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The Vioxx Settlement – A Lesson in Corporate Risk Management

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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.


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About The Insurance Guy

  • A new blog so Vioxx plaintiffs can post their reactions to the settlement.

  • bliffle

    I went to the Vassar website and happened upon this interesting comment in a book review:

    “If I had to pick on something to critique, I’d say that some of his headlines don’t seem to match his later words, for example “Why people hate insurance” is the headline and then the anecdote that follows is about algebra. I would argue that people hate insurance because they pay and pay and pay and pay, and then finally, they submit a claim and they get hassled and hassled and hassled, until they finally settle for less than they should be getting from an insurance company. To me, that’s why people hate insurance.”

    This comment is exactly right, and until we find a more methodical way to insure that “risk management” means managing the risk of the insured client instead of finding ways for insurers to evade their responsibilities there will be ongoing resentment towards insurers and the lawyers and Risk Managers who facilitate their irresponsibilities.

    The resentment of the insured is already high and will not be reduced when citizens in California and Massachusetts discover that their children will be born owing insurance premium money to corporations backed by the might of state law and not inhibited by federal anti-trust law, and (McCarran-Ferguson act 1945) exempted from federal regulation. That is tantamount to a license to steal, and we all know the result when thieves are granted licenses.

  • Every one of these Vioxx cases are tort liability claims. None of the injured parties have an insurable interest. The insured in this case is Merck.

    This case has nothing to do with the status of the aggrieved parties’ health insurance.

    Also, as a risk manager, I sit on the other side of the table from the insurance companies. My job is to make sure that a loss will not put the company in a precarious financial position.

    The only way to do this is to ensure that the product or service produced is safe, and that it’s produced in such a way that the employees who bring the product or service remain healthy and productive.

    Merck had a bad product that led to a bad situation made worse by their litigation approach.

    I would suggest that, when citing a source (in this case my book), you read the book instead of one portion of an overall positive review written by blogcritic MaryAnna Clemons.

  • bliffle

    But her critique still stands: what people hate about insurance is the uncertainty of getting a payoff.

    And how does a person insure against damage from a drug? He really doesn’t have any resource to go to for insurance against damage, except (1) sueing the pharma if he is damaged, (2) voting for some kind of group insurance that insures against damage, maybe even federal government insurance.

  • chris_obrien60

    Merck has done it again, they got the lawyers and the judges to agree to amend the requirements to be eligible to be a member of the class, by agreeing to lower the amount of time on the drug from 18+ months to 30 days or less even and then didn’t inform any possible members of the class a chance to also file for damages. They kept the decision secret so as to not dilute the settlement amounts going to the lawyers, the “official” announcement on the deadline to file as a member of the class was released on November 09 as opposed to the deadline being November 08, very sneaky indeed.
    This whole settlement smacks of collusion and deceict as it applies to those possible members of class concerning this drug, I confess I’m one of the few “screwed”.
    I’m now not ever going to be able to go back to work due to the continuing complications from my heart attacks and my family tree has absolutely no history of heart disease. But I took Vioxx and when it was pulled I took Celebrex, then I suffered a massive heart attack, suspicious indeed, but I was excluded from class due to the 18 month requirement. And to add insult to injury, I’m now told due to the short-sightedness of at least 3 law firms, I now am not able to file a claim or lawsuit against Merck.
    Respectfully, Chris O’Brien

  • Dennis Harrison

    VIOXX – Should there be a ROUND 2?

    For those of you who seem to criticize most, or all of the claimants and feel that Merck can just do no wrong, and is as pure as the driven snow – why not do some research on some Google terms such as

    vioxx bone spine healing;
    cox-2 bone spine healing;
    fracture bone spine healing vioxx;

    Just one example: more follow –

    MAY 21, 2002 – JOURNAL OF BONE AND MINERAL RESEARCH – COX-2 DECREASES BONE HEALING? – mechanical testing revealed that COX-2 inhibitors…reduce bone strength…expression of COX-2 is critical for bone healing…essential for fracture healing…the inhibition of prostaglandin synthesis stops normal fracture healing;

    You will find broad evidence that (alleged) another, very significant problem of Vioxx existed and was (allegedly) known by Merck. Unfortunately for the public; it has been, (allegedly) by Merck successfully swept under the rug and under the radar; with severe consequences for many people, but with many benefits (allegedly) for Merck.

    I allege that the responsible action would have been to announce this issue when Vioxx was taken off the market. Instead, “this muddy picture,” (Dr. Scott Reuben of Baystate Medical Center in Springfield, Mass.) was allegedly maintained by Merck rather than provide any kind of caution, warning(s), consumer or physician education, etc. Nope – this was one issue that apparently and allegedly was better just to keep “muddy” as long as possible….delay creates confusion and allows red herrings to become a strategic tool for profits…

    I still have hope that the Public will demand that Merck acknowledge the (alleged) bone/spine healing issues, NOW, and that the STATUTE OF LIMITATIONS clock be reset for potential bone/spine litigants. Because this was not done, Merck most likely avoided many (thousands) more lawsuits. This would have made their publicity much worse for Merck, and perhaps juries would have seen (allegedly) not one, but a pattern of alleged deceit by active concealment, as well as the other charges. If this had happened, the value of the heart/cv/stroke “settlement” quite likely would have been higher.

    I believe that I have become very well versed and researched on many of the issues as I continue to pursue my own, “pro se” litigation (attorney’s ONLY wanted to take cases which were heart/CV/stroke oriented – I better not get started on that subject also…). I tried to have the public, and attorneys across the land, become aware of the bone/spine healing problems, but with limited success (it has been much easier and offers much less risk submitting a lawsuit and letting the MDL do the “heavy lifting Discovery”, than actually conduct a jury trial, along with its own Discovery process. As of yet, I have not reached the critical mass (of Public awareness) needed for logical and responsible actions to be put into motion (i.e. Merck – Round 2). I still hope to do so, and consider this another attempt at Public Awareness….

    How about this idea – if indeed the “settlement” is approved with its 85% threshold, the legal community (esp. the Plaintiff’s BAR) should now tackle the bone/spine alleged problems. They are real, there is plenty of proof, and perhaps the causation issues are more direct to deal with. At least, for gosh sake, a real investigation by the Plaitiff BAR as to whether or not it should pursue bone/spine litigation, and push to have the STATUTE OF LIMITATIONS extended should be a very high priority. And while they are at it, perhaps it is appropriate for another review of Celebrex (another Cox-2 inhibitor) along the same lines.

    One cannot but understand that many (likely thousands? – perhaps tens of thousands) people, in the past and CURRENTLY, (were) are being adversely impacted. It is about time that both Merck (and Pfizer/Celebrex) finally takes a comprehensive, cohesive, position on Cox-2 inhibitors as well as potential negative synergies with emerging (alleged) issues and litigation with bio-phosphates, such as FOSAMAX. I, personally, would shutter at taking a Cox-2 inhibitor and something like FOSAMAX concurrently – especially since FOSAMAX can stay in the bones for about 10 years. This is quite possibly an explosive issue that should be addressed now, not later after the (potential) massive damage. A little bit of “preventive medicine” is certainly due here – and wouldn’t you think that Merck and Pfizer (and by the way – Novartis), being the “bone experts” should have already have had position(s) on these. Also, though any degree of reasonableness and safety concerns would have called for post-marketing monitoring. Why should these companies have to be ordered for monitoring, my gosh, it is only common sense and what you would expect of “world class” organizations!

    Back to Vioxx, just a small sample of the Independent Research (IR) that Merck (allegedly) just simply ignored and (allegedly) apparently hoped would just fade away. By the way, (allegedly) there were NO warnings, nor public or physician education on the bone/spine healing issue(s)…

    There are just SO MANY Independent Studies (IR) about the “alleged” issue(s) of Vioxx and bone/spine issues!

    …And there were, and are, other factors that should have caused responsible actions but allegedly failed to so the issue(s) would remain in never never land! It certainly would seem that even just the general industry “wariness” (of Cox-1 inhibitor concerns) SHOULD have motivated Merck to address the matter with Vioxx (as well as its new proposed Cox-2 inhibitor entry – Arcoxia). Wouldn’t you think that they would be the SUBJECT MATTER EXPERTS! There seems to be no reasonable explanation as to why Merck did not tackle the mounting Independent Research (IR), the very scientific explanations, and general industry wariness of early generation of Cox-1 inhibitors (which also, by the way, were(allegedly) not treated in an open or fair manner). Just read the following – perhaps you may share the shock and anger that I had! Just some example excerpts from virtually hundreds of articles:

    REPRINTED FROM: http://WWW.USATODAY.COM/NEWS – “It’s time to tell the public,” concludes Dr. Thomas Einhorn, Boston University’s orthopedic surgery chairman (Einhorn, A PAID CONSULTANT for Vioxx maker Merck & Co. and Celebrex maker Pharmacia Corp)….New research suggests some of the most widely used painkillers may delay healing of a broken bone… “If it were my fracture … to me every day counts,” he says. Vioxx and Celebrex are among the culprits…. the makers of Vioxx and Celebrex deny any link. Comment by author – a paid consultant’s for Merck and Pharmacia (at the time) is apparently not even followed up….apparently his results were not what they wanted to see…

    Copyright 2002 The Associated Press. All rights reserved. …O’Connor says his findings prompted some colleagues to withhold cox-2 inhibitors from broken-bone patients… American Academy of Orthopedic Surgeons just alerted all its members to the study… Arthritis Foundation… urges more research… surgeons made the surprise discovery a few years ago that high doses of the intravenous NSAID Toradol delays spinal surgery healing… a recent British study concluded using NSAIDS was the biggest factor in delayed healing of a broken leg. …”It is confusing. … You see this muddy picture,” says Dr. Scott Reuben of Baystate Medical Center in Springfield, Mass., who conducted that study — and calls for targeted research on broken-bone sufferers to settle the. It’s an important question, as more Americans regularly use Vioxx, Celebrex and other anti-inflammatory painkillers called NSAIDS that also are implicated. Doctors increasingly offer bone surgery or fracture patients higher and higher doses of such painkillers in place of narcotics… At issue is the discovery that an enzyme called cox-2, which causes pain and inflammation, also appears to play a crucial role in bone healing. …Einhorn, a paid consultant for Vioxx maker Merck & Co. and Celebrex maker Pharmacia Corp (at the time)….despite the companies displeasure…concludes “a prudent approach” is to temporarily quit using either NSAIDS, Vioxx or Celebrex if you break a bone.

    “If you don’t know, you should err on the side of caution.”

    This author’s comment – apparently and allegedly, Merck decided not to err on the side of caution!

    COX-2: WHERE ARE WE IN 2003? – THE ROLE OF CYCLOOXYGENASE-2 IN BONE REPAIR – EINHORN TA. PROFESSOR AND CHAIRMAN, DEPARTMENT OF ORTHOPEDIC SURGERY, BOSTON UNIVERSITY MEDICAL CENTER, BOSTON, MASSACHUSETTS – both non-specific and specific inhibitors of cyclooxygenases impair fracture healing – but that this is due to the inhibition of Cox-2 and not COX-1! Vioxx is a Cox-2 inhibitor. “It’s time to tell the public,” concludes Dr. Thomas Einhorn;

    “Somehow, this study flew under the radar,” SAYS JASON THEODOSAKIS, MD, MS, MPH., AUTHOR OF THE ARTHRITIS CURE (ST. MARTIN’S PRESS 2004). This information is unlikely to be broadcast by pharmaceutical companies, he explains: “It could affect the billions of dollars in sales of the COX-2 inhibitors if people knew they might be destroying cartilage while they’re trying to relieve their pain.”;

    FEBRUARY 02, 2005 – HSS PHYSICIANS REVIEW LITERATURE ON THE SAFETY OF COX-2 INHIBITORS – COX-2 inhibitors effect fracture healing and spine fusion… should never be used in spinal fusion;

    Note the dates on the above quotes. Do more research and you will see that the dates go back even farther.

    ……….and there is so, so much more! This is an issue, most likely and allegedly impacting at least thousands of individuals……..but it just seem to continue flying under the radar. The poor saps (including this author) who’s bones and/or spines didn’t heal correctly, or even at all, never even knew what hit them!

    POSSIBLE OTHER PUBLIC CONERNS! – taken from a Vioxx Blog….

    While the following is based on facts, allegations, and “intelligent speculation” – Mr. Harrison raises several other potentially explosive issues that he feels, very strongly must be studied. He feels it is just not responsible, in any way, not to do so.

    VIOXX, and all COX-2 inhibitor drugs, work by inhibiting the body’s natural response to inflammation and bone repair/regeneration. Mr. Harrison indicates that (1) he would also have to wonder about other long-term effects on the bones (from Vioxx usage). Also, it begs other questions. (2) What might be the impact of FOSAMAX (also produced by Merck!) on bone healing? It has already been alleged, and there are lawsuits pending, that it can prevent the jaw from healing after a tooth extraction (bone dies – the issue is called “Dead Jaw”). (3) This should cause one to question – what about FOSAMAX’s relation to other bones? (4) Furthermore, what if some one took VIOXX, or another Cox-2 inhibitor, and FOSAMAX at the same time? Since both work basically by interfering with the body’s natural reaction of bone repair and healthy regeneration – could the problem be even worse with concurrent use – which did and does exist?

    Also, what other bone problems may develop with the past- concurrent (Cox-2 inhibitor VIOXX and FOSAMAX USAGE?) Incredibly, both drugs are/were produced by Merck! Shouldn’t Merck (allegedly) have a formal opinion on this by now, as well as some kind of testing and Post Marketing followup? Also, since Celebrex exists today and it is also a Cox-2 inhibitor, what about current concurrent use (Celebrex and Fosamax)? Shouldn’t maker of Celebrex (allegedly) also have a formal opinion about this, as well as some kind of testing and Post Marketing followup.

    If you would like to review more of Mr. Harrison’s history and gain more thoughts on your situation if similar, please visit the blog.

    Yes – do some research as suggested above; and those of you who blame the claimants; perhaps realize that (allegedly and potentially) a pattern of deceit by omission is emerging; and perhaps many, many of the claimants have good cause. And remember when you see a person, (allegedly) deformed from using Vioxx during bone/spine healing… “there but for the Grace of God, go I”

    Dennis Harrison
    Catskill, NY

  • MaryAnna

    There are two issues here — a review and Merck, and putting my name in the same breath with them makes my teeth grind together.

    I read a book and gave a review — but Merck, they make BILLIONS off of killing innocent people with their drugs, and they continue to do so with their vaccines. I have no love for Merck.

    I did however like the book by Rick! 😉

  • Douglass M. Hamilton

    The Lesson Taught By The Vioxx Settlement: “Whew!”

    By Douglass M. Hamilton, Managing Partner, Resolution Counsel, LLP

    The very same day that Rick Vasser published “The Vioxx Settlement – A Lesson in Corporate Risk Management” (critical of Merck’s risk management of the Vioxx cases), Law.Com released an article by Andrew Longstreth entitled “$4.85 Billion Vioxx Settlement Validates Merck’s Courthouse Strategy”. Vasser’s piece is on the mark. Longstreth’s article is only on the mark if his congratulations to Merck were in spite of and not because of its “Courthouse Strategy”.

    Are Vasser and Longstreth really giving different grades to Merck for its strategic handling of the Vioxx litigation? Probably not. No one with the benefit of hindsight could attribute to Merck the design of a smart resolution plan or the smart execution of an exit strategy. Merck’s strategy called for Merck to burst into the room with guns ablazin’, daring the mass tort plaintiffs’ bar to “Bring it on!” No business-based forethought went into that strategy. Longstreth’s apparent praise must really be saying this: “Considering the probable disaster that accompanied its ‘Courthouse Strategy’, Merck came out okay”. If so, then both of them are saying the same thing and I agree.

    Initially, Merck’s “exit strategy” appears to have been this:
    (1) Put a few billion dollars into a defense fund and start trying cases;
    (2) Use angry words and hard-ball litigation tactics to break the back and the will of the plaintiffs and their counsel;
    (3) Entertain no civil discussions with plaintiffs’ counsel about settlement; and
    (4) Anticipate innumerable “Perry Mason moments” across the country in which plaintiffs who have filed withdraw their cases and those who haven’t filed elect to forego litigation.

    Here’s how the “exit strategy” appears to have actually worked:
    (1) Merck started spending the defense funds aggressively ($1+ billion spent through 27 trials);
    (2) Jury verdict in one trial against Merck for almost a quarter of $1 billion;
    (3) Case filings increased from 4,200 cases to 27,000;
    (4) 27 trials were completed (0.1% of pending cases) with 5 plaintiff verdicts (all on appeal);
    (5) Merck abandons “no settlement” plan by settling for multiple $billions.

    Could Merck have reduced its costs and outcome risks had it managed its risks differently? Very probably. But the key point here is that Merck’s “Courthouse Strategy” involved predictable cost exposure that alone would cause the strategy to sink of its own weight. Merck was able to get 0.1% of all of the cases tried once for $1 billion. At that rate getting rid of all 27,000 cases would cost $1 trillion through the first trial, plus costs of appeal, retrial and the amount necessary to satisfy all final adverse jury verdicts. Could Merck really have expected the mass tort plaintiffs’ bar not to have known that from the beginning? The real significance of the settlement is that Merck is very fortunate to have dodged a very large bullet.

    Perhaps Vasser and Longstreth might consider re-titling their pieces to read:

    “Vioxx Settlement – A Very Expensive Lesson in Corporate Risk Management”.


    “$4.85 Billion Settlement Enables Merck to Dodge “Courthouse Strategy” Bullet”

    Monday morning quarterbacking is easy and often ignores real-time playing conditions faced by the players. But designing appropriate exit strategies for defendants in mass tort cases requires taking into account certain fundamentals, including recent lessons taught by other recent mass tort settlements. Had it done that, Merck would have steered clear of any hope or expectation that it could or would increase its settlement leverage by playing tough and saying things it didn’t mean. Times have changed – plaintiffs’ lawyers are better funded, more sophisticated and more highly organized than ever before. They are not easily intimidated. Drawing lines in the sand is no longer a viable strategy to increase leverage when the adversary knows it will take many $billions simply to hold that line, not to mention potentially disastrous financial outcome risks that come with jury verdicts. The only thing that was truly predictable from the “Courthouse Strategy” was that Merck would someday abandon it. It remains to be seen whether it will cost Merck more in the future – the costs associated with reduced credibility when another mass tort comes knocking at its door.

    There are indeed lessons to be learned here. Sensible settlement strategies don’t occur without aggressive resolution management early in the life of a dispute. That involves intercepting the dispute early in its life and having difficult conversations (internally and externally) early enough that the dispute’s outcome risks and costs projections can be responsibly assessed before it escalates out of control. Through aggressive management, sensible exit strategies can be designed, properly staffed and implemented to advance the business.

    There may be a few cases in which invocation of the trial court system would be appropriate to “test” case values. But, in serious injury and death cases it will be a very rare circumstance when the downside of process costs and outcome risks won’t far outweigh the upside value of jury bracketing. There are two things Merck did that a sensible exit strategy can never do. First, it cut off lines of civil communication with the adversary. Second, in doing so, it stated things to the adversary that brought its own credibility into issue. Just imagine how good it could have been had Merck managed this better, or how bad it could have been if it hadn’t settled.

    Under the circumstances, Merck came out okay. Congratulations. As stated above, “Whew!”

  • I agree that there is no way to easily estimate whether Merck cut its best deal. I believe that they hoped to get these cases in federal court to lessen both their liability and plaintiff expectations.

    I also believe that they underestimated the potential exposure they had out there, and that their strategy to litigate did not anticipate a $253 million verdict against them right out of the gate.

    Bad product, huge potential exposure, loss of goodwill in the marketplace…it begs for an early and aggressive settlement strategy.

    I have a little rule I like to go by:

    If I start liking the other guy’s case, it’s time to think about settling.

    Now, of course, they will claim the litigation strategy was just a step that was necessary to get them to this reasonable conclusion.

    That’s what they all say.

  • VICTIM 45,987


  • I hope everyone treats information/commentary derived from the “work,” pen, or mouth of Dr. Scott Reuben with the resolute disregard his fraudulent contributions merit.

    How many studies were, in their own turn, flawed because of inferences and data that were referenced from his fake studies?