Vioxx Liability Exposure May Exceed 5-Year Product Sales Of $12 Bil.

Merck's liability exposure from Vioxx could exceed total sales of the COX-2 inhibitor from its five years on the market.

Based on the estimated number of long-term Vioxx (rofecoxib) users, the rate of cardiovascular adverse events seen in Merck's trials and historical precedents for litigation settlements, Merck could be facing an exposure of as much as $13 bil.

Sales of the drug have totaled about $12 bil. worldwide since it was approved in May 1999.

The actual size of the liability faced by Merck is impossible to calculate and will likely take several years to define accurately.

However, based on data disclosed by Merck and market researchers, it is possible to begin to estimate what lies ahead for the company (see chart: " ¹ Doing The Math: An Estimate Of Merck's Liability From Vioxx ").

According to Merck, about 20 mil. U.S. patients used Vioxx since 1999. While the number of patients outside of the U.S. is unknown, the U.S. patient population reflects by far the largest pool of potential litigants against the company.

According to the market research firm NDCHealth, 32% of current patients have used the COX-2 for greater than 18 months, and another 25% have used the drug for 12-18 months.

Based on the results of the APPROVe study that prompted Merck to withdraw the drug, the cardiovascular safety signal was not apparent until after 18 months (² (Also see "Pfizer Celebrex Polyp Trials Get Added Weight With Vioxx Withdrawal" - Pink Sheet, 4 Oct, 2004.), p. 6).

Using the 32% figure, approximately 6.4 mil. patients used Vioxx for more than 18 months.

(It is likely that the actual percentage of all Vioxx patients who used the drug for more than 18 months is lower than 32%; however, the company is also likely to face claims from patients who did not take the drug that long but nevertheless assert an injury.)

The APPROVe study found a 1.5% rate of cardiovascular incidents in Vioxx patients after 36 months.

The placebo rate was half that level, but, in the absence of a clear marker for causality, the number of potential litigants will be determined by the overall event rate rather than the excess associated with Vioxx.

Using the 6.4 mil. long-term user estimate, that would leave a pool of 96,000 potential cardiovascular injuries.

The potential liability associated with each claim is perhaps the most difficult figure to estimate. However, two recent product withdrawals offer some potential guidance on the scale of the possible claims.

In the case of Baycol (cerivastatin), Bayer withdrew the statin from the market following reports of rhabdomyolysis.

Bayer estimates that it will pay about $1.6 bil. in total to the 12,175 patients that have filed claims against the company, or approximately $131,000 per patient (³ (Also see "Pfizer Celebrex Polyp Trials Get Added Weight With Vioxx Withdrawal" - Pink Sheet, 4 Oct, 2004.), p. 28).

If Merck faces the same per patient cost to resolve the liability claims, it would total $12.6 bil.

A lower-end estimate may be the amount set aside by Pfizer/Warner-Lambert to resolved the claims resulting from the withdrawal of the diabetes agent Rezulin (troglitazone). In that case, Pfizer has taken a charge of $975 mil. to cover lawsuits and pending claims filed by 12,900 patients, or $75,600 per case (⁴ (Also see "Pfizer Ready To Settle Neurontin Promotion Case; Reserves $427 Mil." - Pink Sheet, 26 Jan, 2004.), p. 6).

Using that figure, Merck's potential liability would be approximately $7.2 bil.

The uncertainty inherent in any effort to project Merck's potential liability - and the worst-case scenario for the company - is best illustrated by Wyeth's experience following the withdrawal of Redux (dexfenfluramine) and Pondimin (fenfluramine) due to reports that the drug caused heart valve defects.

Seven years after the drug was withdrawn, Wyeth has yet to resolve its liability.

So far, the company has paid $16.6 bil. (and has an additional $3.26 bil. in reserves) to cover litigation (⁵ 'The Pink Sheet' Aug. 16, 2004, In Brief).

The size and settlement of that case seems to bear no relationship to the data that was available when the company withdrew the drug. The company is facing more than 100,000 claims filed under a proposed class action settlement, and is still working through thousands of "opt-out" claims.

A Beaumont, Texas state court handed down a $1 bil. verdict against the company filed on behalf of one patient that used the diet drug (⁶ 'The Pink Sheet' May 3, 2004, In Brief). Wyeth is appealing the case.

None of the past precedents is likely to offer a perfect parallel for Vioxx; the product is the most widely used brand ever pulled from the market, and the liability picture is likely to be shaped by a number of variables.

Merck was already facing product liability suits based on early studies suggesting an increased cardiovascular risk.

One issue will be whether Merck is able to determine some characteristic marker for cardiovascular toxicity caused by the drug.

In the absence of a marker, the lack of proven causation could limit claims Merck pays; however, it will also likely ensure a large litigant pool.

Merck's liability exposure will also be affected by the outcome of congressional investigations into the withdrawal. The immediate focus appears to be on FDA's handling of internally generated safety analyses, but any hearings will inevitably expose Merck to "What did you know and when did you know it?" lines of inquiry.

Vioxx is also one of the first products of the direct-to-consumer advertising era, and Merck's heavy promotion of the brand to consumers will be a new wrinkle for product liability suits (see ⁷ (Also see "Vioxx Withdrawal Fuels Criticism Of DTC; Liability Exposure May Be Test" - Pink Sheet, 11 Oct, 2004.)).