- The Washington Times - Friday, August 19, 2005

LAKE JACKSON, Texas (AP) — If the jury decides against Merck & Co. in the first wrongful-death case related to the painkiller Vioxx, it may open the legal floodgates and drive up the company’s potential liability, already estimated at as much as $18 billion, analysts say.

But a win for Merck won’t be considered a major victory, because the case against the New Jersey pharmaceutical company widely was considered to be weak. Analysts say Merck still faces another 4,200 lawsuits, some presumably stronger than the first.

“The negative if Merck loses is more important than the positive if they win,” said Catherine Arnold, an analyst at Credit Suisse First Boston LLC. “This case was always a long shot in terms of the facts.”

Bob Ernst had been taking Vioxx for about eight months when he died of arrhythmia, or an irregular heartbeat, in 2001. His widow, Carol, is suing Merck in a trial that began last month in Angleton, Texas.

No studies have linked Vioxx to arrhythmias, which is why many thought the case could not be won. Merck removed the drug from the market last year after a study found it doubled patients’ risk of heart attacks and strokes after 18 months.

Now, some analysts think Merck may lose, because plaintiff lawyer Mark Lanier was skillful in presenting evidence suggesting that Mr. Ernst had a heart attack. Testimony from Dr. Maria Araneta, who performed Mr. Ernst’s autopsy, said the former Wal-Mart produce manager could have died of a heart attack, damaging Merck’s defense.

Evidence pointing to efforts by Merck to mute the risks associated with Vioxx is also problematic for the company. Marketing materials that taught sales representatives to dodge doctors’ questions about the drug’s cardiovascular danger and a letter from a top Stanford University doctor admonishing Merck’s former chief executive for the company’s attempts to quash Vioxx critics were among the documents that resonated with analysts.

“It certainly looks like Merck tried to minimize negative information,” said David Moskowitz, an analyst at Friedman, Billings, Ramsey Group Inc.

Mr. Moskowitz estimates Merck’s eventual liability in the face of the lawsuits to be $11 billion, an amount likely to increase if the company loses this case.

Analysts said a loss is priced into stock already, but it probably still will fall on a negative verdict — especially if damages are large. Mr. Lanier asked for at least $40 million in damages.

Jason Napodano, an analyst at Zacks Investment Research Inc., says even a small damage award will weigh on Merck stock by encouraging others to sue the company.

“It is a psychological issue. There will be panic because they [investors] know a loss means more lawsuits,” Mr. Napodano said.

Merck stock has dropped 34 percent since the weeks before it withdrew Vioxx from the market on Sept. 30. Ms. Arnold said if Merck loses several cases, it may have to set aside money to pay verdicts, potentially jeopardizing the dividend that helps prop up the stock.

In the fourth quarter of last year, Merck set aside $675 million to cover legal fees for Vioxx cases.

A Merck victory would spark a relief rally, but analysts do not expect a major surge in the company’s stock.

“A victory is a step toward vindication, but Merck won’t be out of the doghouse,” Mr. Moskowitz said.

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