By SCOTT HENSLEY
Staff Reporter of THE WALL STREET JOURNAL
November 9, 2004;
Merck & Co. said the Justice Department has launched a criminal investigation into the company's handling of Vioxx, the painkiller that the drug maker withdrew in September, and the Securities and Exchange Commission has begun an informal inquiry.
Merck, which made the disclosure in a quarterly regulatory filing, said it is cooperating with both investigations.
The pharmaceuticals giant warned in the filing that it couldn't predict how the investigations would turn out, but said their conclusions could be "highly unfavorable" and include dispositions that "could have a material adverse effect on the Company's financial position, liquidity and results of operations."
The disclosure came yesterday after the stock market closed and is the latest sign of the deepening crisis over Vioxx. The company pulled the popular arthritis medicine from the market after finding the drug increased the risk of heart attacks and strokes in patients who took it for more than 18 months.
In a written response to questions about the investigations, Merck said "it acted responsibly and appropriately as it developed and marketed Vioxx." A week after learning of the results of a company-sponsored clinical trial demonstrating Vioxx's risks, Merck said it "acted in what it believed was the best interest of patients and voluntarily withdrew Vioxx from the market."
Merck, of Whitehouse Station, N.J., said the Justice Department subpoenaed information related to the company's research, marketing and selling activities for Vioxx. A Justice Department spokesman had no comment.
The SEC's focus is likely to be on issues of disclosure, such as whether Merck fully informed investors about the information that emerged from research about Vioxx's risks. An SEC spokesman declined to comment.
Merck yesterday also quantified the litigation it faces. As of Oct. 31, the drug maker said it was a defendant in about 375 Vioxx personal-injury lawsuits, involving about 1,000 plaintiff groups. One or more of those cases may go to trial in the first half of 2005, the company said.
Citing "media reports and other sources," Merck said it expects more lawsuits will be filed against the company and possibly its current and former officers and directors.
The company said it had at least $190 million in insurance to cover its directors and officers and to cover lawsuits related to securities law.
As for product liability, Merck said it has about $630 million in insurance coverage. That amount could fall far short of potential damage awards, according to recent estimates from some Wall Street analysts. In its filing, Merck said it is "unable at this time to determine" whether its insurance coverage "will be adequate to cover its defense costs and losses, if any," in relation to Vioxx.
"The endgame of an SEC investigation or criminal probe pales in comparison to what they face in terms of product liability," said Richard Evans, a drug industry analyst with Sanford Bernstein in New York who estimates that Merck's potential product liability is "$12 billion and climbing." The greatest danger of the Justice Department's probe may be that its "more aggressive and complete discovery process" could ease the burden of proof for plaintiffs' lawyers to show negligence or to win punitive damages.
Even so, proving that any particular patient died or was injured by Vioxx could be difficult.
The 2,600-patient study that led Merck to pull Vioxx gave patients either a 25 milligram dose of the drug daily or a sugar pill. Based on a preliminary analysis, there were 45 confirmed cardiovascular events, such as heart attacks or strokes, among the patients taking Vioxx compared with 25 events among those on the placebos. The risk emerged only after 18 months of treatment and no difference in overall mortality was observed between the groups.
Mr. Evans, in a report last month, acknowledged the heavy burden on plaintiffs to show that Vioxx and not nature caused their specific injuries.
Merck declined to comment on financial analysts' estimates of potential liability.
The Wall Street Journal reported last week about Merck documents and e-mails that raised the possibility the company may have known more about the risks of Vioxx than previously acknowledged.
A lawyer representing Merck said the internal e-mails and marketing materials were "taken out of context" and "do not accurately represent the conduct of Merck and its employees." Merck didn't provide other documents to furnish context, citing continuing litigation.
Merck stock, which traded at around $45 before the Vioxx fiasco, fell 2.5% to $25.91 in after-hours trading yesterday.
Quelle: Wall Street Journal