KEY POINTS:
NEW YORK - Merck & Co has agreed to pay US$4.85 billion ($6.35 billion) to settle most of the claims that its painkiller Vioxx caused heart attacks and strokes in thousands of users.
Fifteen New Zealanders are among the tens of thousands worldwide who have sought to sue the US drugs giant.
The agreement with plaintiffs' lawyers heading the US federal and state cases against Merck resolves a legal battle that threatened to drag on for years and had already dogged the drugmaker since Vioxx was pulled off the market three years ago.
At least 38,000 of the 60,000 Vioxx plaintiffs must sign on to the settlement for it to be viable, according to the company. But Merck officials said they believe the settlement will be attractive to many more than the minimum amount.
Regardless of how many plaintiffs enter the settlement, the total pie is fixed at US$4.85 billion.
While the drugmaker said it would still defend all claims not included in the settlement, the deal marks a shift in strategy for Merck.
It had maintained since the day of the withdrawal it would fight Vioxx litigation on a case-by-base basis rather than consider a broad settlement.
Merck withdrew the popular painkiller, which had US$2.5 billion in annual sales, in September 2004 after a study showed it doubled the risk of heart attack and stroke in patients taking it for at least 18 months.
With the settlement, it appears Merck will escape the worst-case scenario for the company and its investors: a payout approaching the $21 billion in costs drug maker Wyeth has amassed related to its diet drug recall.
"If Merck can put this to bed for anything close to (US$4.85 billion), it will be a home run," said Samuel Davis, an attorney with Davis, Saperstein & Salomon in Teaneck, New Jersey who represents about 100 clients who took Vioxx.
Davis said he had not yet decided whether to recommend the settlement to them.
Merck has won most of the Vioxx cases that have gone to trial and gained leverage in negotiating the settlement, which many have called favourable for the New Jersey-based drugmaker.
"We believe that this is the right agreement at the right time for Merck," Kenneth Frazier, Merck's president of Global Human Health and former general counsel, said in an interview.
"We believe that it provides a reasonable and responsible resolution of the litigation that provides us with a significant degree of certainly," Frazier said.
"I believe this global resolution is the best and fairest way to resolve this litigation," said Christopher Seeger, co-lead counsel for the plaintiffs in the federal litigation.
"I will confidently recommend this settlement to my clients because it eliminates the risk attendant in litigation."
The drugmaker - whose shares rose 2.1 per cent on Friday despite a falling stock market - said it would take a charge of US$4.85 billion to cover costs of the agreement.
Two of the key judges overseeing thousands of cases also expressed support for the settlement.
Mark Lanier, a plaintiff's lawyer who won the first Vioxx case to trial, told Reuters in an email: "Merck needed to do this now because next year, litigation would explode. There would likely be upwards of 50 plaintiffs tried next year."
Since the withdrawal of Vioxx, Merck has won 11 court cases concerning the drug and lost five. The company has yet to pay any of the victorious plaintiffs while the cases go through appeals.
While it is appealing those cases that it lost, analysts said, Merck solidifies its future through the settlement.
"This basically removes any future Vioxx liability and draws to a close an ugly chapter in Merck's history book," Morgan Stanley analyst Jami Rubin said in a research note.
Merck officials said contingencies were in place to prevent the strongest cases from backing out. Among them is that any law firm who has plaintiffs in the settlement must recommend the deal to all of its clients who qualify.
It can reject the enrolment of claims by any firm that does not enrol all of its heart attack or stroke claimants.
Merck had taken reserves of about $1.9 billion in Vioxx legal defence costs as of September 30, and spent US$1.2 billion of that.
Tim Anderson, an analyst with Sanford Bernstein, said Merck's total payouts may not reach his previous estimate of $10 billion.
Merck shares tumbled on news of the withdrawal of Vioxx in 2004, losing more than a third of their market value. But with Merck's victories in court, and a string of successful new medicines, the shares have recouped those losses.
The stock, even with the major litigation drag, has outperformed its peers on the American Stock Exchange pharmaceutical index .DRG this year, rising 25 per cent, compared with little change in the index.
Merck shares closed up US$1.13 at US$55.90 on the New York Stock Exchange. The stock hit its four-year high of US$58.36 earlier this month.
Earlier this year, NZPA spoke to the lawyer for the New Zealanders involved in the case, Damian Scattini, who said he was waiting to hear whether their claims could be pursued in a US court.
Merck & Co had filed a motion to try the cases in the claimants' home countries.
If this was upheld, the New Zealanders would effectively be left with no remedy for damages, as medical mistreatment falls under the aegis of the Accident Compensation Corporation.
About 40 Australians, along with from claimants from Canada, and Italy, were also waiting to find out where they could try their cases.
It is not yet clear how today's announcement of the settlement will affect the international claimants.
- REUTERS / NZPA
