One of the U.S.’ Big Pharma giants is opening the checkbook over an old drug, but this time the investors are getting the payout. Merck feels pain of securities settlement over now-recalled Vioxx pain reliever. The $830M settlement brings to a close a federal class action suit in which Merck’s investors claim the company didn’t adequately inform them of the risk of heart disease caused by Vioxx.
One of the U.S.’ Big Pharma giants is opening the checkbook over an old drug, but this time the investors are getting the payout. Merck feels pain of securities settlement over now-recalled Vioxx pain reliever. The $830M settlement brings to a close a federal class action suit in which Merck’s investors claim the company didn’t adequately inform them of the risk of heart disease caused by Vioxx.
Vioxx got the nod of approval from the FDA in 1999 and was hailed as the end-all-be-all new treatment for pain. The drug practically flew out of pharmacies in the U.S. Estimates of Vioxx users run at approximately 20M. Then Merck discovered, after a colon-polyp prevention study, that Vioxx more than doubled heart attack and stroke risks in patients using the drug longer than 18 months.
Merck recalled Vioxx in 2004, but then faced the onslaught of legal actions from thousands of former Vioxx users claiming the drug injured them. Most of the product liability suits were settled in 2008 for the princely sum of $4.85B.
That wasn’t the end of the story for Merck, though. A multi-district (MDL) class action suit was still pending in New Jersey federal court. This suit alleged that the company never informed investors of negative results found in earlier company-sponsored Vioxx trials. Those investors had every right to be upset. Paying almost $5B in product liability settlements had a negative impact on Merck’s bottom line and therefore, investors’ dividends.
While there are some individual securities suits still pending, Merck can close the books on the MDL. The company agreed to settle the MDL last Friday by paying investors who purchased Merck stock between May 21, 1999 and October 29, 2004 a total of $830M. The settlement agreement included a separate amount to be applied to investors’ attorneys’ fees.
Merck will book the payout in quarter four of 2015. The total cash payment will be approximately $680M, after it’s reimbursed by various insurance policies.
The company issued a statement that the MDL settlement is not an admission of liability or corporate wrongdoing.
I’d advise taking something for the pain of writing that check, but that’s what landed Merck in this situation in the first place.
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