Two down, 6,500 to go, and a notch on each side of the tally sheet. That's the situation facing Merck (NYSE:MRK) now that a New Jersey jury has said the pharmaceutical giant is not liable for the heart attack suffered by a 60-year-old postal worker who took the painkiller Vioxx. And while it's a welcome reprieve for the company, the decision doesn't seem to warrant the enthusiasm with which the market greeted the decision.
The New Jersey trial centered on a man who had many other medical problems that could have contributed to his heart attack, such as having high blood pressure and being overweight, as well as the stress he was under from being investigated by the Postal Service. He had received a phone call the night before his heart attack saying that postal inspectors videotaped him working on his car -- despite his disabilities.
In contrast, the patient in the Texas case had died, and the widow presented a much more sympathetic victim. That jury slapped Merck with a $253 million verdict, though the actual damages paid will be considerably less than that, since the state has a cap on such awards. The company is appealing that decision, too.
Much is being made of the latest case having been held in Merck's home state, which is the headquarters of many pharmaceutical companies, including Schering-Plough (NYSE:SGP), Johnson & Johnson (NYSE:JNJ), Hoffman-LaRoche, and Wyeth (NYSE:WYE). What's significant is that half of the thousands of lawsuits filed against Merck have been in New Jersey, so perhaps many of the weaker cases will now be weeded out. Given that this was considered a weak case, the decision will also stop a flood of other lawsuits that could have been filed had Merck lost. But there will still be a lot of cases on the docket, with the potential for many wins and losses.
Merck's stock price jumped nearly 10% in the minutes following the verdict, though it settled back to a 4% increase of the prior day's closing price. More than 32 million shares were traded, about four times the normal volume. The stocks of other pharmaceuticals also rose on the news Thursday, including Pfizer (NYSE:PFE), which rose 2.5%; Schering-Plough, up 1.5%; and Bristol-Myers Squibb (NYSE:BMY), also up 1.5%.
The pharmaceutical has said it will fight each of the cases one by one -- as it should, considering that it faces as much as $50 billion in liability. Though the Texas jury rejected Merck's defense, it's significant that the Food and Drug Administration has approved Vioxx as safe a number of times. In 1998, Pfizer introduced Celebrex, the first COX-2 inhibitor to treat arthritis pain, while in May of 1999, Merck introduced Vioxx. At one time, Vioxx brought in as much as $2.5 billion in revenue to the company.
COX-2 inhibitors were designed to relieve pain without the usual side effects of ulcers and stomach bleeding. In 2002, Vioxx was ordered to have warning labels attached when it was found that users had five times as many heart attacks as did users of naproxen, the previous treatment sold under the brand name Aleve. Interestingly, although Merck voluntarily pulled the painkiller off the shelves in September 2004, when it says it first had data showing that continuous use for 18 months doubled the risk of heart attacks and strokes, the FDA voted earlier this year to allow it to stay on the market. Merck has yet to bring the drug back.
The New Jersey victory is only one case, and although it's significant for Merck, we shouldn't make too much of it. The final tally sheet will still have many losses if the company doesn't offer mass settlements, which can ultimately still drain the coffers. It may clear a little of the clutter out of the way, but it also means that the cases that remain will be the harder ones to defend against.
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Fool contributor Rich Duprey owns shares of Merck but none of the other stocks mentioned in this article. The Motley Fool has a disclosure policy.
