Vioxx litigation. An analysis from a settlement perspective.

I won't rehash the results that you all know about from NJ. Merck pulled out all the stops, spent what ever it took, and won a case that essentially had the fate of one of the major pharmaceutical manufacturers in the world hanging in the balance. No, I don't think thats hyperbole. If Merck lost that case, and the damages had been in excess of 7 figures, there is little doubt the stock would have collapsed and a major effort to commence settlement would have at least been planned, if not implemented, by Merck. It was a life saving win for Merck and the lawyers knew it, as I don't remember ever, in 25+ years, ever hearing of defense lawyers in tears over a verdict for a corporate client.

So, a few thoughts and observations for what it's worth.

1. I love the absolute ignorance of stock analysts. "I don't think it's going to have any immediate impact" on the number of new suits filed, he said. "There are attorneys who are looking for work," and plaintiffs don't have to front any legal costs. " Yes, someone actually said that, and I'd like to have him give Attorney Chris Seeger a call and ask him about the $3 to $4 MILLION he is reported to have spent in developing and trying this case for the plaintiff Frederick Humeston. He might also want to call Mr. Humeston and ask him what the financial cost of trying this case, flying to NJ, putting his life on hold and attempting to win this matter cost him personally. It may not be the $20 million Merck has reportedly spent on the NJ case, but I can assure you the cost for a postal worker from Idaho is pretty significant to him. The cost to plaintiffs, and for trial lawyers, is staggering and the myth that they can just easily and cheaply take on a company like Merck is ignorant beyond belief. This verdict will have a substantial chilling effect on the number of cases filed between now and the next few verdicts and to assume otherwise is ridiculous.

2. Merck bought themselves time, some positive spin and strategic leverage for the next 9 months. Knowing they can win on short usage cases when they have a plaintiff with a questionable cardiac history gives them some cover, but not as much as people generally assume. Merck and it's insurers have run the numbers, they know the cost of uncertainty over these cases is just killing the stock price, and eventually they are going to have to enter into a global settlement. Winning on short usage on Humeston and maybe a few more will shrink the claims pool significantly, and all they are doing right now is working hard to trim the ultimate settlement from the $25 billion range to a more manageable number. However, as I've stated before the longer it goes, the greater the risk of a big ultimate number. What is going to be fascinating is when Merck decides they are at the position of maximum leverage to move toward settlement.

3. In the words of my friend Attorney Jan Schlichtmann, a loss like this is like a public death for a trial lawyer. Chris Seeger gave it a great shot but came up short. The only questions i've had raised by people I've spoken with regard the choice of his first case being Humeston, who clearly as the trial went on, had some weaknesses that the defense exploited. Whether those issues were legitimate or not i'll leave to the parties most closely involved, but still that set of facts on that case seemed to give Merck some openings. Already it is being reported that the next case, Irvin vs Merck, has some weaknesses that Merck is busy playing up in the business press. Any attorneys who reads my blog, i'd love your thoughts on how the selection process of cases in these are handled.

4. It's a long way to the finish line. Make no mistake, this litigation involves the long term survival of Merck as an independent major drug company. As reported in The Wall Street Journal, this litigation has them paralyzed, and is exacerbating an already difficult time for the company as many of their major drugs come off patent and few new big block busters are in the pipeline. Managing the liability of this litigation is about survival and the trial lawyers will be well advised to realize they have a huge company backed into a corner, and that it's going to be a long, bloody battle. Merck's options, given their other business issues, are limited. Remember the maximum, "An opponent with nothing to lose is your most dangerous foe."

5. Finally, the splintering of the trial bar and the movement of cases away from the MDL is going to make global resolution of this case infinitely more difficult. A battle is shaping up between the asbestos attorney's and their litigation model, and the MDL mass tort guys and their litigation model. I'm not handicapping either group as a winner, but the net effect on Merck is going to be further dissipation of funds, talent and managerial energy, which can only damage the stock and company further. A global settlement is a far off dream at this point, and a lot more blood and money will be spent between now and next year.

Posted on November 5, 2005 .