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Merck Looks Ahead Despite Vioxx Suits

Firm Accelerates Its Work on Vaccines

By Brooke A. Masters
Washington Post Staff Writer
Wednesday, December 15, 2004; Page E02

WHITEHOUSE STATION, N.J., Dec. 14 -- Merck & Co. officials said Tuesday they intend to defend aggressively their handling of the painkiller Vioxx against claims by patients who say they were harmed by the now-withdrawn drug.

More than 1,100 patient groups have filed 475 lawsuits against the New Jersey-based manufacturer, and its stock has fallen more than 35 percent since it pulled Vioxx on Sept. 30. Merck withdrew the arthritis drug after a study linked its long-term use with increased risk of heart attacks and strokes. Merck officials said at their annual business meeting that they will fight efforts to consolidate the lawsuits.

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The embattled company faces an additional 18 securities lawsuits from shareholders and pension funds; investigations by Congress, the Securities and Exchange Commission and the Justice Department; and generic competition when its top-selling drug, the cholesterol fighter Zocor, loses patent protection in 2006.

General counsel Kenneth C. Frazier told analysts and investors that the nation's No. 2 drugmaker will seek to move most Vioxx lawsuits to federal court. He said the company will not seek a global settlement but instead expects it to argue that cardiovascular problems are common among arthritis patients and that the study showed no increased heart attack risk until after 18 months of continuous use.

"I'm going to require the plaintiffs to provide scientifically valid, medically competent, legally admissible evidence that ties their injury to Vioxx and excludes alternative causes," Frazier said in an interview after the meeting. He said Merck does not yet have enough information to set aside a specific amount of money to cover litigation costs arising from the drug, although one analyst has estimated the costs could be as high as $18 billion.

Chief executive Raymond V. Gilmartin, who is slated to retire in 2006, and other executives were relentlessly upbeat about the company's long-term future. They signaled that they are looking to the firm's vaccine division, plus cost-cutting and deals with other companies, to bolster Merck's bottom line. The firm was already under pressure to cut costs before the Vioxx withdrawal. Officials said Tuesday that by the year's end, 5,100 jobs will have been eliminated since October 2003, 700 more than originally planned. Merck expects to save $300 million on payroll in 2005, officials said.

With the Vioxx controversy hanging over it, Merck has accelerated vaccine development and hopes to have four new products either approved or pending before the Food and Drug Administration by the end of 2005. The company asked the FDA in August for permission to sell a single shot that protects against measles, mumps, rubella and chicken pox, and hopes to file applications in 2005 for an oral vaccine for a gastrointestinal virus that affects children, a shot that would protect adults against shingles, and a first-of-its kind vaccine against human papillomavirus, which causes cervical cancer.

The firm intends to divert its Vioxx sales force to selling vaccines by the end of 2005. The strategy is somewhat risky, analysts said, because vaccines have not been as profitable as drugs in recent years, and two of the new products are aimed at adolescents and adults, rather than at infants who are already getting routine vaccinations.

Gilmartin reaffirmed the company's guidance last week that it expects to post earnings of $2.59 to $2.64 per share for 2004, down about 50 cents because of the Vioxx withdrawal, and earnings of $2.42 to $2.52 for 2005.

"Our focus now is on the future -- on renewing the growth of the company. The situation we face is not business as usual, but the long-term strategy we have in place is still very much the right one," Gilmartin said.

The company, which saw several drugs collapse in late-stage testing last year, has also sought to beef up its pipeline with joint ventures and licensing agreements.

This year, Merck inked 50 licensing deals, up from 10 five years ago, Gilmartin said. The outside deals have brought the company some of its most promising products, including a diabetes drug to be submitted to the FDA this month, and an insomnia drug. The company also bought a company this fall that is testing an unusual stroke drug, and Merck has the potential for nearly a dozen more deals "over the near term," said Chief Financial Officer Judy C. Lewent.

Peter S. Kim, president of Merck Research Laboratories, said the company has improved its methods for identifying promising new drugs. "We are seeing substantial increases in productivity in our basic laboratories," he said.

© 2004 The Washington Post Company


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