. All that the plans would have to prove is that Merck continued to push the sale of Vioxx after it was aware of the increased cardiovascular risks the drug posed.

In this regard, there is an enormous amount of evidence in terms of internal Merck documents, clinical tests, expert testimony, and damaging proof of altered data that would be difficult for a jury to disregard with respect to the claims involved in the class-action (as opposed to the personal injury actions where medical causation is also required).

Moreover, the damages involved in the class-action are massive. The potential $30 billion downside risk in one single verdict is a sobering reminder to Merck that a financial disaster is looming on the horizon.

The company’s case by case approach to defending the 9,000-plus personal injury suits would not be of any benefit in the class-action. The 2005 Class Action Fairness Act, which moves most interstate class-actions into federal courts, does not apply here since the Vioxx third-party-payor suit was filed in 2003. Thus, that case will remain in New Jersey state court.

The state-government actions that are similar to the class-action and seek reimbursement (and penalties) for prescription benefits paid for Vioxx through state-run Medicare programs.

Texas alone is seeking $168 million in damages and additional civil penalties. Texas Attorney General, Greg Abbott, believes the state can prove total damages in excess of $250 million including treble (triple) reimbursement of $56 million (or $168 million) for five years of filled Vioxx prescriptions.

It is estimated that 700,000 Vioxx prescriptions were filled through Medicaid during those five years in Texas alone. Abbott sees these prescriptions as part of a willful misrepresentation on Merck’s part as to the safety of the drug. To him, the entire affair represents nothing more than “a prime example of a company’s drive for profit steamrolling its duty to be safe.”

While the Vioxx personal injury and wrongful death lawsuits are far more dramatic, it may be the rather dry health-plan and Medicare reimbursement actions that bring down Merck. One attorney familiar with the litigation told us that, in a way, “the class- and Medicare-actions, if successful, would be similar to bringing down the notorious Al Capone on nothing more than the rather dull charge of income tax evasion.”

Thus, when the personal injury, death, punitive damage, class-action, and Medicare lawsuits are considered together, damages could easily exceed $50 billion and could even approach the once unimaginable estimate of some analysts of $80 billion.

Clearly, the time has come for Merck to re-evaluate its position at least with respect to a global settlement of the more viable personal injury and wrongful death cases involving long-term Vioxx users. As one attorney familiar with the litigation put it: “To keep avoiding any settlement discussions is no longer a viable option for Merck. We are not talking about aging a fine wine here. The delay could spell financial disaster for Merck no matter how big a company it is.”

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