Analysts See Merck Victory in Vioxx Settlement

Analysts See Merck Victory in Vioxx Settlement By ALEX BERENSON New York Times Published: November 10, 2007 Settlement • For the drug maker Merck to pay almost $5 billion to settle lawsuits from people who contended that the painkiller Vioxx caused their heart attacks and strokes may not seem like a corporate victory. • But it is, according to lawyers and drug industry analysts who have followed the Vioxx litigation since Merck stopped selling the drug in September 2004, after a clinical trial showed it raised the risk of strokes and heart attacks. • At a fraction of the price that analysts initially estimated it would pay, Merck, one of the largest American drug makers, hopes to put one of the most troubling episodes in its history behind it. • The settlement amount it announced yesterday, $4.85 billion, represents only about nine months of profit for Merck, whose stock rose 2.3 percent on news of the agreement, even as the broader stock market was sharply lower. Two years ago, some analysts estimated that Merck would have to pay as much as $25 billion to settle Vioxx claims. Strategy • The success of Merck ’s strategy — fighting every claim against it in court for several years and only then agreeing to a blanket settlement — could encourage other pharmaceutical companies to take the same route in other lawsuits, independent legal experts say. Merck has won most of the cases to reach juries, as plaintiffs’ lawyers have struggled to convince jurors that Vioxx caused the heart problems their clients suffered. • Clinical trials prove that Vioxx raises the risk of heart attacks, but linking its use to any one person’s problems is difficult, especially when the person had other risk factors like smoking. • More broadly, the case shows that after years of aggressively lobbying against trial lawyers, corporate America has regained substantial leverage against plaintiffs and their lawyers — whose lawsuits bankrupted Dow Corning and the asbestos industry in the 1990s. In many states, changes governing lawsuits have made claims tougher to bring and win, while much public opinion has turned against plaintiffs. Bad news for plaintiffs? • Of course, what is good news for Merck may be less so for the patients who suffered heart attacks or strokes after taking Vioxx. Depending on how many claims are filed to the settlement fund, those people will receive payments averaging about $120,000 each before legal fees and expenses, which could swallow about 40 percent of their payments. • Plaintiffs are not required to accept the settlement. But under terms of the agreement their lawyers must encourage them to do so — and would not be allowed to represent those clients if they insisted on bringing their cases to court. • Besides Merck, the biggest winner in the case may be the plaintiffs’ lawyers. They will split nearly $2 billion in fees and expenses, although that figure is far lower than they initially hoped. To receive settlements … • To receive settlements, plaintiffs will not be required to prove that Vioxx caused their heart attacks or strokes. But they, or their families, will have to provide evidence that they did suffer a heart attack or stroke, that the heart attack or stroke occurred less than 14 days after they last took Vioxx, and that they had taken Vioxx for at least 30 days. People who took Vioxx for longer, who had fewer other risk factors, and who suffered more severe problems will receive larger payments than people who meet only the minimum criteria. • Mr. Schuck, the Yale Law School professor, said Merck appeared to have used its victories in court to drive a hard and successful bargain with plaintiffs. • “It played hardball, and the nature of the settlement that was reached reflects that,” he said. “The predicted liabilities for them were much, much higher.” Suits and contingency fees • Some cases are handled on a contingency basis, like medical malpractice. • Attorney collects a fee, typically 1/3 • IF they win. • What are marginal benefits, marginal costs? Marginal Benefits Dollars 2/3 Marginal Benefits 1/3 Marginal Benefits Marginal Costs Attorney hours Another example: contingency fees • What is the consumer’s optimum? Marginal Benefits Dollars • Point B. Why? 2/3 Marginal Benefits 1/3 Marginal Benefits • What is the attorney’s optimum? • Point A. Why? A Attorney hours Marginal Costs B