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Merck holds the line on Vioxx
CEO Clark says asthma drug Singulair is bright light for growing sales.
October 24, 2005: 12:21 PM EDT
By Aaron Smith, CNN/Money staff writer

NEW YORK (CNN/Money) - Merck maintains its defense for Vioxx, the beleaguered painkiller that was pulled off the market in 2004 and has been blamed for heart attacks in a growing tally of lawsuits, a top company lawyer said Monday.

"We will continue to defend these facts on the scientific basis of causation," said Kenneth Frazier, senior vice president and general counsel for Merck & Co. (up $0.24 to $26.42, Research), during a teleconference on the company's third quarter, in which it reported rising earnings but slumping sales. "The defense remains the same because it is based on facts and facts don't change.

Merck said it faces about 6,400 civil cases in state and federal courts from former Vioxx patients or their families. In reference to this tally and a Wall Street Journal report that lawyers representing some 20,000 Vioxx plaintiffs intend to eschew federal consolidation and fight the company only in state court, Frazier remained true to Merck's ongoing defense.

Her insisted that Merck "acted responsibly with respect to Vioxx" and is "prepared to take the long term view of the litigation." Echoing previous statements from the company's lawyers, Frazier dismissed accusations that Merck concealed negative information and denied that Vioxx caused the plaintiffs' heart attacks.

"There is no scientific basis that Vioxx contributed to Mr. Humeston's heart attack," said Frazier, specifically addressing the legal battle that is expected to wrap up this week in New Jersey Superior Court in Atlantic City.

Frederick Humeston, a Vietnam veteran and postal carrier in Boise, Idaho, blames Vioxx for his non-fatal 2001 heart attack and sued the company in its home state. Frazier said that Vioxx did not cause the plaintiff's heart attack and that he had a pre-existing heart condition.

Also, Frazier said that Humeston only took Vioxx for about two months, while the study that prompted Merck to remove Vioxx from the market revealed that heart attacks and strokes occurred after 18 months of use.

Humeston's lawsuit is the second Vioxx case to appear in court. Carol Ernst, represented by lawyer Mark Lanier, won the first case in Texas Superior Court in Angleton, Texas in August. Ernst, whose husband Robert Ernst was a Vioxx patient when he died of a heart attack in 2001, was awarded $253 million by the jury, though Texas law prevents her from collecting that full amount.

Chief Executive Officer Richard Clark said that Merck has not increased the $675 million in reserves set aside for Vioxx litigation costs. This amount does not cover damages from any judgments rendered in the courts.

Merck needs a new drug

Merck, based in Whitehouse Station, N.J., reported a rise in earnings and a drop in sales for the third quarter. Earnings per share were 65 cents, up from 60 cents in the third quarter of 2004, but sales slipped 2 percent to $5.4 billion from $5.5 billion.

Clark singled out Singulair, an asthma treatment, as a big driver for corporate revenue. Singulair sales jumped 11 percent to $692 million in the third quarter, totaling $2.2 billion for the first nine months of 2005.

Clark said future earnings would be bolstered by pipeline products, including investigational vaccines Gardasil and Proquad. Merck announced late-stage test data for Gardasil on Oct. 7, showing 100 percent effectiveness for blocking cervical cancer. Proquad, a combination of two other Merck vaccines, was approved by the Food and Drug Administration in September to treat children for measles, mumps, rubella and chicken pox in a single injection.

Judy Lewent, executive vice president and chief financial officer for Merck, said sales from these new and pending products would offset revenue declines on the top-selling product, Zocor, a cholesterol-lowering drug that will lose patent protection next June.

"We are experiencing new growth in our new franchises and that is partially offsetting the decline of our old franchises," said Lewent.

Lewent said the Zocor sales, which dropped 14 percent in third quarter sales to $1 billion, were being pressured by competition from Vytorin, a cholesterol-lowering drug that Merck produces with Schering-Plough (down $0.11 to $21.00, Research).

Clark said Merck's dividend "remains secure" and that the company is "truly committed to maintaining it at the current level," projecting earnings per share of $2.47 to $2.51 for 2005, including a net tax charge.

But new products might not be enough to lift Merck's slumping sales, said Barbara Ryan, analyst for Deutsche Bank North America, who projected in her Monday report that the company will slash costs to save money, but will ride out the Vioxx debacle.

"We believe that management will implement more aggressive restructuring and cost-cutting later this year to offset the earnings decline," wrote Ryan in her report, which reiterated her "hold" rating and 12-month price target of $29. Ryan also wrote that "Merck has the financial strength to weather the litigation hit and maintain its dividend."

To read about Pfizer's (down $0.18 to $21.07, Research) third quarter earnings, click here.

Ryan does not own Merck stock but Deutsche Bank may have done business with them.  Top of page

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