Monday, November 8, 2010

Opt Out "Zombie" Vioxx® Products Liability Cases Could Still Cost Merck Many Hundreds Of Millions

It turns out that there is quite a bit of new, and nuanced, disclosure in Merck's Third Quarter 2010 SEC Form 10-Q (see my last three posts). This one is Vioxx® "Zombie"-related.

As I've long-suggested it ought to, Merck is now more-explicitly owning up to the idea that the Vioxx debacle is not fully behind it. As I indicated back in March 2010, the opt-out Zombies, or less colorfully "straggler" cases -- will easily run through several hundred million dollars, in legal defense costs in the next few years, and much more, if Merck loses any of these upcoming four trials. From page 22 of the SEC filing, then:

. . . .There has been one U.S. Vioxx Product Liability Lawsuit tried in 2010. There are four U.S. Vioxx Product Liability Lawsuits currently scheduled for trial in 2011. The Company cannot predict the timing of any other trials related to the Vioxx Litigation. The Company believes that it has meritorious defenses to the Vioxx Product Liability Lawsuits, Vioxx Shareholder Lawsuits and Vioxx Foreign Lawsuits (collectively, the “Vioxx Lawsuits”) and will vigorously defend against them. In view of the inherent difficulty of predicting the outcome of litigation, particularly where there are many claimants and the claimants seek indeterminate damages, the Company is unable to predict the outcome of these matters, and at this time cannot reasonably estimate the possible loss or range of loss with respect to the Vioxx Lawsuits not included in the Settlement Program. Other than with respect to the DOJ investigation noted above, the Company has not established any reserves for any potential liability relating to the Vioxx Lawsuits or the Vioxx Investigations. Unfavorable outcomes in the Vioxx Litigation could have a material adverse effect on the Company’s financial position, liquidity and results of operations. . . .

This lack of reserves is going to be a significant headwind in coming quarters, as Merck eats into what would otherwise be earnings per share, to cover these now decade old mishaps, and miscalculations. Especially so, since the $950 million is designated only to settle the DoJ criminal investigation -- Merck has still put nothing new in the cookie-jar, for these Zombie suits. We'll keep you posted.

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