Will the Vioxx settlement stick? That's what savvy Monday-morning quarterbacks were asking following Merck's announcement last Friday that it would pay $4.85 billion to resolve the lion's share of injury claims related to its star-crossed painkiller. Once the confetti settles, certain terms of the much-lauded deal may attract a new raft of plaintiff lawyers rabid for booty.
"It's a good deal for Merck if there's not much slippage—if there isn't a flood of new suits filed after the announcement and if most of the cases of serious injury agree to the settlement," said Mark Herrmann, a partner in the Chicago office of Jones Day and coauthor of Drug and Device Law, the popular product-liability blog. "But we won't know that for another year or two."
A headline story all weekend, the settlement was widely praised as offering something for everyone—a smaller than expected payment by the drugmaker, timely restitution to the plaintiffs, and a boon to the legal system, since it largely puts to rest the prospect of thousands of costly cases clogging the courts for years.
After announcing that it would fight every case, Merck proceeded to win 11 of the first 17 lawsuits, at which point the three judges overseeing the cases in Texas, New Jersey, and California, the three states where the litigation was taking place, pressured the two sides to settle. The opposing teams reportedly sat down together more than 50 times in eight states before agreeing on the terms.
A Lesson for Pharma?
Most news reports described Merck's decision to settle, after its go-to-the-mat approach, as a surprising reversal. But Herrmann begged to differ. "It was as predictable as night following day that Merck would initially say, 'We won't pay a penny, we'll fight until the last case is denied,'" he said. "And it was equally predictable that as soon as most of the statutes of limitations had expired, Merck would immediately turn around and say, 'Let's settle—and put this mess behind us.'"
"Any other drug company would almost certainly have done the same," Herrmann added, recalling that Fortune's legal-affairs reporter, Roger Parloff, had even quoted Mark Lanier, one of the leading plaintiff's lawyers, as saying two years ago that his advice to Merck lawyers would be to "hang tough"—to prevent a flood of new cases—and then settle.
Some reports even saw in this aggressive strategy a new trend or model or lesson for the entire industry. Yes and no, said Herrmann. "In these mass torts cases, every settlement is state of the art and everyone in the industry is learning from the previous case," Herrmann said. But what has apparently triumphed, given the specifics of Vioxx, does not automatically apply to other cases, he cautioned.
In particular, the fact that heart attack and stroke have so many different causes makes persuading juries beyond a reasonable doubt that the COX-2 inhibitor—rather than, say, smoking or obesity—is the culprit is anything but a slam-dunk. As the decisions began to fall in Merck's favor, the plaintiff lawyers read the writing on the wall—and the price of the settlement dropped.
In addition, the latency period for filing a lawsuit is sharply circumscribed: A person must have taken Vioxx at least within two weeks of the cardiovascular injury. Since the painkiller was yanked more than three years ago, Merck can be confident that the vast majority of cases have already come to light.
The Cost of Closure—for Now
The drugmaker will establish one fund worth $4 billion for heart attacks and another worth $850 million for strokes. Since this is not a class-action agreement, the payment for each plaintiff will be decided on a case-by-case basis using a graduated-risk point system, including age and risk factors. The maximum restitution is estimated to be between $1 million and $1.5 million.
And that, according to Herrmann, may prove to be the compromise's Achilles' heel. The two sides agreed that the settlement is a done deal only if 85 percent or more of the 27,000 lawsuits enroll in it. "When the plaintiffs' lawyers recommend settlement to their clients and threaten to withdraw if the clients don't accept it, most clients will fall in line," Herrmann said. "But we don't know how many comparatively strong cases there are—long-term Vioxx users in excellent health who had a heart attack 'out of nowhere.' Merck is betting on not many."
There may also be other groups of plaintiffs who either do not or cannot accept the settlement. Add to all this the possibility of a crop of new lawsuits, and "it's a slippery slope that, if it turns bad, can be pretty grim," according to Herrmann.
The company said it will continue to litigate every suit not included in this agreement.
The settlement's provision requiring that each plaintiff's lawyer with a single client who accepts the settlement must recommend it to all of their clients has already invited scrutiny from legal-ethics experts.
Questions have been raised in the press about whether or not the lawyers can agree to this provision without creating a conflict of interest or a charge of coercive practice, since most likely have at least one client with strong cases who might benefit from further litigation.
The Post-Settlement Dust Settling
There's no question, however, about whether or not Merck has at long last closed the books on the rest of its Vioxx burden. The firm's stocks were up as much as 5 percent at news of the settlement, rising to $57.74—more than double the low they hit on the day in October 2004 when Vioxx was withdrawn. Although the Whitehouse Station, NJ–based firm has been on the rebound for some time, analysts were quick to note that with the likely lifting of its legal exposure, Merck is a secure investment in an increasingly insecure industry and, for that matter, economy.
The settlement caps a banner year for the 114-year-old drugmaker, during which it has popularized its pioneering but controversial STD cancer vaccine, Gardasil, grabbed a growing piece of the diabetes market with its first-in-class Januvia, and launched novel HIV drug, Isentress. Even the news last week of the failure of its Phase III AIDS vaccine, widely viewed as the most promising in the entire field, only served to underline the company's prominence as an industry innovator.