One of the "big" stories this morning was the revelation that Merck's (NYSE:MRK) legal counsel will consider settling certain types of cases in the Vioxx litigation. To put this story in context: Water is wet, the sun rises in the east, and the day after Saturday is Sunday.
Seriously, of course Merck was going to consider settling certain Vioxx lawsuits. I don't think there remains any credible doubt that Vioxx was a dangerous drug, and there's increasingly less doubt about the notion that Merck knew something was wrong well before pulling the drug.
The question, as is often the case, is about timing and circumstances. At present, patients' attorneys have filed about 5,000 lawsuits related to Vioxx, and there's still more than a year left on the statute of limitations (two years after the withdrawal date) for new suits. If Merck were to come out and say, "Yes, we're settling all suits right now," you'd likely see the number of lawsuits jump into the hundreds of thousands, given that more than 20 million people took Vioxx at one point or another. Welcome to modern tort litigation in America.
In this particular case, it seems that Merck will consider settling in cases in which a person took Vioxx for more than 18 months and had no other apparent risk factors for heart attack or stroke. At this point, though, I'm not sure whether anybody has any idea just how many of the 5,000 or so current cases would meet that standard, although I'll go out on a limb and guess that the number isn't very large. It's also anybody's guess as to what a settlement would cost on a per-case basis.
Ultimately, I think Merck may still consider a global settlement once the window for new filings closes and the company can better estimate the damages. But for now at least, Merck is still affirming its intention to aggressively fight each case and challenge the verdicts that go against it. It's a risky strategy and one that will take years to exercise -- meaning that Merck has years to generate cash flow for future payouts.
Unless the number of Vioxx cases reaches a truly astonishing level (say 100,000 or more) and Merck can't find an affordable settlement, the company should still get through this. In the meantime, I would expect Pfizer (NYSE:PFE) executives to still be a bit nervous about their potential COX-2 liabilities, whereas the likes of Wyeth (NYSE:WYE) and Eli Lilly (NYSE:LLY) are likely breathing a sigh of relief now that most of their own legal problems are in the past.
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Fool contributor Stephen Simpson has no financial interest in any stocks mentioned (that means he's neither long nor short the shares).
