Vioxx Nightmare Mushrooms, Merck Falls

Merck & Co. Inc.’s Vioxx recall is mushrooming into a product-liability nightmare that erased another $23 billion of the company’s valuation on Monday, but analysts said it will likely withstand the crisis..

Merck shares fell as much as 10.5 percent after the Wall Street Journal published e-mails from company officials that suggested Merck knew about the heart-attack risks of the arthritis drug years before the recall.The stock has fallen almost 38 percent since Vioxx was recalled on Sept. 30, its lowest since November 1995. The shares closed down $3.03, or 9.7 percent, at $28.28 on Monday.”If the e-mails actually exist and say what they are purported to say, they appear at least superficially to be a smoking gun that lawyers could pull up as evidence against Merck,” said Trevor Polischuk, a drug analyst for Orbimed Advisors.Polischuk said the e-mails will encourage more patients to sue Merck, claiming the $2.5 billion-a-year drug harmed them.”But it will probably be very difficult for plaintiffs to prove Vioxx hurt them because many patients probably had pre-existing heart problems,” said Polischuk.He said Merck shares have been “oversold,” and are now an opportunity at a price that represents a 30 percent discount to stocks of rivals — based on projected company earnings.An estimated 20 million Americans have taken Vioxx since it was launched in 1999 because it caused fewer ulcers and gastrointestinal problems than standard arthritis treatments.The Journal said an e-mail dated March 9, 2000 suggested Merck recognized Vioxx increased heart risk. The e-mail — written by research chief Edward Scolnick — said cardiovascular events “are clearly there.”The article said another e-mail, written years ago by Merck research executive Alise Reicin, suggested people at high risk be excluded from a trial so the rate of cardiovascular problems of Vioxx patients and others “would not be evident.”Merck recalled Vioxx after it was shown to double the risk of heart attack and strokes in patients that had taken it for over 18 months to prevent recurrence of colon polyps.On Friday, Merck — citing documents that had been made public — issued a statement saying it acted “responsibly and appropriately” in developing and marketing Vioxx.A Merck spokeswoman declined to comment on the stock decline, or say whether its comments on Friday referred to the e-mails described in the Journal.Mehta Partners analyst Shaojing Tong said the e-mails suggest Merck withheld information. He said the company’s financial liabilities could approach the $16 billion already paid out by drug maker Wyeth following its 1997 recall of two diet drugs used in the “fen-phen” diet cocktail.”I previously had no reason to suspect misconduct by Merck. But the e-mails move things one step closer to fen-phen in terms of misconduct and hiding facts,” Tong said.Tong said the company’s now-decimated share price probably assumes the company will eventually pay out $5 billion in Vioxx liabilities.”If it becomes clear that the payout will grow to $15 billion or so, the share price could fall another 5 or 10 percent,” Tong added.Jon Fisher, fund manager at Fifth Third Bank, said there is no reliable way to predict future product-liability costs.”If it rises to $50 billion, Merck’s stock could go a lot lower,” said Fisher, who added it might wind up being only a fraction that amount.Fisher, whose bank owns 2.5 million shares of Merck, said it is also too early to assume the e-mails will incriminate Merck.Standard & Poor’s on Monday said it may cut its ratings on Merck, citing increasing concern about possible litigation. (Source: Reuters, Nov 2004)