Merck
Legal Team Makes A Killing
Off Losing Vioxx Strategy
By Evelyn Pringle
08 July, 2006
Countercurrents.org
Not
much has changed at Merck since Vioxx was pulled off the market. The
only difference for shareholders is that instead of spending hundreds
of millions of dollars a year to promote Vioxx, the attorney's fees
are now costing hundreds of millions of dollars a year.
As of December 31, 2004,
Merck had established a reserve of $675 million solely for legal defense
costs related to Vioxx, according to the company's 2005 annual report.
During 2005, the report said,
Merck spent "$285 million in the aggregate in legal defense costs
worldwide" related to Vioxx.
In the fourth quarter of
2005, Merck recorded a charge of $295 million to increase the reserve
solely for its future legal defense costs related to Vioxx, the report
said, to $685 million as of December 31, 2005.
'This reserve is based on
certain assumptions," Merck told shareholders, "and is the
best estimate of the amount that the Company believes, at this time,
it can reasonably estimate will be spent through 2007."
That said, the company has
not set aside one dime for potential damage awards in Vioxx trials through
2007. Which means the only good news to report as far as Merck's legal
strategy of a case by case defense of thousands of lawsuits in the years
ahead, is that the company's legal team will keep raking in dough while
Merck slowly goes under.
We now know that tens of
thousands of people died, and many more were injured, because Merck
concealed the information about the adverse effects of Vioxx. But to
date, Merck has not paid one red cent in damages. And the appeals process
initiated by Merck attorneys, guarantees that that money awarded to
any plaintiff so far will be years away. And even then, experts say,
the close to $300 million in damages awarded will be reduced to $48
million by caps on punitive damages.
In addition to the thousands
of personal injury and wrongful death claims, Merck also faces class
actions, filed on behalf of prescription drug plans and insurance carriers
seeking treble damages, that experts say could expose Merck to multi-billion
dollar verdicts.
The plaintiffs in the class
actions allege that Merck misrepresented the safety profile of Vioxx,
ignoring clear and early warning signs of its risks in order to continue
its sale, and that had they known the truth, they would not have included
Vioxx as an approved drug or agreed to reimburse plan members for its
high cost. They also contend that Vioxx was no more effective than over-the-counter
painkillers already on the market.
In seeking reimbursement,
these plaintiffs will not have to prove that Vioxx caused any injuries
or deaths. All they will have to show is that Merck continued to push
Vioxx after it knew about the drug's increased risks.
And on top of the class action
monsters, there is the pesky little matter of lawsuits filed on behalf
of the individual states that also have the potential to expose Merck
to billion dollar damage awards. The state actions are similar to the
class actions and seek repayment for money paid for Vioxx by state run
health care programs like Medicaid.
The damages sought are huge.
For instance, Texas Attorney General, Gregg Abbott, is seeking $168
million and says he can prove total damages in excess of $250 million
over five years in payments for Vioxx.
According to Merck's 2005
annual report, "The Company has received a Civil Investigative
Demand from a group of the Attorneys General of 31 states and the District
of Columbia who are investigating whether the Company violated state
consumer protection laws when marketing VIOXX. The Company is cooperating
with the Attorneys General in responding to the Civil Investigative
Demand."
The state of New York's Controller,
Alan Hevesi, claims his state's retirement fund lost $171 million when
Merck's stock value dropped and that teachers, policemen, and firefighters
have lost $287 million all total from their retirement funds.
The NY suit alleges that
Merck violated federal securities laws by failing to disclose information
about the safety risks of Vioxx. "The New York State Common Retirement
Fund is exactly the kind of sophisticated and knowledgeable financial
institution that the Congress, in the 1995 Private Securities Litigation
Reform Act, intended to lead such class action suits," Mr Hevesi
said in a press release.
The NYSCRF is reportedly
the second largest public pension fund in the US, in terms of membership
and assets, with more than 970,000 retirees, beneficiaries and members
and over $120 billion in assets.
"Merck must be held
legally responsible for its actions," Mr Hevesi noted in his press
release. "These actions have put lives at risk and cost shareholders
billions of dollars."
Experts say that for Merck’s
“no pay” strategy to work, the company would have to win
virtually every one of the of individual lawsuits and then hope that
such success would help defeat the claims by state health care programs,
and the insurance and healthcare plans. Which they say is absolutely
impossible because Merck has already admitted that consumers who used
Vioxx over 18 months were exposed to an increased risk.
Billion dollar awards could
easily drain Merck’s insurance coverage and punitive damages based
on evidence that shows the company withheld, manipulated, and misrepresented
the results of clinical studies, and therefore willfully marketed Vioxx,
are not covered by insurance and must be paid by Merck directly.
According to attorney, Barry
Turner, "Merck may be holding its own at the moment but the fact
is that the lying and deceit cannot continue indefinitely without some
major blow to stockholder funds."
"I do think that Merck
will get burned over this one," he says, "if their lawyers
are dumb enough to fight each personal injury case."
Even though insurance does
not cover punitive damages, Mr Turner says, "personal injury litigation
costs are factored into so called R&D and marketing costs and the
end user price covers all of this money."
"But the securities
actions are different," he says. "Anyone who thinks this strategy
is going to help the stockholders is crazy," he warns.
He predicts that Merck will
soon start trying to settle PI cases with confidentiality clauses. "This
would mean less payouts," he says, "and less knock on effect
as other plaintiffs and their lawyers stand by to watch the action before
running their own cases."
The fact is, that in every
new trial, the lawyers for the plaintiffs introduce more embarrassing
evidence. For instance, in a California trial that began last week,
a former Merck employee, testified that the company did not inform federal
authorities about two clinical trials in which users of Vioxx were found
to be more likely to die than people given a placebo.
Dr Edward Scolnick, the former
head of Merck's research laboratories, said in a videotaped deposition
played for the jury, that he did not believe the numbers were coincidental.
“It's not likely due to chance,” he said.
Dr Scolnick testified that
people on Vioxx died at a rate 4 times higher than those who didn't
receive the drug in one trial, and the rate was 2½ times higher
in the other. Both studies were done in 2001 to see if Vioxx could help
Alzheimer patients.
He said Merck did not turn
over results to the FDA when company officials met with an FDA representatives
in April of that year and that he was not aware of the trial results
at the time.
The juries have also viewed
internal documents that show Merck training its sales reps to avoid
answering tough questions from doctor's about the adverse effects of
Vioxx on the heart. In one training manual, each of the last four pages
of potential questions that doctors might ask, the manual said "DODGE!"
to avoid answering.
In the first trial in Texas,
the plaintiff's attorney, Mark Lanier, presented documents showing that
Vioxx sales reps at one time received a $ 2,000 bonus if one of the
doctors they met with prescribed Vioxx more than 55% of the time, and
that the rep was paid another $2,000 if the rate exceeded 61%.
Mr Lanier also showed the
jurors a Merck SEC filing that said Merck's CEO Gilmartin was making
about $3 million in salary and bonuses in 2000, when the company received
the results of the clinical study in which Vioxx users suffered 5 times
as many heart attacks as those taking naproxen.
In March 2006, Merck lost
a major legal battle that had the company's attorneys kicking and screaming,
when US District Judge Eldon Fallon ordered FDA scientist, Dr David
Graham to testify in a deposition in response to a subpoena from attorneys
for Vioxx plaintiffs.
A major part of Merck's legal
strategy has been to continuously point out that Vioxx had been approved
by the FDA. Experts say, Dr Graham's testimony will throw a monkey-wrench
into that strategy because it will reveal the long-fought battles over
the deliberate concealment of the safety risks of Vioxx within the FDA
itself.
Judge Fallon said the deposition
would be limited to material relevant to the up-coming federal trial
in July 2006, and Dr Graham's previous public statements. In the deposition,
Dr Graham alleged that Merck dragged its feet about changing the label
on Vioxx to warn of the increased risk of heart attacks.
So now in their latest run-up-the-costs
tactic, Merck attorneys have filed a motion to limit the use of Dr Graham's
deposition claiming it goes beyond anything Dr Graham previously said
and therefore portions of it should not be heard by a jury.
Merck's memorandum filed
with the motion, asks the court to exclude the following: "The
two-year period for coming up with the revised label for a problem as
serious as high risk of heart attacks with Vioxx, this is an extraordinary
long period of time, and the only explanation based on my long experience
at FDA is that there was foot dragging by the company."
But this statement is not
new. Dr Graham publicly discussed the failure by Merck and the FDA to
warn the public and add a new label to Vioxx while testifying at a congressional
hearing a couple years ago on November 18, 2004.
In regard to the death and
injuries caused by those failures, he in fact said: "I strongly
believe that this should have been, and largely could have been, avoided."
Maybe Merck would rather
have the jury listen to how Dr Graham put the number of people injured
by Vioxx into perspective, when he told members of the Senate committee
that instead of side-effects from Vioxx, to picture the number of people
as if it were airline crashes.
"If there were an average
of 150 to 200 people on an aircraft," he told the panel, "this
range of 88,000 to 138,000 would be the rough equivalent of 500 to 900
aircraft dropping from the sky."
"This translates to
2-4 aircraft every week," he noted, "week in and week out,
for the past 5 years."
Merck also does not want
the jury to hear Dr Graham say that Vioxx should not have been approved
to begin with and that after learning the results of the VIGOR study
in 2000, that Merck should have done a large study to determine whether
Vioxx damaged the heart or blood vessels; and that an FDA official had
recommended "at least" a warning label for the drug.
There is nothing new about
these allegations either. Dr Graham made basically the same charges
when he told the committee that the FDA "views the pharmaceutical
industry it is supposed to regulate as its client, over-values the benefits
of the drugs it approves and seriously under-values, disregards and
disrespects drug safety."
Dr Graham also pointed out
that even when the FDA did try to take measures to limit harm, the agency
lacked the enforcement authority to make companies comply. In the case
of Vioxx, he said it took more than 2 years to get Merck to add the
increased risk of heart attack and stroke to its label.
In their memorandum, Merck
attorneys complained because: "Much of Dr. Graham's testimony is
an elaboration of why and how he believes the FDA is `broken,'"
"However," they
wrote, "Congress (not the jury) is the only body that can address
Dr. Graham's concerns."
Well then perhaps Merck should
call members of congress to testify at future Vioxx trials to explain
how Merck got top FDA officials to protect Vioxx profits by concealing
the health risks associated with Vioxx that were revealed in damaging
studies as far back as 2000.
In a statement following
the verdict in first trial, Senator Grassley was quick to point out
the FDA's involvement in the Vioxx disaster. "Those running the
nation's public safety agency repeatedly dismissed the concerns of their
own scientists and seemed to do everything possible to keep the public
in the dark about emerging problems with Vioxx," he said.
"The Food and Drug Administration
was also negligent in the Vioxx case," Senator Grassley declared.
A hearing on Merck's motion
is scheduled for July 5, 2006, to decide what parts of Dr Graham's deposition
will be allowed in during the trial of a suit brought by retired FBI
agent, Gerald Barnett, who had a heart attack in September 2002.
Sooner rather than later,
the steady stream of multi-million dollar judgments is bound to enrage
Merck shareholders who have already suffered massive losses in their
investments since October of 2004.
When Vioxx was pulled off
the market in September 2004, the drug's $2.5 billion in annual sales
equaled 11% of Merck's revenues. When news of the recall broke, Merck
shares plunged $12 to $33, wiping out $28 billion of stock value in
one day for investors, pension funds and mutual funds.
Stock value dropped another
$2.35 per share, or 7.7%, following the first jury's verdict for the
plaintiff in Texas on August 19, 2005.
Up until then, analysts had
estimated Vioxx liability to be as high as $18 billion. But by the following
Monday morning after the verdict, analyst, David Moskowitz, from Friedman,
Billings, Ramsey & Co, told CNBC that he had raised his forecast
for Merck's total tab from $11 billion to $50 billion.
Critics says, Merck is misleading
investors by not making any provision whatsoever for the Vioxx liabilities
in financial statements. In its annual report, regarding Vioxx litigation
for 2006, Merck said:
"The Company has not
established any reserves for any potential liability relating to the
VIOXX Litigation. Unfavorable outcomes in the VIOXX Lawsuits or resulting
from the VIOXX Investigations could have a material adverse effect on
the Company's financial position, liquidity and results of operations."
Overall, there appears to
be no good news out there for Merck shareholders. According to the January
27, 2006, Business Week Online, research from Morgan Stanley and Danish
investment bank, Jyske Bank, estimates that patent expirations this
year will equal 25% of Merck's 2005 sales as major medicines face generic
competition.
And in the meantime, more
and more angry consumers are saying civil damage awards are not a enough
punishment for Merck and that top management people who allowed the
Vioxx disaster to happen should be in jail.
Although unbeknownst to most
people, criminal charges are being considered that could lead some of
the culprits in that direction.
In New Jersey, the $9 million
punitive damage award against Merck in April 2006, resulted in the case
being referred to the state's Attorney General. Under the New Jersey
Punitive Damage Act, any time there is a punitive damage award there
must be an investigation "as to whether a criminal act has been
committed by the defendant."
By now, there's certainly
plenty of evidence in the public domain to prove that criminal acts
were committed. For starters, the Attorney General can review the victims
revealed in a 2004 study, lead by FDA scientist, Dr Graham, that says
Vioxx caused as many as 140,000 heart attacks and strokes and killed
as many as 55,000 people.
Injured parties can find
more information at Lawyers and Settlements.com
http://www.lawyersandsettlements.com/articles/merck_legal.html
(Evelyn Pringle is a columnist for OpEd News and an investigative journalist
focused on exposing corruption in government and corporate America [email protected])