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Verdict signals more woe for Merck

Lawyers in the UK are limbering up to file cases against Merck after the company lost its first case in the US

Merck is bracing itself for a swathe of lawsuits after losing the landmark first Vioxx case when the 12-member jury in a Texas State court found the COX-2 painkiller was a cause of death of Robert Ernst, 59 and ordered Merck should pay damages of $253m.

With lawyers in the US and the UK shaping up to take on Merck in roughly 4,200 lawsuits, attention is focusing on what Merck's legal costs for Vioxx will eventually be and whether it needs to rethink its defence strategy as well as the broader implications for the industry.

Vioxx was withdrawn last year after it was found to increase the risk of heart attacks and strokes in users who had taken it for more than 18 months. Merck has since faced allegations that it knew about the risk but suppressed negative data about the pill.

Mr Ernst died in his sleep in 2001, after taking Vioxx for eight months. Merck had maintained Vioxx could not have caused Mr Ernst's arrhythmia, which, combined with clotted arteries, caused his heart to stop.

With a verdict of 10-2, the jury awarded Mr Ernst's widow, Carol nearly $24.45m in actual damages and $229m in punitive damages.

Merck has vowed to appeal the decision and continue to `vigorously defend' all upcoming cases.

ìThere is no reliable scientific evidence that shows Vioxx causes cardiac arrhythmias, which the autopsy showed was the cause of Mr Ernst's death,î said Jonathan Skidmore, a lawyer on Merck's defence team. ìThis case did not call for punitive damages. Merck acted responsibly, from researching Vioxx prior to approval in clinical trials involving 10,000 [people], to monitoring the medicine while it was on the market, to voluntarily withdrawing the medicine when it did.î

Mark Lanier, attorney for Ms Ernst, said the verdict ìsends the message that drug companies must tell us the good, the bad and the uglyî. ìWe are going to find Merck in another venue and we are going to pound them again there,î he added.

Analysts could only provide a wide range of potential liability for Merck. Credit Suisse First Boston analyst Catherine Arnold doubled her liability estimate to $10bn, based on an assumption that 48,000 US patients will sue and may win payments averaging $200,000 each.

David Moskowitz, analyst at Friedman Billings Ramsay, raised his own estimates for the eventual bill from $11bn to $50bn, saying that the speed with which the jury came to a decision would encourage lawyers to file more claims.

However, some analysts on Wall Street said Merck was still well-positioned to deliver investors a dividend for years to come, despite the setback.

ìThey could pay out $1bn a year [in liabilities] for the next 10 years and still pay a dividend,î said Barbara Ryan at Deutsche Bank, adding that such a process would be like ìChinese water tortureî for investors.

With several of the jury commenting that they simply could not understand many of Merck's scientific arguments during the trial, attorney Peter Bicks said that the company needed to simplify the complex medical issues in future cases.

ìTop executives like Raymond Gilmartin [Merck CEO] should testify in person,î he added. ìJurors need to know that the company cares.î

Merck's defeat could pave the way for thousands of UK citizens to take action against the company. Almost 500,0000 Britons took Vioxx before it was withdrawn from the market in September 2004.

MSB Solicitors in Liverpool said it was working with around 150 British plaintiffs intent on suing Merck in its home state of New Jersey, after news of the Texas verdict.

Partner at MSB, Gerard Dervan said it made sense for UK plaintiffs to fight Merck in the US courts, since the British government had so far decided not to provide legal aid.

ìThe American judicial system is more suited to large legal claims against pharmaceutical companies than the UK,î he said.

30th September 2008

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