Vioxx litigation draining Merck

Vioxx is hardly the only reason Merck's stock has tumbled 63 percent from nearly $95 in November 2000.
Earnings have slipped in recent years as competition from generic products has cut into revenues. The company has also struggled to produce a new blockbuster drug the likes of Vioxx or the $4 billion a year cholesterol fighter Zocor.
But as jury selection begins Monday in state Superior Court in Atlantic City in the next Vioxx trial, analysts believe the ongoing litigation will likely serve as a drag on the stock price even as the Whitehouse Station-based drug maker appears to be regaining its footing.
Typical of many analysts' comments are those of John Boris of Bear Stearns, who wrote in a recent note to investors: "We see only limited upside to the stock, since earnings growth is not expected to resume for Merck until 2009 and the litigation news flow on Vioxx in the near term will be a major overhang."
Merck is facing more than 9,600 Vioxx lawsuits.
Nevertheless, CEO Richard Clark said last month that savings have already begun to accrue from a restructuring plan designed to shave $4 billion in expenses through 2010. Moreover, Clark said earnings growth should begin to pick up steam again as early as 2007 as revenue from new products starts rolling in.
Already in 2006, Merck has received approval for RotaTeq, a vaccine for preventing a common but serious gastrointestinal virus in children. And approval is expected later this year for Gardasil, a cervical cancer vaccine, and Januvia, a treatment for Type 2 diabetes.
Investors have responded, raising the stock price about $10 since it closed at a recent low of $25.85 on Oct. 7, about six weeks after a Texas jury awarded the widow of a Vioxx user $253.4 million in damages. The stock closed down 31 cents to $35.10 on Friday.
John P. Wilkins, president of Wilkins Investment Counsel, a Boston-based advisory firm that owns Merck shares, believes investors have been unduly influenced by the Vioxx litigation.
"In my 32 years of experience, I've never seen hysteria as severe as it was regarding the Vioxx recall," he said.
Indeed, the stock plunged $12 -- from $45 to $33 -- on Sept. 30, 2004, the day Merck withdrew Vioxx from the market based on research that showed the popular painkiller doubled the risk of heart attacks and strokes after 18 months of use.
Wilkins noted that Wall Street has reduced Merck's potential liability since the drug was withdrawn.
Moreover, taking into account Merck's restructuring plan -- which includes cutting 7,000 jobs and closing five facilities -- and the company's announced intent to refocus its research and development in areas "where Merck has particular competence," Wilkins believes the stock may represent a bargain at its current price.
"If you agree that it was [Vioxx] hysteria" that drove the stock down in the first place, he noted.
Since losing in Texas last summer, Merck has won the two most recent trials.
A jury in Atlantic City ruled in favor of Merck in November in the case of an Idaho man who had used Vioxx for about two months. And in a retrial of a case that ended late last year in a hung jury, a federal jury in New Orleans cleared Merck on Feb.17 of responsibility in the death of a Florida man who had used Vioxx for less than a month when he suffered a heart attack.
The trial that opens Monday, which combines two cases, poses new challenges for Merck, however.
First, the plaintiffs, John McDarby of Park Ridge and Thomas Cona of Cherry Hill, both say they were long-term Vioxx users. Plaintiffs in the earlier trials were short-term users.
McDarby, 76, said he took Vioxx for more than four years before suffering a heart attack in April 2004. And Cona, 59, said he took Vioxx for two years before his heart attack in June 2003.
"I'm going to show the jury Merck's own study, which shows the longer you use Vioxx the greater the chance of having a heart attack," said Robert Gordon, a product liability trial lawyer with the firm Weitz & Luxenberg, who is representing McDarby.
Second, Merck on Thursday had its request to have the trial separated into two cases denied by Superior Court Judge Carol Higbee, who chose to consolidate the cases.
Merck officials have insisted since the first Vioxx case was filed in May 2002 that the company plans to fight each lawsuit individually because each case is different and must be argued on its own unique set of facts. The company has set aside $685 million to cover legal fees stemming from the suits.
Blending the cases will double the already voluminous amount of information that jurors will need to digest, a fact that will likely cause confusion and tilt the scales against Merck, the company's lawyers have argued.
Higbee dismissed that argument on Friday, saying the McDarby and Cona cases are similar enough to be heard by one jury.
Gordon believes consolidating the trials is the only way all of the Vioxx plaintiffs will get their day in court. The court system isn't equipped to efficiently handle all the cases waiting to be tried, he said.
"It's not possible for the court system to address the problem without consolidating trials," he said. Besides, he added, "There's no reason a jury can't determine causation in more than one case at a time."
Opening statements are expected on March 6.
E-mail: prial@northjersey.com