The Wall Street Journal

November 4, 2005

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RECENT NEWS
 
 Merck's Lawyer Goes on Offensive During Closing17
11/01/05
 
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10/26/05
 
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Merck's Victory
In Vioxx Lawsuit
Lifts Its Prospects

Jury Verdict Offers Template
For Rebutting Fraud Charges
As Wave of Litigation Looms
By HEATHER WON TESORIERO and PAUL DAVIES in Atlantic City, N.J., AND BARBARA MARTINEZ in New York
Staff Reporters of THE WALL STREET JOURNAL
November 4, 2005; Page A1

Merck & Co.'s victory in a high-stakes trial yesterday shows that the drug giant's aggressive legal defense can win over jurors -- improving its odds of overcoming a wave of litigation involving its Vioxx painkiller.

After a little more than a day of deliberations, a state-court jury in Atlantic City, N.J., found Merck wasn't liable for injuries to an Idaho man taking Vioxx who had a heart attack. The win follows a multimillion-dollar loss earlier this year in Texas, in the first trial involving the drug that Merck pulled from the market a year ago. It could strengthen the company's bargaining position in any potential settlement talks involving thousands of other plaintiffs.

[Merck]

Merck's win indicates that the company and its lawyers can effectively explain mounds of internal emails and other evidence which indicate that executives discussed worries that Vioxx could raise the risk of heart attacks long before the company pulled the drug from the market.

The glow of victory will fade quickly if Merck doesn't continue to win in the courtroom. But the trial that ended yesterday gives Merck a valuable template it can apply to future cases, including 2,750 more suits filed in state court in New Jersey, where the company is based.

Company documents presented by the plaintiff's attorneys "gave you pause at first," said Nellie Stetzer, a juror who is a retired real-estate saleswoman. But, she said, "they were taken out of context." After hearing defense explanations, she said, "on the whole we felt that Merck was not trying to be deceitful."

[Vioxx] MORE ON VIOXX
 
WALL STREET JOURNAL VIDEO
 
[cnbc]  Merck General Counsel Ken Frazier8 comments on Merck's defense and the strategy for future cases. Plus, Merck spokesman Jim Fitzpatrick9 says the jury's verdict confirms that Merck behaved responsibly.
 
 Plaintiff Frederick Humeston10 comments on the verdict, calling Vioxx a "poison pill." His attorney, Christopher Seeger11, says, "We'll look for another trial immediately." And Vioxx plaintiff attorney Mark Lanier12 and the attorney for the next Vioxx trial discuss why Merck won.
 
 WSJ's Barbara Martinez13 discusses whether the Vioxx verdict means Merck is safe from future lawsuits.
 

In a conference call with reporters, Merck's general counsel, Kenneth Frazier, said the verdict "indicates that we can defend these cases, and we do not intend to roll over in these cases when people bring insubstantial claims into court to collect money from Merck."

The plaintiff's attorney, Christopher Seeger, said he "didn't understand the verdict." He said the fact that his client, Frederick "Mike" Humeston, survived the heart attack that he had blamed on Vioxx may have played a role in the jury's decision. But he added, "I hate to think people who have heart attacks are not going to get justice." Mr. Seeger said Merck didn't win on science. "They won by attacking the victim."

Merck faces more than 6,400 lawsuits involving Vioxx and could be hit with tens of thousands more. Worst-case estimates for its liability range as high as $50 billion. But now Merck has at least some momentum for its defense in the next case, which is set to start later this month.

Merck has said that it will fight each case separately in court, but an eventual settlement is considered possible. Nearly all of the cases against the company have been consolidated either in New Jersey state court or in a federal court now sitting in Houston. The judges hearing the cases have both said that they hope the litigation can be resolved without having to try each case -- an indication that they would like the two sides to reach a settlement deal.

Experts said it is difficult to generalize about Merck's odds in any given case. The case yesterday, brought by Mr. Humeston, a post-office employee, was not seen as especially strong by outside legal observers. Mr. Humeston had taken Vioxx for only a short time before his heart attack.

Merck lawyers also contended Mr. Humeston had a host of cardiovascular risk factors, including his weight, high blood pressure and job stress. Judy Lamando, 41, a juror who is an accountant, said she believed stress played a big role in Mr. Humeston's heart attack. "To say stress wasn't an issue is wrong," she said.

Some observers have started to wonder why plaintiffs aren't trying stronger cases first. Legal observers say the ideal case against Merck likely would involve a healthy person with otherwise low cardiovascular risks who suffered a heart attack and died after taking Vioxx for a substantial period.

In Texas, plaintiff's attorney Mark Lanier successfully persuaded a jury that a triathlete whose death certificate said he died from arrhythmia actually died from a heart attack. The jury awarded $253 million to the triathlete's widow, but state law will reduce that judgment to about $26 million. Merck says it will appeal the verdict.

The next case to go to trial this month involves a patient who took Vioxx for just 24 days and who Merck says had many other risk factors.

In the New Jersey case decided yesterday, the jury didn't even vote on whether Vioxx was a cause of Mr. Humeston's heart attack, since it decided first that Merck had acted responsibly in selling Vioxx. The jury of three men and six women, which heard eight weeks of testimony, had to consider two charges: failure to warn and consumer fraud.

In deciding against Mr. Humeston on the first question, the jury voted 8-1 that Merck either did not know that Vioxx carried cardiovascular risks at the time that it was prescribed for Mr. Humeston in 2001, or that the company adequately warned physicians about those risks.

In considering the claim of consumer fraud, the jury examined whether the company had misrepresented Vioxx's risks or otherwise used "unconscionable practices" in marketing the drug to physicians. It decided Merck had not done so.

Mr. Seeger, the plaintiff's attorney, used a series of company emails, many of which appeared in the Texas trial and are likely to become a refrain in future cases, in an effort to show that Merck executives knew as far back as 1996 that Vioxx could cause heart problems.

THE COUNTS
 
Jury verdicts on the specific counts in Frederick Humeston et al v. Merck & Co. Inc.
Counts regarding failure to warn of Vioxx risks:
1. Did Merck fail to adequately warn physicians of the link between Vioxx and higher risks of heart attack and stroke, which it knew or should have known about before Frederick "Mike" Humeston's heart attack?
Jury: NO by an 8-1 vote.
Counts regarding failure to warn of Vioxx risks:
1. Did Merck commit consumer fraud "by using unconscionable commercial practices" when marketing Vioxx to physicians?
Jury: NO by a 9-0 vote.
2. Did Merck "make misrepresentations that had the capacity to mislead concerning the cardiovascular risk of Vioxx" while marketing Vioxx to physicians?
Jury: NO by a 9-0 vote.
3. Did Merck "intentionally suppress, conceal or omit material information about an association between Vioxx" and increased risk of heart attack and stroke?
Jury: NO by a 9-0 vote.

He also presented documents in which Merck executives calculated the financial damage the company would suffer from lower Vioxx sales if it strengthened the warning label. In one email highlighted by Mr. Seeger, Merck's former research head, Edward M. Scolnick, referred to people working at the Food and Drug Administration as "bastards." In another, he wrote that Vioxx's success was necessary "to preserve Merck."

Juror Marie Kerr, a 51-year-old administrative assistant, said she and other jurors read through the emails while deliberating and felt many of the inflammatory lines were taken out of context.

"We read the emails completely, and not just the part that said 'bastards,' " she said. Ms. Kerr also said she wasn't moved by a Merck document titled "Dodgeball" that Mr. Seeger portrayed as a way to teach sales representatives how to avoid questions about heart attacks. "We've all seen games like dodgeball at our work," she said.

Overall, Merck succeeded in persuading jurors that concerns voiced by Dr. Scolnick and other executives were a normal part of the scientific process of discovery and of safety investigations. Vickie Heintz, a 40-year-old juror, said she felt Mr. Seeger "cherry picked" a few select emails and tried to impugn the company with them.

Ms. Heintz said she wasn't bothered by Merck's aggressive marketing of Vioxx or documents that showed the company calculating the loss in profits if the warning label was changed to reflect increased risk of heart attack. "Medicine is business," she said. "If I had a business I would calculate what the loss of one of my big products would mean...This is about making money. Merck doesn't do this because they are flower people."

Another juror, Patricia Harley, 44, said: "If someone peeked through all my emails, forget about it."

Amid the litigation challenges, Merck is struggling to overcome fundamental challenges in its business. It faces a greater loss of revenue to competition from generic drugs than any of its major competitors over the next three years, according to Bank of America Securities analyst Chris Schott.

Its best-selling product, cholesterol medicine Zocor, loses patent protection in the U.S. next year. In addition, the company's second-most important product, osteoporosis drug Fosamax, will lose patent protection in 2008 -- much sooner than Merck or investors had expected.

Merck has made little headway in developing new drugs to replace its blockbusters that are losing patent protection. The company has some vaccines that are expected to be on the market in the next year, but nothing considered likely to come close to making up for the loss of Zocor, Vioxx and Fosamax.

Just last month, Merck was handed another setback when the FDA withheld approval of what was thought to be a promising, blockbuster-potential oral diabetes drug that would have been marketed by Merck and Bristol-Myers Squibb Co. The drug may now never come to market.

To bolster its pipeline, Merck has redoubled its efforts to license other companies' products, particularly those of biotechnology companies, in the areas of cancer and obesity. But signing up products in an early state of development offers no guarantee of improved sales. Mr. Schott of Bank of America forecasts 1% sales growth for the company through 2010.

Investors have lost confidence in what was once an admired drug company. Since 2000, when signs emerged that Merck's pipeline was getting thin, the company's share price has fallen by half. Any acquisition or large-scale deal that might lift the stock is practically impossible -- considering the large unknown in Merck's Vioxx liability.

In recent weeks, Merck Chief Executive Officer Richard Clark has been sending signals to investors that Merck needs to change to improve its performance, and has given some hints that the company will likely be making large-scale cutbacks and may be interested in acquiring medical-device technologies.

Merck is working on a plan to cut jobs and close plants, said a person with knowledge of the situation. But details are still being worked out and an announcement isn't expected until December, this person said.

On the litigation front, Merck's next battle is set to begin on Nov. 29 in a federal court that has been relocated to Houston from flood-damaged New Orleans. Federal courts are generally viewed as more favorable to corporate defendants, in part because the bar for plaintiffs to enter certain evidence is much higher than in state courts.

In addition, some of the details of the next case make it appear weak in the eyes of some experts. Evelyn Irvin Plunkett is suing Merck after her husband, Richard Irvin, 53, died of a heart attack less than a month after beginning to take Vioxx. Mr. Irvin, who, according to court papers filed by Merck, rarely went to the doctor, died at his job as an emergency medical technician in May 2001. Andy Birchfield, the plaintiff's attorney on the case, disputes Merck's characterization.

According to court filings by Merck, Mr. Irvin had high blood pressure and high cholesterol, and his autopsy showed that he had "advanced heart disease." Merck is seeking to exclude the testimony and evidence from eight of the plaintiff's expert witnesses, including physicians who have testified in the first two Vioxx trials on behalf of plaintiffs. In addition, Merck's marketing documents may be excluded as evidence because Mr. Irvin didn't get his prescription for Vioxx from a physician who had been targeted by Merck salespeople but from his son-in-law, an emergency-room physician not likely to have been pursued by Vioxx sales representatives.

Judge Carol Higbee, who presided over the New Jersey trial, is set to hear the case of another representative plaintiff, who hasn't been selected yet, on Jan. 7. A plaintiffs' steering committee and Merck each provide a list of five cases they would like to try next. Each side can strike three of the cases selected by the other side. At some point after all the depositions are taken and evidence is gathered, Judge Higbee said she may send some of the state cases to other judges in New Jersey.

-- Joann S. Lublin contributed to this article.

Write to Heather Won Tesoriero at heather.tesoriero@wsj.com14, Paul Davies at paul.davies@wsj.com15 and Barbara Martinez at Barbara.Martinez@wsj.com16

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