Vioxx legal troubles may sink Merck

Merck's legal troubles are mounting each day and the company does not know how it will settle all those Vioxx lawsuits from victims who sustained injuries and from family members of those who lost their lives. And since Merck's insurers are more realistic about Merck's Vioxx liabilities (that are estimated to be all the way from $18 billion to $55 billion), they now want to cancel Merck's insurance. (Related article: Merck has a very weak defense in Vioxx litigation)

Since the recall of Vioxx, Merck has refused to make any provisions for its Vioxx liabilities. So far it has essentially acknowledged only that it will need to respond to lawsuits and has made provision of a tiny sum of approximately $600 million for attorney fees and legal costs. In documents filed with the Securities & Exchange Commission (SEC), Merck has reported that, "...upper level excess insurers (which provide excess insurance potentially applicable to all of the Vioxx Lawsuits) commenced an arbitration seeking, among other things, to cancel those policies and to void all of their obligations under those policies with respect to the Vioxx Lawsuits,and also to void their coverage obligations with respect to certain other types of losses covered by those policies." (Related article: Tough Vioxx litigation expected)

Merck's problems do not stop here. The insurers want to abandon the company altogether realizing that the liabilities are just too large. Merck tells SEC that, "As most of those insurers also issued lower level excess policies to Merck, it is likely that such insurers will also dispute their obligation to provide coverage under other policies."

As if lawsuits from Vioxx victims were not enough, Merck is again taking a very aggressive approach and wants to fight with its insurers also. In other words, Merck might very well be forced to abandon its drug business and focus instead on just fighting lawsuits left and right as many asbestos manufacturers had to do. No wonder then that there is widespread speculation that Merck will simply need to file for bankruptcy. In its documents submitted to the SEC, Merck says, "...it is reasonably possible that its insurance coverage will not be adequate to cover its defensive costs and any losses."

Merck also provided an update on class action lawsuits related to Vioxx as of January 31, 2005:

• Company has been served or is aware that it has been named as a defendant in approximately 850 lawsuits, which include approximately 2,425 plaintiff groups alleging personal injuries resulting from the use of Vioxx.
• A total of 14 Vioxx Securities Lawsuits were pending in various federal courts. The Company has also been named as a defendant in approximately 90 putative class actions alleging personal injuries. A total of 11 Vioxx ERISA Lawsuits are also pending. Several other categories of lawsuits has also been filed.
• Merck has also been sued in various other countries in Europe, Australia, Canada, Brazil and Israel related to Vioxx.

Source: SEC