Merck agrees to pay $4.85 billion in Vioxx settlement

NEW YORK (Reuters) - Merck & Co has agreed to pay $4.85 billion to settle most of the claims that its painkiller Vioxx caused heart attacks and strokes in thousands of users, the drug maker said on Friday.

The agreement covers lawsuits filed against the company in U.S. courts, resolving a major legal battle that has dogged the drugmaker since it pulled Vioxx off the market three years ago.

Merck withdrew the popular painkiller, which had $2.5 billion in annual sales, in September 2004 after a study showed it doubled the risk of heart attack and stroke in patients taking it for more than 18 months.

Merck has won most of the Vioxx cases that have since gone to trial and gained leverage in negotiating the settlement that many called favorable for the New Jersey-based drug maker.

With the settlement, it appears Merck will escape the worst-case scenario for the company and its investors: a settlement approaching the $21 billion in costs drug maker Wyeth has paid related to its diet drug recall.

“If Merck can put this to bed for anything close to ($4.85 billion), it will be a home run,” said Samuel Davis, an attorney with Davis, Saperstein & Salomon in Teaneck, New Jersey who represents about 100 clients who took Vioxx.

Davis said he had not yet decided whether to recommend the settlement to them.

The drug maker, whose shares rose more than 4 percent Friday, near a four-year high, said it would take a charge of $4.85 billion to cover costs of the agreement.

The settlement marks a shift in strategy for Merck, which previously said it intended to fight Vioxx litigation on a case-by-base basis rather than consider a broad settlement.

“We believe that this is the right agreement at the right time for Merck,” Kenneth Frazier, Merck’s president of Global Human Health and former general counsel, said in an interview.

“We believe that it provides a reasonable and responsible resolution of the litigation that provides us with a significant degree of certainly,” Frazier said.

At least 38,000 of the 60,000 Vioxx plaintiffs must sign on to the settlement for it to be viable, according to the company. But Merck officials said they believe the settlement will be attractive to many more than the minimum amount.

Regardless of how many plaintiffs enter the settlement, the total pie is fixed at $4.85 billion.

“I believe this global resolution is the best and fairest way to resolve this litigation,” said Christopher Seeger, co-lead counsel for the plaintiffs in the federal litigation. “I will confidently recommend this settlement to my clients because it eliminates the risk attendant in litigation.”

The drug maker said it would still defend all claims not included in the settlement. Since the withdrawal of Vioxx, Merck has won 11 court cases over the drug and lost five.

MERCK SHEDS VIOXX OVERHANG

While it is appealing those cases that it lost, analysts said the settlement will solidify Merck’s future.

“The company’s aggressive and successful defense strategy has given it a heavy hand in the bargaining process and produced a favorable outcome in the Vioxx settlement, at a cost that is clearly at the low end of general expectations,” Deutsche Bank analyst Barbara Ryan said in a research note.

Merck officials said contingencies were in place to prevent the strongest cases from backing out. Among them is that any law firm who has plaintiffs in the settlement must recommend the deal to all of its clients who qualify.

It can reject the enrollment of claims by any firm that does not enroll all of its heart attack or stroke claimants.

Morningstar analyst Damien Conover said that while it is difficult to gauge how many people will try to fight Merck alone, he estimates the company could be facing 1,000 to 2,000 outstanding claims and could face more than $1 billion in additional costs.

Merck shares tumbled on news of the withdrawal of Vioxx in 2004, losing more than a third of their market value. But with Merck’s Vioxx victories in court, and a string of successful new medicines, the shares have recouped those losses.

The stock, even with the major litigation drag, has outperformed its peers on the American Stock Exchange pharmaceutical index .DRG> this year, rising 25 percent, compared with little change in the index.

Merck shares were up $2.37, or 4.3 percent, to $57.14 in afternoon trade on the New York Stock Exchange. The stock is trading just below a four-year high of $58.36, reached earlier this month.