The drugmaker faces a whopping $27 billion liability in a lawsuit brought by a New Jersey union, the International Union of Operating Engineers Local 68 Welfare Fund, which claims it overpaid for Vioxx and wants Merck to reimburse its members. Unfortunately for Merck, the action was given class-action status, which means insurers and other payers can jump in. Moreover, under New Jersey’s Consumer Fraud Act, the company could be forced to pay three times whatever amount was spent on the painkiller.

An estimated $9 billion, which represents the amount spent on Vioxx, multiplied three times is a lot. And Merck is worried that losing this one trial will spook Wall Street, which so far, has been convinced the company’s legal strategy - at least in product-liability cases involving heart attacks - is manageable. “The risks from this single case would be very large and could compel a change of strategy from Merck, at least for the class action,” JP Morgan analyst Chris Shibutani said in a research note.

So the drugmaker is appealing this before New Jersey’s Supreme Court, where oral arguments were made today. “This is not a rational system of consumer protection,” argued Merck attorney John Beisner, who reiterated that third-party payers shouldn’t be pursuing claims under New Jersey law when consumer protection laws vary among states.

Not clear when the court will make a decision, but this is going to be very closely watched. Lose this one and Merck will most likely have an even tougher time getting its insurers, some of which are already balking, to foot the legal bills. Then, there is the looming notion of reserves. And the dreaded ’s’ word - settlement.

News source: Reuters
[tags]Merck, Vioxx[/tags]