Merck & Co. set aside $950 million to resolve a criminal probe into the Vioxx painkiller it withdrew six years ago, raising potential legal costs to $7.7 billion and driving down the company’s shares by 1.7 percent.
The legal reserve contributed to a 90 percent decline in third-quarter income to $342 million, the Whitehouse Station, New Jersey-based drugmaker said today in a statement. Merck fell 63 cents, to $36.31, at 4 p.m. in New York Stock Exchange composite trading.
Merck, the second-biggest U.S. drugmaker, pulled Vioxx from the market in 2004 after a study showed it doubled the risk of heart attacks and strokes. The company previously paid $4.85 billion to settle thousands of lawsuits claiming injuries and another $1.9 billion for legal costs. The new legal reserve will cover an “anticipated resolution” of a probe by U.S. prosecutors into research and marketing of Vioxx.
“We’d be buyers on any significant weakness today from the $950 million legal reserve related to Vioxx,” said Seamus Fernandez, an analyst with Leerink Swann & Co., in a note to clients. The “legal charge overshadows solid product performance.”
Excluding the Vioxx reserve and other one-time items, earnings were 85 cents a share, the company said. Those results beat by 2 cents the average estimate of 15 analysts surveyed by Bloomberg. Sales jumped 84 percent to $11.1 billion after adding products from the $49.6 billion acquisition of Schering-Plough Corp. last November, the company said today in a statement.
Merck previously disclosed that federal prosecutors in Boston had identified the company in March 2009 as a target of a grand jury investigation, and that witnesses had been called in the probe. It also said that certain cities in Europe were weighing whether to bring criminal charges.
“Our discussions with the government are ongoing, and until they’re concluded, there can be no certainty about a definitive resolution,” spokesman Ron Rogers said in an interview.
The company won 11 of 16 Vioxx lawsuits at trial before agreeing in 2007 to create a $4.85 billion settlement fund. It also reserved $1.9 billion for legal costs.
Plaintiffs who sued in state and federal courts claimed Merck didn’t adequately disclose Vioxx safety data to the U.S. Food and Drug Administration, didn’t properly warn doctors and patients of the drug’s risks and misrepresented the potential harm in marketing materials.
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