Vioxx verdict could cause local tremors

Triangle Business Journal
From the September 2, 2005 print edition
Jane Paige

Merck & Co. lost the first Vioxx lawsuit to go to trial, and the implications are huge for the embattled drugmaker.

Large and small pharmaceutical companies in the Triangle also could take a financial hit because of the Merck ruling.

Potential investors in startup biotech companies are apt to become more wary after major court defeats such as Merck's, says Jim Verdonik, a Durham-based attorney with Daniels Daniels & Verdonik.

"Rulings like this in the Merck case are just one more factor to consider in an environment where investors already look at numerous risks," says Verdonik, who specializes in corporate and securities law. "This case doesn't make for the best story when startup drug companies are looking to raise money."

On Aug. 19, a Texas jury found Merck liable in the death of Robert Ernst who died in May 2001 after taking Vioxx, an arthritis painkiller made by the company.

The jury awarded Robert Ernst's widow $253.5 million. Texas' rules on punitive damages automatically lower the verdict to $26.1 million. Merck plans to appeal.

After a six-week trial, jurors said they concluded that the nation's third-largest drug maker was long aware of Vioxx's potential heart risks but hid that knowledge from patients.

The Texas case was the first Vioxx lawsuit to reach trial, but 4,000 other have already been filed and many are approaching juries. A second state trial is scheduled to begin in New Jersey this month, and the first federal suit is looming.

Over five years, about 20 million people worldwide took Vioxx before Merck stopped selling the drug in September 2004, after a clinical trial found evidence that Vioxx had heart risks compared with a placebo.

The Texas case involved a seemingly healthy produce manager who died of a heart arrhythmia after taking Vioxx for eight months.

Since Merck withdrew Vioxx, the entire class of COX-2 inhibitor painkillers has been found to pose an elevated risk of strokes and heart attacks. The drugs, which became worldwide blockbusters in the late 1990s by promising arthritis relief without the stomach problems that often come with aspirin and other painkillers, are now either off the market or sold with strong Food and Drug Administration warnings.

In the aftermath, the FDA has become more aggressive about publicly identifying emerging risks it finds in drugs and medical devices, and has sought to beef up its drug safety office.

"Rulings like this tend to have a domino effect on the entire industry," Verdonik says.

If Merck loses a few more Vioxx cases, it is likely to come under pressure from Wall Street to settle them, which could cost the company billions. Such a settlement would not necessarily threaten Merck's survival - the company brings in about $6 billion in cash annually, and payments under any settlement would likely be stretched over years, according to reports.

But analysts have said a big settlement could force Merck to cut its dividends to stockholders, which would almost certainly erode its share price. That could make Merck a takeover target.

A weakened Merck also could negatively impact local startup drug companies with investors, Verdonik says. The majority of smaller drug companies hope eventually to be purchased by one of the nation's pharmaceutical's giants, such as Merck.

Investors usually put their money into startup companies hoping the young ventures will be sold one day to a larger company, boosting the return on the investment.

Merck is building a $300 million vaccine plant north of Durham. The New Jersey-based company expects to finish construction on the 250,000-square-foot plant in 2007. Company officials say the new facility is on schedule for completion.