Healthy Skepticism Library item: 11413

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Publication type: news

Tesoriero HW.
Vioxx Ruling Eases Threat to Merck
The Wall Street Journal 2007 Sep 7A3
http://online.wsj.com/article/SB118912340920719996.html

Full text:

New Jersey Court Bars Class-Action Status For Health Insurers’ Suits

New Jersey’s highest court removed the biggest threat Merck & Co. faced from litigation over its Vioxx painkiller by ruling that health insurers’ lawsuits against the company can’t be consolidated into a nationwide class action, which limits the scope of potential damages.

In reversing a lower-court decision, the state Supreme Court said class-action status for the plaintiffs, which consisted of all nongovernmental health plans that paid for members’ Vioxx prescriptions, would be inappropriate because “common questions of fact or law do not predominate” in the claims. The state Supreme Court is the final word on the matter.

The ruling doesn’t address the merits of the underlying suit, which sought reimbursement for as much as $9.6 billion of Vioxx purchases. But investors reacted positively, as the stock rose $1.07, or 2.2%, to $50.47 in 4 p.m. New York Stock Exchange composite trading following the decision.

Since Merck withdrew the painkiller from the market three years ago following a study that linked the drug to an increased risk of heart attacks and strokes, 28,000 suits have been filed against the Whitehouse Station, N.J., company.

All were filed by or on behalf of individuals allegedly injured by the drug. The company has said it will fight the cases one by one, and yesterday’s favorable ruling lets it keep that strategy intact. Merck has won 10 cases and lost five, but it has yet to pay out any damages pending appeals.

The withdrawal of Vioxx and the subsequent wave of suits contributed to increased regulatory scrutiny, as well as greater criticism of industry sales and marketing practices. Vioxx, which was approved to treat arthritis, was part of a class of drugs known as Cox-2 inhibitors.

Of the three drugs in the class, which include Pfizer Inc.‘s Celebrex and Bextra, only Celebrex remains on the market, and it now bears a so-called black-box warning — the strongest caution issued by the U.S. Food and Drug Administration. In April, Merck’s Vioxx successor, a Cox-2 painkiller called Arcoxia, failed to win regulatory approval for sale in the U.S.

Merck’s stock plummeted at the time Vioxx was pulled, falling to the high $20s.

The complaint at issue yesterday was filed by the International Union of Operating Engineers Local 68 Welfare Fund, which supplies union members with health-care benefits. The fund was supported by more than a dozen entities that offer health-care benefits, including AARP and the American Federation of State, County and Municipal Employees. The union’s case, which can still proceed to trial in state court, is brought under New Jersey’s consumer-fraud act, which makes losing parties subject to treble damages.

Merck outside defense counsel John Beisner, of O’Melveny and Myers, said the company is “quite pleased” with the ruling. “I think it’s a quite a significant victory.”

Attorney Chris Seeger, who represents the union fund, said, “Merck may not have to face all these damages in one class case, but we’re not going away.”

The ruling drew mixed reactions from drug industry analysts. In a note to investors, Jami Rubin of Morgan Stanley called the decision “an enormous victory for Merck, as we have always maintained that the consumer fraud class-action suits (rather than individual cases) represent the biggest risk to Vioxx liability, and one that the Street has been less focused on.”

C. Anthony Butler of Lehman Bros. wrote, “This is a positive for Merck, but we believe the outcome should not be thought of as a proxy as to whether or not Merck should, would, might alter litigation reserves.”

To date, Merck has spent $1.04 billion on Vioxx legal fees and has set aside $810 million in reserves to pay additional costs.

Write to Heather Won Tesoriero at heather.tesoriero@wsj.com