Merck to pay $4.85bn to settle lawsuits over Vioxx drug

The US pharmaceutical giant Merck has agreed to pay $4.85bn (£2.32bn) in settlement against 27,000 compensation claims brought about by side-effects of Vioxx, its arthritis treatment that was voluntarily withdrawn from the market in September 2004. After legal fees are paid, most plaintiffs will receive settlements of between $50,000 and $70,000.

Although the company said the payment was not a class-action settlement and that it will continue to evaluate claims on a case-by-case basis, the deal in effect brings to an end a case that some analysts initially believed could cost the company up to $30bn. Merck expects to carry a pre-tax charge for the full amount in its fourth-quarter earnings figures.

The settlement was made to law firms representing federal prosecutors and was signed by three of the four judges currently overseeing 95 per cent of Vioxx claims. Merck lost the first case against Vioxx that it defended, resulting in a $253m settlement, and although it subsequently won the next 20 cases its legal fees are running to the tune of more than $600m per year.

Under the terms of the agreement, $4bn has been set aside for myocardial infarction (heart attack) claims and $850m is earmarked for ischaemic stroke claims. The deal only comes into effect if a minimum of 85 per cent of all plaintiffs accept its terms.

Richard Clarke, the chairman and chief executive of Merck, said that the settlement will allow the company to "concentrate even more fully on its mission of discovering, developing novel medicines and vaccines". In a statement, he added: "The agreement is structured to provide a significant degree of certainty toward resolving the majority of the outstanding Vioxx product claims in the United States for a fixed amount."

At the height of its sales, Vioxx generated over $2.5bn in revenue for Merck. However, a Federal Drug Administration investigation into the drug in 2001 concluded that it did increase the risk of cardiovascular problems, strokes and renal problems.

In a note to clients, Goldman Sachs analysts said: "The financial implications do not look onerous, given that Merck has $7.4bn in cash and short-term investments and operating cash flow of $4.7bn in the first three quarters of the year." Merck shares were in demand on wall Street yesterday and climbed $1.13 to $55.90 by the close after peaking at $57.32.