Stock prices drive settlement strategies.

One of the things that I think we have all instinctively known is that when large, publicly held companies are involved in significant Mass Torts or other serious high dollar litigation, is that the uncertainty of the outcome can virtually cripple a companies stock prices, as well as magnify other business issues that might be hindering the company.

Case in point is of course Merck, which is in the midst of a major struggle over it's Vioxx litigation. However, as this online article in The WSJ points out, Merck has lots of other issues they are dealing with, and the joy over the NJ decision is very short lived. These are two fascinating articles on company strategy beyond Vioxx, as well as thoughts on what the next round of cases might bring. The point is, no matter what cases Merck wins, their hands are effectively tied in many aspects regarding financial and strategic options. Instructive reading if you are involved in the Vioxx cases.

Another company that has been in the headlines is Serono, the Swiss biotech conglomerate that recently was nailed on the biggest whistle blower case in US history, over $780 million. Today's Journal highlights how they have contacted Goldman Sachs to begin quietly searching for suitors for the company. I found it interesting in reading the story that they are characterized as having a strong stable of AIDs and other drugs in the pipeline, when it was exactly those drugs that led to the sales fraud they engaged in that prompted the whistle-blower case. Obviously, it would appear that the pipeline isn't as healthy as it might appear, and if the company is looking to be acquired or merge, there are a few weaknesses.

Finally, the big headline in the Mass Tort/Business arena involves Guidant, the maker of defibrillator who has been forced to recall huge segments of the product line, and is going to be a major target for litigation, is now immersed in litigation with Johnson and Johnson over their merger agreement and stock price. Apparently the twin impacts of mass tort liabilities coupled with hits to their product line have given J&J a great deal of concern over the value of the company and they wanted to rework terms of the merger. Again, Guidant trys to put a good face on the situation but clearly the threat of mass tort litigation has depressed their stock and frozen their options as to how to handle their business.



Posted on November 8, 2005 .