Merck Makes Settlement One Month After Consumer Help Web Predicts

After New Jersey's highest court refused last month to grant consumers class action status in a suit against Merck (NYSE: MRK) over its painkiller Vioxx, we predicted the Merck lawsuits would end, actually using the phrase in October that they would "dry up".

Just one month later, Merck is making that happen with a reported settlement of $4.5 billion. The company fought a brilliant strategy, using surgical precision in the media, steering clear of anything bombastic and finally proving two things:

1. Merck could cast enough doubt in individual cases to win the majority of them.
2. There would be no class action and dream team of litigators seeking to carve up the pie.

Not being doctors, we can't speak to whether Vioxx is good or bad, but we can say that Merck played this consumer affairs disaster better than any company in recent memory. The company said they would fight each case individually, a tactic seen by some as stalling, especially after the first big verdict.

But then the wins started piling up, and Merck was suddenly more in control of the situation. The company still showed restraint and soldiered forward.

Today was the bombshell -- $4.5 billion for 27,000 cases. After fighting off enough cases to prove it could win more often than not and survive a class action designation, Merck made a big chunk of the other 27,000 go away.

The money sounds big, but it isn't. One simple piece of division shows the offer at about $180,000 per suit before legal fees. That is such a small amount relative to the size of Merck that the company's shares are actually up in early trading before the market officially opens. And now someone who wants to continue on has to convince a court why this amount is insufficient, which is undoubtedly the next step for many.

But win, lose or draw, we saw the pattern last month after following this story for years. Is this good for consumers? That's a marcro-economic debate for another time. Is it good for individual consumers? That's also a debate for another time, but do consider how many of the company's 60,000 employees would lose their jobs if there was a class action or a bigger settlement. And consider that Merck's Gardasil is said to be a blockbuster that will save women from cervical cancer just as its Junavia is one of diabetes' most promising medicines just at that disease reaches epidemic scale.

If there was a smoking gun, some hint of deliberate wrongdoing by Merck, we would be the first to urge juries to shatter the company through big verdicts and and throw them on the scrap heap with Enron. But no one ever managed to prove that. That's an ugly, clinical way to look at the world, but ultimately, without tort reform, we run the risk of individual cases have massive, national economic repercussions.

The proper way is likely somewhere in between.

Labels: Merck, Vioxx

posted by George Bounacos at 8:42 AM |