- The Washington Times - Monday, August 22, 2005

Merck & Co. Inc.’s stock continued to fall yesterday in the wake of the pharmaceutical giant’s loss of its first Vioxx lawsuit.

The Whitehouse Station, N.J., company, which faces about 4,200 lawsuits over the arthritis painkiller, on Friday was found liable for the 2001 death of a Texas man who took the drug for eight months.

Merck was ordered to pay his widow more than $253 million in punitive and other damages. The company plans to appeal. If the verdict is upheld, Texas law limits punitive damages to $2 million.

“We believe we have meritorious defenses and we intend to vigorously defend individual Vioxx cases one by one,” the company said yesterday.

Merck’s stock yesterday closed on the New York Stock Exchange at $27.89. Shares have dropped 8 percent, or $2.52, from Thursday’s price of $30.41.

Even if the punitive damages are reduced, corporate defense attorney David Stahl called the first Vioxx suit a “bad warning signal for the rest of these cases.”

Merck’s knowledge of Vioxx’s risks and disclosure of them will continue to be a major theme in upcoming cases, said Mr. Stahl of the Chicago law firm Eimer, Stahl, Klevorn & Solberg LLP.

The lawsuits said Merck, which pulled Vioxx from the market Sept. 30 after it was linked with increased heart problems, knew of the blockbuster drug’s health risks but hid the information from the public.

The outcome of the cases could affect the Food and Drug Administration’s (FDA) approval process for new drugs, Mr. Stahl said.

Analysts said it’s difficult to calculate how much the lawsuits will end up costing Merck, with one estimating that the liability could reach as much as $10 billion.

Tim Anderson, an analyst with Prudential Equity Group LLC, warned investors to be prepared for a multiyear legal battle.

“The fact that Merck lost, and that the award was sizable, will likely energize the plaintiff’s bar and will increase the frequency at which the company gets sued,” Mr. Anderson said.

Mr. Anderson, who rated Merck as “neutral,” does not own any Merck stock, but Prudential has done business with the company.

But analyst Michael Krensavage said investors overreacted to the jury’s award.

“Friday’s ruling is another indication of corporations’ vulnerability to staggering jury awards. The appellate courts, however, tend to bring sobriety to the judicial process,” said Mr. Krensavage, with St. Petersburg, Fla., investment firm Raymond James & Associates Inc.

Mr. Krensavage, who rated Merck as a “strong buy,” does not own any company stock. Raymond James has no business with Merck.

Merck, with $13 billion in cash, is expected to have enough money to operate during the Vioxx suits. The company reported higher sales for drugs such as Singulair and Fosamax in its most recent quarter.

Merck has four vaccines in late development, three of which are already under review by the FDA.

Pharmaceutical analyst Scott Henry said Merck ultimately will have to settle some of the Vioxx cases.

Mr. Henry, with New York investment bank Oppenheimer & Co. Inc., rated Merck as “neutral.” He does not own any company stock, and Oppenheimer has no banking relationship with Merck.

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