Merck's Woes Exploded Today .
08/19/05: A Texas Jury Delivers A Texas Sized Judgement Against Merck
SUSIE GHARIB: A big setback for Merck tonight: a Texas jury has found the pharmaceutical giant liable in the death of man who used Merck`s painkiller Vioxx and awarded his family $253 million. The case was brought by Carol Ernst, whose 59-year-old triathlete husband died of a heart attack in 2001. Vioxx, a once popular painkiller drug, was pulled off the market last September after it was found to increase the risk of heart attacks and strokes. Since then, more than 4,200 Vioxx- related lawsuits have been filed against Merck and today`s verdict was the first legal decision. After the stunning verdict, Ernst`s attorney said Merck was wrong to quote, put profits over safety.
MARK LANIER, PLAINTIFF`S LAWYER: Merck rushed this drug to market so it could make an extra $600 plus million. And that was specifically set out by Merck in documents. They compressed and accelerated their studies. They put off two-year studies and made them one-year studies. And then when Merck was told to change their label, they put that off so they could make another couple hundred million dollars. That`s wrong. That`s wrong.
GHARIB: In a statement, Merck said it acted responsibly and plans to appeal. Merck also said there is no reliable scientific evidence to prove that Vioxx causes heart attacks. Meanwhile, Merck stock plunged almost 8 percent on the news, losing $2.35 to $28.06. We`ll get more analysis on what the verdict means for Merck a little bit later in the program.
GHARIB: For more analysis on that Vioxx verdict and what it means for Merck, we`re joined now by Les Funtleyder, pharmaceutical analyst at Miller Tabak. Hi, Les.
LES FUNTLEYDER, PHARMACEUTICAL ANALYST, MILLER TAYBACK: Hi.
GHARIB: Let me begin by just getting your overall view and your reaction to the verdict today.
FUNTLEYDER: Well, it was -- it was a setback for Merck, obviously. Although I think we had anticipated that quite possibly they would lose. But the size of the award is a little bit surprising to us even though it will likely be reduced on appeal.
GHARIB: We know that there are something like 4200 other lawsuits that are facing Merck. What kind of financial liability is facing Merck? I`ve seen estimates that are $18 billion up to $25 billion. What do you think is realistic here?
FUNTLEYDER: The number will certainly be in the billions. But it`s hard to tell just after one case how it`s going to turn out. There are a lot of cases. And each one will stand or fall on its own merits. But certainly it will be a sizable number.
GHARIB: And you said in a note today that you expect more lawsuits to be filed now, with the success of this one.
FUNTLEYDER: Well, yeah, if there were people sitting on the fence wondering whether they should sue Merck or not, this will certainly embolden them a little bit to go forward.
GHARIB: So Les, do you think that Merck can survive all this?
FUNTLEYDER: I think -- I think quite possibly. I mean these litigations are probably decades -- a decade long. Certainly Wyeth, although it`s not immediately comparable, survived fen-phen and actually emerged probably stronger. So it is possible that Merck could survive this, sure.
GHARIB: But when you look at Merck`s financial resources, obviously they`re going to have to set aside more money, more reserves, if the rewards are going to be on this level, they have to set aside more reserves. Do they have the cash to do that and also, still keep paying out a dividend?
FUNTLEYDER: Well, after this one award, yes. They certainly have a lot of financial resources on the balance sheet. You know, we`ll see in a couple of years once we have a few hundred cases under our belt, how much it is going to cost them. I think at least in the short term the dividend is safe.
GHARIB: So what is your advice to investors? For people who own the stock, what should they do?
FUNTLEYDER: Well, you are collecting a six percent dividend at this point. There is really not much to do. I would say that the near-term prospects are exciting because the company exclusive of the Vioxx situation in our view doesn`t have much of a pipeline, even though its valuation is rather attractive. So likely you`re not -- you wouldn`t have seen much in terms of stock appreciation in the next 18 months from Merck anyway.
GHARIB: What about people who own the stock of Pfizer. Pfizer was also hurt today. Of course it makes Celebrex and Bextra which also are like painkillers similar to Vioxx. What is the risk and the implications for a company like Pfizer and investors who own that stock?
FUNTLEYDER: Well, Celebrex and Bextra are somewhat different, different drugs, although I suppose that this lawsuit will embolden people to sue Pfizer as well, quite possibly. But Pfizer is different than Merck in terms of pipeline, other issues. Pfizer is actually restructuring and taking some other action. I don`t think you can tar one with the other with the same brush.
GHARIB: OK.
FUNTLEYDER: But Pfizer should stand on its own merits.
GHARIB: All right, Les, thanks for coming on our program and giving us your thoughts on all of this. We`ve been speaking with Les Funtleyder, pharmaceutical analyst at Miller Tabak. |
