Merck has a weak defense in Vioxx lawsuits

During recent hearings on Capitol Hill, the FDA officials who have testified have contradicted each other. In other words, FDA is in a mess and no one has any clue what they should say and how should they work to ensure safe drugs for Americans. No wonder then that as many as 140,000 Americans got injured and tens of thousands of Americans are dead because Merck had so much influence on FDA that it stopped it from putting any warnings on Vioxx labels. (Related link: FDA panel recommendations on Vioxx and Bextra questioned due to conflicts of interest of members)

But the cozy relationship between the two is now quite shaky. In order to save themselves, expect both Merck and FDA to accuse each other. Merck is likely to argue that FDA approved Vioxx (even though world-famous FDA expert Dr David Graham thinks that Vioxx should have never been approved), and thus, Merck did nothing wrong by marketing an approved drug. FDA is expected to say that Merck did not provide it with enough data and it lacks the powers to do anything once the drug has been approved. (Related article: FDA defends its actions in Vioxx recall case)

This fight between Merck and FDA is going to weaken Merck's case and Vioxx attorneys will use it to paint the picture of FDA as an agency that is subservient to its masters in the drug industry who pay the salaries of FDA staff through user fees. They will also argue that Merck simply exploited the weak FDA to focus on profits and ignore the number of Americans who were dying and suffering from heart attacks and strokes. Such an argument is going to melt the heart of any jury in the United States. No wonder Wall Street analysts expect that Vioxx liabilities could be as high as $55 billion. (Related article: FDA tries to protect Merck and Pfizer)

During recent months as more disclosures of the mess at the agency have been made, FDA is no longer perceived by many Americans as an agency that does its job. Particularly the revelation about picking panel members to review Cox-2 drugs blew a big hole in its credibility. Once it was pointed out that the panel was staffed with drug industry insiders who happily took money from Merck and Pfizer over the years and then tried to help the drug firms by recommending that Vioxx be allowed to resume sales in the US and Celebrex and Bextra continue to stay on the market. Many are calling for panel recommendations to be ignored because of serious conflicts of interest. Senators are arguing that they will feel very uncomfortable if Vioxx were to return on the market. Jury members are not likely to believe either Merck or FDA any more and are more likely to favor the family members of dead Americans and Vioxx victims who have suffered heart attacks and strokes. (Related article: Merck also did not cooperate with Canadian drug authorities)

Will Vioxx litigation bankrupt Merck? According to Jim Jubak, an analyst, it all depends on what the jury awards in damages to family members of dead Americans. If the damages are a few billion dollars, the company will survive, but will become weaker. But if the estimate of tens of billions of dollars in damages turn out to be true, as Merck itself has admitted, it will simply go out of business. (Related article: Vioxx recall hurts Merck financially)

Will Vioxx victims get justice in what many are calling as the "Mother of all class action lawsuits"? According to Jubak, who is predicting that Merck will lose the cases in courts, says, "Product-liability cases often don't have very much to do with justice and evidence. They often hinge on which side can make an emotional argument that is convincing but doesn't overwhelm the jury with endless detail. Before Merck's "victory" at the FDA in mid-February, I thought the odds were that Merck would be able to limit the damages it faced from these suits. It seemed these cases would quickly sink into a morass of scientific detail about which study showed what and when, about the mathematics of risk/benefit calculations and about the difficulties of figuring out the potential effects on real patients from studies that use extremely high dosages. But the events at the FDA in the last month make it more likely that the plaintiffs will be able to make the kind of emotional argument that wins cases like these by sticking to the hot-button issue of a company using its money to overwhelm the safeguards that are supposed to protect the drug supply. I still don't know if justice -- whatever that may turn out to be -- will be served. I do know that as an investor, I'm less interested in justice than in which party will win. And the odds, thanks to the FDA over the last month, have tilted against Merck."

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