Posted on 11/15/2007 11:47:04 AM PST by Rick Vassar
The Vioxx Settlement - A Lesson in Corporate Risk Management Written by Rick Vassar Published November 12, 2007
On November 9, 2007, Merck announced that it was settling approximately 27,000 lawsuits arising from the sale and distribution of Vioxx. At the time it was approved by the FDA in May 1999, Vioxx, a Cox-2 inhibitor, was hailed as a breakthrough in pain management.
The data that indicated that Vioxx led to an increased chance of heart attack and stroke was evident from the start. As early as April 2000, the FDA expressed concern, and it pressed Merck to add warnings on its Vioxx dispensers.
Yet, despite the growing evidence of cardiovascular issues from the use of Vioxx, the drug was not removed from the market until September, 2004, after sales of Vioxx had reached over $2.5 billion in 2003.
I have been reading today that this was a great move and a great deal for Merck. In fact, some financial publications are calling it a monumental victory for Merck.
And, it probably is, considering the mess they got themselves into. It looks like they finally listened to me.
In the summer of 2005, Merck announced that it would aggressively fight any Vioxx suit. In an article published in Risk Management Magazine in November 2005 (To Settle or Not to Settle by Vassar, Rick), I stated the following:
‘…This case accentuates a philosophy that we in the risk management profession know can become a harbinger of bad things to come—when someone in upper management says those five dirty words: “Let the lawyers handle it.”
The issue is whether or not counsel should have the ability to dictate the strategy and direction of a claim, and whether that direction is in the best interest of the organization.The Vioxx case exemplifies exactly why the executive branch must weigh the concerns of risk management more heavily than the concerns of the legal team. The legal team’s place is to execute the will of the organization to determine the best possible economic outcome from the mess that has been made. The company holds the map; the lawyers drive the car…’
At the time, there were 4,200 lawsuits pending. As each new case came to trial, the cases would double until it reached 27,000, with some estimating that there could be as many as 50,000 cases pending.
Although I’m sure Merck looked at the dollars in this nightmare, the reality of the calendar probably weighed heavily in their thinking. Since 2005, 17 cases have gone to trial so far, and Merck has won 12, and they are appealing the others. At this rate, it would take over 3,000 years to try the rest of the cases.
That’s a lot of five year plans.
The decision to litigate, as I pointed out over two years ago, was a poor choice. Win, lose or draw, each trial found its way onto the front pages, each time increasing the number of litigants. Lawyers placed ads in papers, on billboards and on the Internet asking for clients who may be harmed by Vioxx.
I know of a few folks who decided to “take a shot” since it really didn’t cost them anything to try. A really bad attitude, you might say, and you would be right. But if you are in the claims business, you know that the more an exposure finds press, the more claims it will generate, and the more claims, regardless of merit, the higher the cost.
Remember, not only did Merck take Vioxx off the market in 2004; they also were successful in keeping it on the market for over five years, adding to the pool of potential litigants. Of course, they made a whole lot of money during that time as well.
This being said, if Merck had made the conscious decision to mitigate each case and settle those with potential merit, it would have kept the pool of litigants at around 10,000. Each case could probably be settled for an average of $75,000 per claim (averaging in high dollar settlements on one end with nuisance lawsuits on the other).
If you figure in about $50 million in legal fees, you’re looking at about $800 million or about $6 billion less than this settlement structure, (the estimate of the total incurred losses from Vioxx including legal and claims expenses is around $7 billion).
Corporate responsibility calls for economic decisions to be made on economic matters. Vioxx was not well vetted by the FDA, and it caused more harm than good for many patients.
If the body of evidence is strong and not in your favor and the pool of injured parties is plentiful, then take your lumps and go in and cut your best deal.
Again, as I stated in 2005:
‘…I have two very simple standards when it comes to the direction of a claim and whether to litigate or settle. One, if I like their case better than mine I settle, period. Second, if the cost of litigation could exceed the total amount for which the claim can be settled, I am inclined to settle.
Even if I know the plaintiff is not entitled. Even if I know that “we can win this thing.” I would rather pay someone who may not really be entitled to a settlement than to let twelve people I don’t know make that decision for me.
Again, let me state that I have the greatest respect for attorneys. An organization needs to understand that claims management is economic, and upper management must be involved in the decision making process, since their allegiance is to their company, while attorneys and outside vendors have primary interests which may be secondary to the company…’
Merck should be very happy today. This settlement agreement only covers US litigants and there are quite a few cases pending internationally, but it means that they should be able to clean up this whole Vioxx mess in the next five years instead of having to pay lawyers to litigate this for the next 3,000 years.
Unfortunately for Merck, it will come about $5 billion to $6 billion too late.
IMO Vioxx was safe when used as it was supposed to be used. Many of the ones that are claiming fowl used it in a manner inconsistent with the labeling.
Vioxx was the only drug of its type that gave me any relief from chronic pain. Unfortunately, it also induced a side effect that forced me to give it up.
This whole Vioxx suit was a sham from the get go. People that benefitted from this tort lawsuit ought to be deported.
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