Vioxx recall lawsuits update by Merck
Since a Vioxx recall was announced on September 30, 2004, Merck has been bombarded with lawsuits from victims all over the world. The liabilities from Vioxx threaten Merck's survival as it continues to suffer from the impact of the drug recall. The company refuses to formally account for any potential liabilities. If it were to do so, its financial situation will look even worse. As part of its quarterly financial update, Merck & Company provided the following Vioxx litigation update:
Vioxx litigation update from Merck
As previously disclosed, individual and putative class actions have been filed against the Company in state and federal courts alleging personal injury and/or economic loss with respect to the purchase or use of VIOXX. A number of these actions are coordinated in proceedings in a multidistrict litigation in the U.S. District Court for the Eastern District of Louisiana, New Jersey state court, and California state court. As of March 31, the Company has been served or is aware that it has been named as a defendant in approximately 2,300 lawsuits, which include approximately 4,600 plaintiff groups alleging personal injuries resulting from the use of VIOXX, and in approximately 225 putative class actions alleging personal injuries and/or economic loss (all of the actions discussed in this paragraph are collectively referred to as the "VIOXX Product Liability Lawsuits"). (Related article: Tens of thousands of plaintiffs expected in Vioxx lawsuits)
Also as previously disclosed, there are putative class actions against the Company and various current and former officers and directors asserting claims under the federal securities laws (the "VIOXX Securities Lawsuits") and under the Employee Retirement Income Security Act (the "VIOXX ERISA Lawsuits"), as well as shareholder derivative lawsuits asserting breaches of fiduciary duty under state corporation law (the "VIOXX Derivative Lawsuits"), with respect to the Company's public statements regarding VIOXX (collectively, the "VIOXX Shareholder Lawsuits"). Except for two VIOXX Shareholder Lawsuits pending in New Jersey state court, all of the VIOXX Shareholder Lawsuits have been or will be coordinated or consolidated in the U.S. District Court for the District of New Jersey.
Also as previously disclosed, there are investigations by the Securities and Exchange Commission (SEC), the Department of Justice and other governmental entities regarding VIOXX. The Company's U.K. subsidiary has been notified by the Medicines and Healthcare products Regulatory Agency in the United Kingdom (the "MHRA") of an investigation by the MHRA of compliance by the Company with EU adverse experience reporting requirements in connection with VIOXX. The Company is cooperating with the MHRA and the other governmental agencies in their respective investigations (the "VIOXX Investigations").
As previously disclosed, in addition to the lawsuits discussed above, the Company has been named as a defendant in litigation relating to VIOXX in various countries (collectively, the "VIOXX Foreign Lawsuits") in Europe, Canada, Brazil, Australia and Israel. In addition, litigation has been commenced against the Company's subsidiary in Turkey.
Based on media reports and other sources, the Company anticipates that additional VIOXX Product Liability Lawsuits, VIOXX Shareholder Lawsuits and VIOXX Foreign Lawsuits (collectively, the "VIOXX Lawsuits") will be filed against it and/or certain of its current and former officers and directors in the future.
Also as previously disclosed, the Company has product liability insurance for claims brought in the VIOXX Product Liability Lawsuits with stated upper limits of approximately $630 million after deductibles and co-insurance. This insurance provides coverage for legal defense costs and potential damage amounts that have been or will be incurred in connection with the VIOXX Product Liability Lawsuits. The Company believes that this insurance coverage extends to additional VIOXX Product Liability Lawsuits that may be filed in the future. The Company has Directors and Officers insurance coverage applicable to the VIOXX Securities Lawsuits and VIOXX Derivative Lawsuits with stated upper limits of approximately $190 million. The Company has fiduciary and other insurance for the VIOXX ERISA Lawsuits with stated upper limits of approximately $275 million. Additional insurance coverage for these claims may also be available under upper-level excess policies that provide coverage for a variety of risks. There are disputes with certain insurers about the availability of some or all of this insurance coverage and there are likely to be additional disputes. At this time, the Company believes it is reasonably possible that its insurance coverage with respect to the VIOXX Lawsuits will not be adequate to cover its defense costs and any losses. (Related article: Merck admits for the first time that it may have Vioxx liabilities)
Recently, Merck received notice that the Company's 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, to void all of their obligations under those policies and to raise other coverage issues with respect to the VIOXX Lawsuits. Merck intends to contest vigorously the insurers' claims and will attempt to enforce its rights under applicable insurance policies. The amounts actually recovered under the policies discussed in this section may be less than the amounts specified in the preceding paragraph.
The Company currently anticipates that one or more of the VIOXX Product Liability Lawsuits may go to trial in the second quarter of 2005. The Company cannot predict the timing of any trials with respect to the VIOXX Shareholder Lawsuits. The Company believes that it has meritorious defenses to 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. As of December 31, 2004, the Company had established a reserve of $675 million solely for its future legal defense costs related to the VIOXX Lawsuits and the VIOXX Investigations. In the first quarter, the Company did not increase the VIOXX legal defense reserve. The Company will continue to monitor its legal defense costs and review the adequacy of the associated reserves. The Company has not established any reserves for any potential liability relating to the VIOXX Lawsuits and the VIOXX Investigations. Unfavorable outcomes in the VIOXX Lawsuits or resulting from the VIOXX Investigations could have a material adverse effect on the Company's financial position, liquidity and results of operations.
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