Merck Insurance Carriers Jump Ship Over Vioxx Disaster

Evelyn Pringle September 15, 2006

According to Merck’s August 7, 2006, SEC filing, “At this time, the Company believes that its insurance coverage with respect to the Vioxx Lawsuits will not be adequate to cover its defense costs and any losses.”

In addition, Merck says it has not established any reserves for potential liability relating to the Vioxx lawsuits or investigations, including for those cases in which a verdict has been entered against the company, and are now in post-verdict proceedings or on appeal.

According to the filing, Merck has product liability insurance for claims brought in the Vioxx Product Liability Lawsuits with upper limits of about $630 million after deductibles and co-insurance. This insurance provides coverage for legal defense costs and potential damage amounts that have been or will be incurred in connection with the Vioxx Product Liability Lawsuits.

The company says it has Directors and Officers insurance coverage applicable to the Vioxx Securities Lawsuits and Vioxx Derivative Lawsuits with stated upper limits of about $190 million and fiduciary and other insurance for the Vioxx ERISA Lawsuits with stated upper limits of approximately $275 million.

However, the filing states, the amounts actually recovered under the policies may be less than the amounts specified. It seem there are now disputes with certain insurers about the availability of some or all of this coverage and there are likely to be more disputes, according to Merck.

In fact, the company’s upper level excess insurers, which provide excess insurance potentially applicable to all Vioxx lawsuits, have commenced an arbitration seeking to cancel those policies, to void all obligations under those policies, and to raise other coverage issues with respect to Vioxx lawsuits.

But not to worry. “Merck intends to contest vigorously the insurers’ claims and will attempt to enforce its rights under applicable insurance policies,” the filings says.

For its part, as of December 31, 2004, Merck had established a reserve of $675 million solely for its future legal defense costs related to Vioxx. During 2005, according to the SEC filing, the company spent $285 million in legal defense costs related to Vioxx (i) Product Liability Lawsuits, (ii) Shareholder Lawsuits, (iii) Foreign Lawsuits, and (iv) Investigations.

In the fourth quarter of 2005, Merck recorded a charge of $295 million to increase the reserve for Vioxx legal defense costs to $685 million at December 31, 2005.

“Unfavorable outcomes in the Vioxx Litigation,” the SEC filing concludes, “could have a material adverse effect on the Company’s financial position, liquidity and results of operations.”

Being insurers are fighting against payment of damages before even one case is settled, it does not take a financial genius to figure out that Merck is in for big trouble.

According to the SEC filing, as of June 30, 2006, Merck has been served or is aware that it has been named as a defendant in approximately 14,200 lawsuits, which include approximately 27,100 plaintiff groups, alleging personal injuries resulting from the use of Vioxx.

Of these cases, Merck says, approximately 5,700 lawsuits representing approximately 16,100 plaintiff groups are or are slated to be in the federal Multidistrict Litigation (MDL), and approximately 7,100 lawsuit representing approximately 7,100 plaintiff groups are included in a coordinated proceeding in New Jersey Superior Court before Judge Carol Higbee.

These lawsuits include allegations related to cardiovascular events, thrombotic events, gastrointestinal bleeding or kidney damage.

Merck has also been named as a defendant in close to 200 putative class actions alleging personal injuries or seeking (1) medical monitoring due to class members’ use of Vioxx , (2) disgorgement of profits under unjust enrichment theories, and (3) remedies under state consumer fraud and fair business practice statutes, including recovery for the cost of Vioxx purchased by individuals and third-party payors such as union health plans.

The lawsuits filed in the state courts of New Jersey, California, Texas, and Pennsylvania, have all been transferred to a single judge in each state for coordinated proceedings.

On February 16, 2005, the Judicial Panel on Multidistrict Litigation transferred all Vioxx Product Liability Lawsuits in federal courts nationwide into one MDL for coordinated pre-trial proceedings in the US District Court for the Eastern District of Louisiana before Judge Eldon Fallon.

Judge Fallon has informed the litigants that he intends to try a series of cases through 2006, in the following Vioxx categories: (1) heart attack with short term use; (2) heart attack with long term use; (3) stroke; and (4) cardiovascular injury after April 2002 when the labeling on Vioxx was changed to include the results of the VIGOR trial.

Legal experts say Merck took a major hit on July 29, 2005, when a New Jersey state court certified a nationwide class of third-party payors, such as unions and health insurance plans, who paid for Vioxx used by their plan members. The named plaintiff seeks recovery of purchase costs, plus penalties, based on allegations that the class members paid more for Vioxx than they would have had they known the drug’s alleged risks.

Merck appealed the ruling and on March 31, 2006, the New Jersey Superior Court, Appellate Division, affirmed the class certification. The New Jersey Supreme Court recently decided to exercise its discretion to hear the appeal of the appellate court decision.

The trial in this case is currently scheduled to begin in March 2007, and according to Merck, it is not known whether the Supreme Court’s decision will affect the trial date.

Merck has also been named as a defendant in separate lawsuits brought by the Attorneys General of Alaska, Louisiana, Mississippi, Montana, Texas, and Utah, that claim Merck misrepresented the safety of Vioxx and seek reimbursement for (1) the cost of Vioxx purchased or reimbursed by the state; (2) all sums paid by the state for treatment of persons injured by Vioxx; (3) damages under various common law theories; and (4) remedies under various state statutory theories, including state consumer fraud, fair business practices, or Medicaid fraud, including civil penalties.

Even if the insurance carries end up covering the Vioxx cases, critics say how far is one or two billion dollars worth of insurance tops, going to go when there are states like Texas seeking $168 million in damages and additional civil penalties. Texas Attorney General, Greg Abbott, says he can prove total damages in excess of $250 million including treble reimbursement of $56 million, or $168 million, for five years of Vioxx prescriptions purchased in Texas.

In addition to the product liability lawsuits, Merck and various current and former officers and directors are named defendants in various putative class actions and individual lawsuits filed under the federal securities laws, all of which have been transferred to the US District Court for the District of New Jersey before Judge Stanley Chesler for inclusion in a nationwide shareholder MDL.

The plaintiffs request certification of a class of purchasers of Merck stock between May 21,1999 and October 29, 2004, and allege that the defendants made false and misleading statements regarding Vioxx in violation of the Securities Exchange Act of 1934, and seek unspecified compensatory damages and the costs of lawsuit, including attorneys’ fees.

The complaint also asserts a claim against certain defendants relating to their sale of Merck stock and includes allegations that certain defendants made incomplete and misleading statements in a registration statement and certain prospectuses filed in connection with the Merck Stock Investment Plan, a dividend reinvestment plan.

The Merck defendants have filed a motion to dismiss the complaint which was still pending at the time of the SEC filing on August 7, 2006.

On August 15, 2005, a lawsuit was filed in Oregon state court under Oregon securities law, by the State of Oregon on behalf of the Oregon Public Employee Retirement Fund against Merck and certain current and former officers and directors alleging damages in connection with its purchases of Merck common stock at artificially inflated prices due to Merck’s violations of law related to disclosures about Vioxx .

On July 19, 2006, the Court denied a motion by Merck to dismiss Oregon’s complaint and according to Merck’s SEC filing, the current and former officers and directors have entered into a tolling agreement in exchange for plaintiffs’ dismissal, without prejudice, of the claims against them.

Various federal shareholder derivative actions have been transferred to the Shareholder MDL and consolidated for all purposes by Judge Chesler. The consolidated complaint arises out of the same factual allegations that are made in the other Vioxx securities lawsuits.

The derivative suits assert claims against certain members of the Board past and present, and certain executive officers, for breach of fiduciary duty, waste of corporate assets, unjust enrichment, abuse of control and gross mismanagement.

On May 5, 2006, Judge Chesler granted a motion by defendants to dismiss the complaint and denied plaintiffs’ request for leave to amend their complaint, and plaintiffs have appealed to the US Court of Appeals for the Third Circuit.

On October 29, 2004, according to the SEC filing, two shareholders made a demand on the Board to take legal action against former Chairman, President and CEO, Raymond Gilmartin, and other individuals for causing damage to the company with respect to the improper marketing of Vioxx .

In response to the shareholder’s demand letter, the Board determined at its November 23, 2004 meeting that the Board would take the request under consideration and it remains under consideration.

The Board, the SEC filing states, has recently received another shareholder letter demanding that the Board take legal action against the Board and Merck management for causing damage to the company relating to the company’s improper marketing of Vioxx.

In addition, various federal putative class actions filed against Merck and certain current and former officers and directors have been transferred to the Shareholder MDL and consolidated for all purposes. The consolidated complaint asserts claims on behalf of certain current and former employees who are participants in Merck’s retirement plans for breach of fiduciary duty under the Employee Retirement Income Security Act.

The allegations are similar to those contained in the other securities lawsuits. On October 7, 2005, defendants moved to dismiss the complaint, and on July 11, 2006, Judge Chesler granted in part and denied in part the motion to dismiss.

The court dismissed the claim of breach of fiduciary duty based on continued investment in Merck stock as to all defendants except the 5 individuals who were members of Merck’s Management Pension Investment Committee during the purported class period.

The court dismissed the claim for breach of fiduciary duty based on failure to provide complete or accurate information to participants to the extent it related to specific communications cited in the complaint, but declined to dismiss the claim before discovery to the extent plaintiffs allege that adverse information was withheld from participants.

The court also dismissed the claim for failure to monitor as to all defendants except the members of the Compensation and Benefits Committee of Merck’s Board of Directors who had supervisory responsibility for the MPIC.

Finally, the court declined to dismiss the claim for co-fiduciary liability, absent factual development, but dismissed as duplicative the claim for knowing participation in breach of fiduciary duty.

As far as a slow down in the continuous stream of lawsuits, Merck is no doubt hoping to see a light at the end of the tunnel soon because Vioxx was pulled off the market on September 30, 2004, and some states have a 2-year statute of limitations requiring that lawsuits must be filed within two years after the plaintiffs learned or could have learned of their potential cause of action.

As a result, experts say September 30, 2006 is a deadline for filing Vioxx cases in many states. However, they also note that the laws governing statutes of limitations are complex, can vary from state to state, and might be affected by pending class actions. For instance, some states have 3-year statutes of limitations, and some even longer.

Legal analysts predict there will be arguments raised about the proper application of these statutes, but say ultimately the decisions will be up to the federal and state judges presiding over the individual cases.

But then Merck attorneys know that September definitely will not be the end date for filing Vioxx lawsuits because according to Merck’s SEC filing, as of June 30, 2006, the company has entered into agreements with about 5,800 plaintiffs to toll the statute of limitations, so the September 30, 2006 cut-off date would not apply in those cases.

The tolling agreement with the MDL Plaintiffs’ Steering Committee establishes a procedure to halt the running of the statute of limitations as to certain categories of claims arising from the use of Vioxx by non-New Jersey citizens.

The agreement applies to individuals who have not yet filed lawsuits and only to those claimants alleging injuries resulting from a thrombotic cardiovascular event that results in a myocardial infarction or ischemic stroke. The agreement requires any tolled claims to be filed in federal court.

And although its never mentioned much, Merck has been named as a defendant in litigation relating to Vioxx all over the globe including several countries in Europe as well as Canada, Australia, Brazil, Turkey, and Israel.

In addition, based on media reports and other sources, Merck says, it anticipates that additional Vioxx Product Liability Lawsuits, Vioxx Shareholder Lawsuits and Vioxx Foreign Lawsuits will be filed against it and certain current and former officers and directors in the future.

And that may be true, because critics says there should be another shareholder lawsuit filed against Merck Management this month for flushing another $21 million in profits down the toilet by paying a committee to publish a bogus 1,700 page report to supposedly absolve Merck Management of any wrongdoing.

But in any event, Merck’s legal woes are not limited to civil court proceedings. In November 2004, Merck was advised by the SEC that it was commencing an informal inquiry concerning Vioxx, and on January 28, 2005, Merck announced that it received notice that the SEC issued a formal notice of investigation.

Also, according to the company’s SEC filing, Merck has received subpoenas from the US Department of Justice requesting information related to the research, marketing and selling activities of Vioxx in a federal health care investigation under criminal statutes.

Merck also says it has received a number of Civil Investigative Demands from a group of Attorneys General from 31 states and the District of Columbia who are investigating whether Merck violated state consumer protection laws when marketing Vioxx.

And finally, to end on a happy note, the SEC filing says, investigations are being conducted by local authorities in certain cities in Europe in order to determine whether any criminal charges should be filed related to Vioxx.

“The Company,” Merck states, “cannot predict the outcome of these inquiries; however, they could result in potential civil and/or criminal dispositions.”

Merck Legal Team Makes Killing Off losing Vioxx Strategy

Evelyn Pringle June 5, 2006

Not much has changed at Merck since Vioxx was pulled off the market. The only difference for shareholders is that instead of spending hundreds of millions of dollars a year to promote Vioxx, the attorney’s fees are now costing hundreds of millions of dollars a year.

As of December 31, 2004, Merck had established a reserve of $675 million solely for legal defense costs related to Vioxx, according to the company’s 2005 annual report.

During 2005, the report said, Merck spent “$285 million in the aggregate in legal defense costs worldwide” related to Vioxx.

In the fourth quarter of 2005, Merck recorded a charge of $295 million to increase the reserve solely for its future legal defense costs related to Vioxx, the report said, to $685 million as of December 31, 2005.

“This reserve is based on certain assumptions,” Merck told shareholders, “and is the best estimate of the amount that the Company believes, at this time, it can reasonably estimate will be spent through 2007.”

That said, the company has not set aside one dime for potential damage awards in Vioxx trials through 2007. Which means the only good news to report as far as Merck’s legal strategy of a case by case defense of thousands of lawsuits in the years ahead, is that the company’s legal team will keep raking in dough while Merck slowly goes under.

We now know that tens of thousands of people died, and many more were injured, because Merck concealed the information about the adverse effects of Vioxx. But to date, Merck has not paid one red cent in damages. And the appeals process initiated by Merck attorneys, guarantees that that money awarded to any plaintiff so far will be years away. And even then, experts say, the close to $300 million in damages awarded will be reduced to $48 million by caps on punitive damages.

In addition to the thousands of personal injury and wrongful death claims, Merck also faces class actions, filed on behalf of prescription drug plans and insurance carriers seeking treble damages, that experts say could expose Merck to multi-billion dollar verdicts.

The plaintiffs in the class actions allege that Merck misrepresented the safety profile of Vioxx, ignoring clear and early warning signs of its risks in order to continue its sale, and that had they known the truth, they would not have included Vioxx as an approved drug or agreed to reimburse plan members for its high cost. They also contend that Vioxx was no more effective than over-the-counter painkillers already on the market.

In seeking reimbursement, these plaintiffs will not have to prove that Vioxx caused any injuries or deaths. All they will have to show is that Merck continued to push Vioxx after it knew about the drug’s increased risks.

And on top of the class action monsters, there is the pesky little matter of lawsuits filed on behalf of the individual states that also have the potential to expose Merck to billion dollar damage awards. The state actions are similar to the class actions and seek repayment for money paid for Vioxx by state run health care programs like Medicaid.

The damages sought are huge. For instance, Texas Attorney General, Gregg Abbott, is seeking $168 million and says he can prove total damages in excess of $250 million over five years in payments for Vioxx.

According to Merck’s 2005 annual report, “The Company has received a Civil Investigative Demand from a group of the Attorneys General of 31 states and the District of Columbia who are investigating whether the Company violated state consumer protection laws when marketing Vioxx. The Company is cooperating with the Attorneys General in responding to the Civil Investigative Demand.”

The state of New York’s Controller, Alan Hevesi, claims his state’s retirement fund lost $171 million when Merck’s stock value dropped and that teachers, policemen, and firefighters have lost $287 million all total from their retirement funds.

The NY suit alleges that Merck violated federal securities laws by failing to disclose information about the safety risks of Vioxx. “The New York State Common Retirement Fund is exactly the kind of sophisticated and knowledgeable financial institution that the Congress, in the 1995 Private Securities Litigation Reform Act, intended to lead such class action suits,” Mr Hevesi said in a press release.

The NYSCRF is reportedly the second largest public pension fund in the US, in terms of membership and assets, with more than 970,000 retirees, beneficiaries and members and over $120 billion in assets.

“Merck must be held legally responsible for its actions,” Mr Hevesi noted in his press release. “These actions have put lives at risk and cost shareholders billions of dollars.”

Experts say that for Merck’s “no pay” strategy to work, the company would have to win virtually every one of the of individual lawsuits and then hope that such success would help defeat the claims by state health care programs, and the insurance and healthcare plans. Which they say is absolutely impossible because Merck has already admitted that consumers who used Vioxx over 18 months were exposed to an increased risk.

Billion dollar awards could easily drain Merck’s insurance coverage and punitive damages based on evidence that shows the company withheld, manipulated, and misrepresented the results of clinical studies, and therefore willfully marketed Vioxx, are not covered by insurance and must be paid by Merck directly.

According to attorney, Barry Turner, “Merck may be holding its own at the moment but the fact is that the lying and deceit cannot continue indefinitely without some major blow to stockholder funds.”

“I do think that Merck will get burned over this one,” he says, “if their lawyers are dumb enough to fight each personal injury case.”

Even though insurance does not cover punitive damages, Mr Turner says, “personal injury litigation costs are factored into so called R&D and marketing costs and the end user price covers all of this money.”

“But the securities actions are different,” he says. “Anyone who thinks this strategy is going to help the stockholders is crazy,” he warns.

He predicts that Merck will soon start trying to settle PI cases with confidentiality clauses. “This would mean less payouts,” he says, “and less knock on effect as other plaintiffs and their lawyers stand by to watch the action before running their own cases.”

The fact is, that in every new trial, the lawyers for the plaintiffs introduce more embarrassing evidence. For instance, in a California trial that began last week, a former Merck employee, testified that the company did not inform federal authorities about two clinical trials in which users of Vioxx were found to be more likely to die than people given a placebo.

Dr Edward Scolnick, the former head of Merck’s research laboratories, said in a videotaped deposition played for the jury, that he did not believe the numbers were coincidental. “It’s not likely due to chance,” he said.

Dr Scolnick testified that people on Vioxx died at a rate 4 times higher than those who didn’t receive the drug in one trial, and the rate was 2 1/2 times higher in the other. Both studies were done in 2001 to see if Vioxx could help Alzheimer patients.

He said Merck did not turn over results to the FDA when company officials met with an FDA representatives in April of that year and that he was not aware of the trial results at the time.

The juries have also viewed internal documents that show Merck training its sales reps to avoid answering tough questions from doctors about the adverse effects of Vioxx on the heart. In one training manual, each of the last four pages of potential questions that doctors might ask, the manual said “DODGE!” to avoid answering.

In the first trial in Texas, the plaintiff’s attorney, Mark Lanier, presented documents showing that Vioxx sales reps at one time received a $ 2,000 bonus if one of the doctors they met with prescribed Vioxx more than 55% of the time, and that the rep was paid another $2,000 if the rate exceeded 61%.

Mr Lanier also showed the jurors a Merck SEC filing that said Merck’s CEO Gilmartin was making about $3 million in salary and bonuses in 2000, when the company received the results of the clinical study in which Vioxx users suffered 5 times as many heart attacks as those taking naproxen.

In March 2006, Merck lost a major legal battle that had the company’s attorneys kicking and screaming, when US District Judge Eldon Fallon ordered FDA scientist, Dr David Graham to testify in a deposition in response to a subpoena from attorneys for Vioxx plaintiffs.

A major part of Merck’s legal strategy has been to continuously point out that Vioxx had been approved by the FDA. Experts say, Dr Graham’s testimony will throw a monkey-wrench into that strategy because it will reveal the long-fought battles over the deliberate concealment of the safety risks of Vioxx within the FDA itself.

Judge Fallon said the deposition would be limited to material relevant to the up-coming federal trial in July 2006, and Dr Graham’s previous public statements. In the deposition, Dr Graham alleged that Merck dragged its feet about changing the label on Vioxx to warn of the increased risk of heart attacks.

So now in their latest run-up-the-costs tactic, Merck attorneys have filed a motion to limit the use of Dr Graham’s deposition claiming it goes beyond anything Dr Graham previously said and therefore portions of it should not be heard by a jury.

Merck’s memorandum filed with the motion, asks the court to exclude the following: “The two-year period for coming up with the revised label for a problem as serious as high risk of heart attacks with Vioxx, this is an extraordinary long period of time, and the only explanation based on my long experience at FDA is that there was foot dragging by the company.”

But this statement is not new. Dr Graham publicly discussed the failure by Merck and the FDA to warn the public and add a new label to Vioxx while testifying at a congressional hearing a couple years ago on November 18, 2004.

In regard to the death and injuries caused by those failures, he in fact said: “I strongly believe that this should have been, and largely could have been, avoided.”

Maybe Merck would rather have the jury listen to how Dr Graham put the number of people injured by Vioxx into perspective, when he told members of the Senate committee that instead of side-effects from Vioxx, to picture the number of people as if it were airline crashes.

“If there were an average of 150 to 200 people on an aircraft,” he told the panel, “this range of 88,000 to 138,000 would be the rough equivalent of 500 to 900 aircraft dropping from the sky.”

“This translates to 2-4 aircraft every week,” he noted, “week in and week out, for the past 5 years.”

Merck also does not want the jury to hear Dr Graham say that Vioxx should not have been approved to begin with and that after learning the results of the VIGOR study in 2000, that Merck should have done a large study to determine whether Vioxx damaged the heart or blood vessels; and that an FDA official had recommended “at least” a warning label for the drug.

There is nothing new about these allegations either. Dr Graham made basically the same charges when he told the committee that the FDA “views the pharmaceutical industry it is supposed to regulate, as its client, over-values the benefits of the drugs it approves and seriously under-values, disregards and disrespects drug safety.”

Dr Graham also pointed out that even when the FDA did try to take measures to limit harm, the agency lacked the enforcement authority to make companies comply. In the case of Vioxx, he said it took more than 2 years to get Merck to add the increased risk of heart attack and stroke to its label.

In their memorandum, Merck attorneys complained because: “Much of Dr Graham’s testimony is an elaboration of why and how he believes the FDA is ‘broken.'”

“However,” they wrote, “Congress (not the jury) is the only body that can address Dr Graham’s concerns.”

Well then perhaps Merck should call members of congress to testify at future Vioxx trials to explain how Merck got top FDA officials to protect Vioxx profits by concealing the health risks associated with Vioxx that were revealed in damaging studies as far back as 2000.

In a statement following the verdict in first trial, Senator Grassley was quick to point out the FDA’s involvement in the Vioxx disaster. “Those running the nation’s public safety agency repeatedly dismissed the concerns of their own scientists and seemed to do everything possible to keep the public in the dark about emerging problems with Vioxx,” he said.

“The Food and Drug Administration was also negligent in the Vioxx case,” Senator Grassley declared.

A hearing on Merck’s motion is scheduled for July 5, 2006, to decide what parts of Dr Graham’s deposition will be allowed in during the trial of a suit brought by retired FBI agent, Gerald Barnett, who had a heart attack in September 2002.

Sooner rather than later, the steady stream of multi-million dollar judgments is bound to enrage Merck shareholders who have already suffered massive losses in their investments since October of 2004.

When Vioxx was pulled off the market in September 2004, the drug’s $2.5 billion in annual sales equaled 11% of Merck’s revenues. When news of the recall broke, Merck shares plunged $12 to $33, wiping out $28 billion of stock value in one day for investors, pension funds and mutual funds.

Stock value dropped another $2.35 per share, or 7.7%, following the first jury’s verdict for the plaintiff in Texas on August 19, 2005.

Up until then, analysts had estimated Vioxx liability to be as high as $18 billion. But by the following Monday morning after the verdict, analyst, David Moskowitz, from Friedman, Billings, Ramsey & Co, told CNBC that he had raised his forecast for Merck’s total tab from $11 billion to $50 billion.

Critics says, Merck is misleading investors by not making any provision whatsoever for the Vioxx liabilities in financial statements. In its annual report, regarding Vioxx litigation for 2006, Merck said:

“The Company has not established any reserves for any potential liability relating to the VIOXX Litigation. Unfavorable outcomes in the VIOXX Lawsuits or resulting from the VIOXX Investigations could have a material adverse effect on the Company’s financial position, liquidity and results of operations.”

Overall, there appears to be no good news out there for Merck shareholders. According to the January 27, 2006, Business Week Online, research from Morgan Stanley and Danish investment bank, Jyske Bank, estimates that patent expirations this year will equal 25% of Merck’s 2005 sales as major medicines face generic competition.

And in the meantime, more and more angry consumers are saying civil damage awards are not a enough punishment for Merck and that top management people who allowed the Vioxx disaster to happen should be in jail.

Although unbeknownst to most people, criminal charges are being considered that could lead some of the culprits in that direction.

In New Jersey, the $9 million punitive damage award against Merck in April 2006, resulted in the case being referred to the state’s Attorney General. Under the New Jersey Punitive Damage Act, any time there is a punitive damage award there must be an investigation “as to whether a criminal act has been committed by the defendant.”

By now, there’s certainly plenty of evidence in the public domain to prove that criminal acts were committed. For starters, the Attorney General can review the victims revealed in a 2004 study, lead by FDA scientist, Dr Graham, that says Vioxx caused as many as 140,000 heart attacks and strokes and killed as many as 55,000 people.

Merck Caught Misrepresenting Vioxx Risks Again

May 17, 2006

Evelyn Pringle

Although Merck has long maintained that the risks associated with Vioxx occur after long-term use, a recent study in the Canadian Medical Association Journal, says the drug may raise the risk of heart attack for patients taking Vioxx for less than 2 weeks.

The study published online this month, found that more than 25% of 239 patients who had heart attacks did so in less than 13 days of being on the drug.

The study followed patients for about two and a half years and included 30,200 Vioxx users and 45,000 Celebrex patients. It found no statistically significant increase in heart attack risk with Celebrex patients.

In addition, on May 12, 2006, Dr Steven Nissen, interim chairman of cardiology at the Cleveland Clinic in Ohio, said Merck recently misrepresented an analysis of data from a follow-up review of patients who participated in the 3-year study called, Approve, that led to Vioxx being pulled off the market on September 30, 2004.

“It’s important that we inform people about this because patients who have taken the drug will need increased surveillance by their physicians and increased awareness of their risks in the year subsequent to stopping the drug. And that risk may extend beyond a year; we simply don’t know,” Nissen told Reuters in a telephone interview.

“In the one year after Vioxx was stopped there was a 75 percent greater risk of having an adverse event,” he said.

“What this means is that, surprisingly, in the year following discontinuation of Vioxx the relative risk remains approximately as high as it was when people were actually taking the drug,” Dr Nissen explained. “That is very clear from the data,” he said.

Critics say the cozy relationship between the pharmaceutical industry and the FDA is evidenced by the large number of industry connected members on the agency’s advisory panels. A study conducted by the Public Citizen’s Health Research Group in the April 26, 2006 issue of the Journal of American Medical Association analyzed the transcripts of 221 FDA drug advisory panel meetings that involved 16 committees, listed on the agency’s web site as taking place between January 1, 2001 and December 31, 2004.

The analysis revealed that in 73% of the meetings, at least one member of the panel or one voting consultant disclosed a conflict, and yet only 1% of the members recused themselves from participating.

In all, 28% of committee members and voting consultants disclosed a conflict, the most common involving substantial financial dealings from consulting agreements, contracts or grants, and investments. For instance, the study found that 19% of the consulting agreements were worth over $10,000, 30% of the investments involved over $25,000, and 23% of contracts or grants exceeded $100,000.

In the case of Vioxx, ten of the 32 members on the FDA advisory committee that voted to allow the continued sale of Cox-2 pain drugs, including Vioxx, had previously acted as paid consultants for the drugs’ manufacturers.

And true to form, the members with industry ties voted to return Vioxx to the market. Dr Marcia Angell, a senior lecturer in social medicine at Harvard Medical School and author of “The Truth About the Drug Companies: How They Deceive Us and What to Do About It,” said in a March 10, 2005 editorial in the Boston Globe: “It is hard to see how the panel could have concluded that the benefits were worth those risks, especially given the fact that taking over-the-counter Prilosec in addition to an older pain reliever would probably have provided as much protection from stomach ulcers.”

Dr Angell says advisory committees should not include paid consultants for drug companies. “Their conflict of interest is real, not ‘potential’,” she wrote.

“The excuse that they are indispensable,” she says, “is not only self-serving but insulting to the experts who don’t consult for industry.”

However, in what critics call a rare occurrence, and no doubt because the agency was under intense public scrutiny, in this instance the FDA did not follow the recommendation of its advisory panel and Vioxx was not approved for a return to the market.

In light of the evidence of Merck’s total disregard for patient health that has surfaced in Vioxx litigation thus far, the public needs to take a good hard look at any proposed legislation or action by Congress or the FDA that would shield drug companies from accountability based on the FDA’s approval of a drug.

According to Attorney, Karen Barth Menzies, a partner in the Los Angeles based Baum Hedlund law firm, “the Vioxx public health debacle, has served to highlight deep-seeded problems within the FDA.”

She says, “drug companies are profit-driven and are loath to issue warnings about risks associated with their drugs, even those that become quite clear.”

“And it is precisely for this reason,” Ms Menzies says, “that the public is in such desperate need for an agency that advocates for them, rather than the drug industry.”

The FDA played a big part in the Vioxx disaster and allowed Merck to get away with murder. A new report released on April 24, 2006, by the Government Accountability Office is deeply critical of the FDA’s approach to drug safety and specifically Vioxx, and lists organizational dysfunction, bureaucratic politics, and ineffective enforcement over drug companies as factors compromising drug safety.

The report was commissioned by Senator Charles Grassley (R-Iowa), in response to findings at a November 18, 2004, Senate Finance Committee hearing titled, “FDA, Merck and Vioxx: Putting Patient Safety First,” where reports of mismanagement surfaced regarding the FDA’s failure to implement safety measures to protect the public against the dangers of Vioxx.

Citing “recent controversy about drug safety,” the report illuminates the weaknesses of the FDA in monitoring the safety of drugs once they are approved.

The report states that the FDA “lacks a clear and effective process for making decisions about, and providing management oversight of, postmarket drug safety issues.”

It highlights the communication problems between the two FDA offices that handle postmarket safety concerns and advises that “insufficient communication” between the Office of Drug Safety and the Office of New Drugs “has hindered the decision-making process.”

“Specifically,” the GAO wrote, “ODS management does not always know how OND has responded to ODS’s safety analyses and recommendations.”

Ms Menzies says the FDA has sided with industry for years. “The recent GAO report,” she says, “confirms many of the problems that we have been shouting about for years and illustrates that, contrary to FDA’s preemption arguments, FDA’s decisions must be second-guessed for the safety of the public.”

The report comes almost two years after the hearing that revealed the FDA had not acted promptly to protect the public when it first became aware of information that Vioxx might pose risks to cardiovascular health.

The Senate Finance Committee got involved in the Vioxx matter because it has jurisdiction over the Medicare and Medicaid programs. “Accordingly,” Senator Grassley informed the audience at the start of the November 18, 2004 hearing, “the committee has a responsibility to the more than 80 million Americans who receive health care coverage — including prescription drugs — under these programs.”

“Of the 20 million Americans who reportedly took Vioxx, an untold number are Medicare and Medicaid beneficiaries,” he advised. “I was told that the Medicaid program paid in excess of $1 billion for Vioxx while Vioxx was on the market,” he said.

To demonstrate the value of government payments to Merck, at the beginning of the hearing, Senator Grassley described a June 4, 1999 Merck document titled “IN IT TO WIN IT” that said: “As of yesterday, Vioxx became reimbursable on Medicaid in 42 states with the other 8 states close behind.”

“The Medicaid market was clearly going to be a money maker for Merck,” he said, “and Medicaid has paid Merck well for Vioxx.”

When the FDA approves a drug, Senator Grassley said, it’s considered a “Good Housekeeping Seal of Approval.”

“However,” he told the audience, “what’s come to light about Vioxx since September 30th makes people wonder if the FDA has lost its way when it comes to making sure drugs are safe.”

It looks like the FDA, he said, allowed itself to be manipulated by Merck on labeling changes that became necessary after a review by Merck that’s known as the VIGOR trial.

He explained how Merck completed the VIGOR trial in March 2000 and gave the findings to the FDA in June 2000, and was the subject of an advisory board meeting in February 2001. “But it was April 11, 2002,” he told the audience, “before the Vioxx label was actually changed.”

“During these 22 months,” Senator Grassley said, “Merck aggressively marketed Vioxx, knowing that consumers and doctors were largely unaware of the cardiovascular risks found in the VIGOR trial.”

The bottom line is, consumers should not have to second guess the safety of what’s in
their medicine cabinets,” he said. “The public should feel confident that when the FDA approves a drug, you can bank on it being safe, and if a drug isn’t safe, the FDA will take it off the market.”

The first witness called to testify at the hearing, was Dr David Graham, a scientist with an 18 year career at the FDA, who blew the whistle on the FDA’ s handling of the safety issues related to Vioxx.

Right off the bat, he warned the committee: “we, are faced with what may be the single greatest drug safety catastrophe in the history of this country or the history of the world.”

He called the Vioxx tragedy “a profound regulatory failure.”

“It is important,” Dr Graham said, “that this Committee and the American people understand that what has happened with Vioxx is really a symptom of something far more dangerous to the safety of the American people.”

“Simply put,” he told the panel, “FDA and its Center for Drug Evaluation and Research are broken.”

Dr Graham discussed the studies that demonstrated that Merck and the FDA were aware of the Vioxx risks since before the drug was approved.

He told the panel of a Merck study named 090, that found a nearly 7-fold increase in heart attack risk with low doses of Vioxx conducted before the drug was approved and yet the labeling at the time of FDA approval said nothing about the risks.

In November 2000, he said, the VIGOR study found a 5-fold increase in heart attack risk with high-doses of Vioxx and yet the company said Vioxx was safe.

In fact, it was not until about 18 months after the VIGOR trial was published, that the FDA made a label change to include the heart attack risk, but even then the agency did not place it the “Warnings” section.

“Of note,” Dr Graham told the committee, “FDA’s label change had absolutely no effect on how often high-dose Vioxx was prescribed, so what good did it achieve?”

He informed the panel that a large study in 2002 also reported a 2-fold increase in heart attack risk with high-doses of Vioxx.

In March of 2004, he said another study determined that both high-dose and low-dose Vioxx increased the risk of heart attack and sudden death.

In this study, users of Vioxx were compared with users of another COX-2 inhibitor, Celebrex. The analysis found that Vioxx at doses of 25 mg or less daily was associated with a 50% increase in the risk of heart attack; and doses of greater than 25 mg daily were associated with a 370% increase in the risk of heart attacks.

Yet a report describing these findings was not posted on the FDA website until November 2004, on election day.

“In my opinion,” Dr Graham said, “the FDA has let the American people down, and sadly, betrayed a public trust.”

In regard to injuries, Dr Graham told the panel that Dr Eric Topol of the Cleveland Clinic estimated that there were up to 160,000 cases of heart attacks and strokes due to Vioxx, in an article published in the New England Journal of Medicine.

“This article,” Dr Graham said, “lays out clearly the public health significance of what we’re talking about today.”

At the November 18, 2004 hearing, to illustrate the significance of 100,000 people being affected by Vioxx, Dr Graham presented charts to show that when looking at Florida or Pennsylvania, it would mean that 1% of the entire population would have been affected. For Iowa, the charts showed it would be 5%, for Maine 10%, and for Wyoming 27%.

“If we look at selected cities,” Dr Graham told Senator Grassley who resides in Des Moines, Iowa, “67% of the citizens of Des Moines would be affected, and what’s worse,” he continued, “the entire population of every other city in the State of Iowa.”

The VIGOR study started in January 1999, and included patients over 40, with rheumatoid arthritis who were given either Vioxx or Naproxen. Patients with recent cardiovascular events and patients taking aspirin were excluded from the study.

In the combined outcome of all cardiovascular deaths, heart attacks and strokes, Vioxx patients had higher rates than Naproxen patients. For the outcome of heart attack alone, the rate was five times higher in Vioxx patients than in Naproxen patients

In 1000 patients followed for one year, Vioxx treatment was found likely to be associated with 6 more heart attacks than Naproxen treatment.

Dr Graham said he became concerned about the public health risk after the VIGOR study indicated that the heart attack risk was increased 5-fold in patients who used the high-dose strength of Vioxx.

The safety question was important he explained because (1) Vioxx would be used by millions of patients; (2) heart attack is a fairly common event; and (3) even a small increase in risk could mean that tens of thousands of patients might be seriously harmed or killed.

“If these three factors were present,” Dr Graham said, “I knew that we would have all the ingredients necessary to guarantee a national disaster.”

To get answers, he worked with Kaiser Permanente in California to perform a study that took nearly 3 years to complete and concluded that high-dose Vioxx significantly increased the risk of heart attacks and sudden death and should not be prescribed or used by patients.

“This conclusion,” Dr Graham said, “triggered an explosive response from the Office of New Drugs, which approved Vioxx in the first place and was responsible for regulating it postmarketing.”

The response from senior management in the Office of Drug Safety was equally stressful he said. “I was pressured to change my conclusions and recommendations,” he told the panel, “and basically threatened that if I did not change them, I would not be permitted to present the paper at the conference.”

In fact, one Drug Safety manager recommended that he should be barred from presenting the poster at the meeting, and also said that Merck needed to know about the study results.

Finally, he said they wrote a manuscript for publication in a peer-reviewed medical journal and senior managers in the Office of Drug Safety would not grant clearance for its publication, even though it was accepted by a prestigious journal after rigorous peer review.

“Until it is cleared,” Dr Graham told the panel, “our data and conclusions will not see the light of day in the scientific forum they deserve and have earned, and serious students of drug safety and drug regulation will be denied the opportunity to consider and openly debate the issues we raise in that paper.”

As for the FDA conduct in responding to the studies that showed the dangers of Vioxx, Dr Graham discussed what he referred to as two “revelatory milestones,” in 2004.

“In mid-August,” he said, “despite our study results showing an increased risk of heart attack with Vioxx, and despite the results of other studies published in the literature, FDA announced it had approved Vioxx for use in children with rheumatoid arthritis.”

“Also, on September 22,” he told the committee, “at a meeting attended by the director of the reviewing office that approved Vioxx, the director and deputy director of the reviewing division within that office and senior managers from the Office of Drug Safety, no one thought there was a Vioxx safety issue to be dealt with.”

At this meeting, the reviewing office director asked Dr Graham why he had even thought to study Vioxx and heart attacks because the FDA had made its labeling change and nothing more needed to be done.

At the same meeting, a senior manager from ODS labeled the latest Vioxx study conducted by Dr Graham’s team, “a scientific rumor.”

“Eight days later,” Dr Graham told the panel, “Merck pulled Vioxx from the market.”

“My experience with Vioxx is typical of how CDER responds to serious drug safety issues in general,” he said.

On December 31, 2004, Dr Graham told Inter Press Service that the Vioxx debacle did not phase the FDA. “You have an agency in denial,” he said in the interview with IPS, “the FDA still maintains it made no mistake in the approval or regulation of Vioxx.”

He said, “intimidation of scientists who threaten the status quo at FDA is routine,” and described how, his FDA superior reacted after he sought withdrawal of another arthritis drug called Arava.

“The division director spent the first 10 minutes of that meeting screaming at me,” he said. “Basically, standing up, jugular veins bulging in his neck, eyes sort of bugging out of his head, screaming,” he recalled, “basically trying to intimidate me so that I’d change my conclusion.”

In fact, once Dr Graham went public, history shows that there was a full-court press by FDA officials against the agency Whistleblower.

Dr Steven Galson, the acting director of the FDA drug-evaluation division at the time, told reporters that Graham’s work “constitutes junk science,” and sent an email to an editor at the British medical journal The Lancet, questioning the “integrity” of Dr Graham’s data.

Acting FDA commissioner, Dr Lester Crawford, accused Dr Graham of evading the agency’s “long-established peer review and clearance process,” and another agency official made calls to a Senate staffer, disparaging Dr Graham personally and professionally.

Before the testimony even began at the November 18 hearing, Senator Grassley responded to comments issued the night before by Dr Crawford against Dr Graham.

“News reports today,” Senator Grassley noted, “say the FDA is calling Dr. Graham a “a maverick who did not follow Agency protocols.”

Dr. Graham, he explained, completed an FDA sponsored three-year study under FDA guidance and with Drs. Campen, Levy, Shoor, Ray, Cheetham, Spence and Hui. Dr. Graham’s immediate supervisor said the paper that formed the basis of the study was “… an excellent study and analysis of a complex topic.”

“So the clarifications provided last night by Dr. Crawford,” Senator Grassley said, “appear intended to intimidate a witness on the eve of hearing.”

Dr Crawford knows there’s a problem, he told the audience, “and would better serve the FDA by spending time on the problem rather than going after congressional witnesses who helped identify the problem in the first place.”

Earlier in the year, on March 10, 2005, Senator Grassley gave a speech to the Consumer Federation of America and praised the FDA whistleblower and described how the FDA stonewalled concerns raised by Dr Graham after a study found an increased risk of heart attacks and strokes with Vioxx and said:

“Dr. Graham warned the FDA of the cardiovascular risks of Vioxx, the FDA approved the use of Vioxx for children. The director of FDA’s office of new drugs suggested that Dr. Graham water down his Vioxx conclusions. Dr. Graham replied that in good conscience he could not. When Dr. Graham was asked to present his findings at my committee’s Vioxx hearing, he was also undermined.

“Dr. Graham did testify before the advisory committee and his science was subjected to public scrutiny from his peers. … In the end, the scientific process prevailed. But again, not before Dr. Graham’s supervisors attempted to intercede.”

In the speech, Senator Grassley said FDA whistleblowers are patriots.

“Think about the guts it takes to undermine your career,” he said, “and to go against your supervisors at a huge federal agency, and in this case, the multi-billion-dollar drug companies.”

“Whistleblowers are the rare birds who refuse to go along to get along,” he told the audience. “The only thing they’re guilty of is “committing truth,” he said.

“Unfortunately,” Grassley told the audience, “it appears that some drug companies are placing greed ahead of drug safety. In this fraudulent environment, the FDA’s mission is more important than ever before. The FDA absolutely has to do a top-notch job on ensuring drug safety,” he said.

The FDA “needs to demonstrate that it is unequivocally committed to the scientific process – and those who speak up on its behalf — when it comes to drug safety and that nothing gets in the way of that, whether it’s pressure from profit-oriented drug makers or institutional ego that doesn’t want to admit a mistake,” Grassley warned.

“The one and only client of the FDA must be John Q. Public,” he declared.

Four months later, on July 18, 2005, Senator Grassley took to the floor of the Senate to explain why he would vote against the nomination of Dr Crawford to head the FDA, and gave a caustic speech about the FDA’s relationship with drug companies as a whole, and Dr Crawford’s conduct in the position of a temporary commissioner, and said in part:

“During the last 18 months, this country’s confidence in the FDA has been shaken. It has been shaken not because of one isolated incident or one isolated whistleblower. It has been shaken because multiple drug safety concerns have been exposed by more than one courageous whistleblower.

“My oversight of the FDA leads me to the conclusion that there are cultural and systemic problems at the FDA. Unfortunately, Dr. Crawford has long been part of that same culture and system. The evidence is overwhelming that the FDA must change to better protect the American people. Dr. Crawford does not appear willing to be the man to change the FDA.

“During Dr. Crawford’s tenure, I have witnessed the suppression of the scientific process and the muzzling of scientific dissent. First, with Dr. Mosholder finding a link between anti-depressants, children and suicide. And second with Dr. Graham’s allegations regarding the FDA, Vioxx and post-marketing safety generally.

“Dr. Graham’s testimony before the Finance Committee suggests that the problems are systemic. Oversight of the FDA exposed the cozy relationship that exists between the FDA and the drug industry. It revealed that the FDA negotiated for almost two years with Merck about how to change the Vioxx label so people would know about the risk of heart attacks.”

In the end, Dr Crawford did become the FDA Commissioner in July 2005, but not for long. This Lester Crawford saga gives to new meaning to the phrase of “what goes around comes around.”

After less than 3 months on the job, in a September 23, 2005 letter to President Bush, Crawford announced his resignation from the FDA and said it was “effective immediately.”

In public, Crawford explained his departure by saying it was time for someone else to lead the agency. On September 28, 2005, reported that Crawford said he decided to leave the agency because he was tiring after three years at the agency. “He denies that financial conflicts of interest had anything to do with his decision to resign,” Forbes noted.

However, Senators Mike Enzi (R-Wyo) and Edward Kennedy (D-Mass) disputed that claim and asked the HHS Inspector General to investigate Crawford’s resignation to see whether he left due to an undisclosed financial conflict of interest.

Less than a month later, on October 26, 2005 the Wall Street Journal reported that as late as 2004, Crawford or his wife “owned stock in companies that make or distribute products regulated by the agency.”

According to the Journal, Crawford or his wife held shares in several companies whose business is regulated by the FDA, as late as 2004, when Crawford was acting commissioner, quoting financial disclosure forms obtained by the Journal.

When Crawford began work at the FDA in 2002, the Journal said, he held stock in many companies, including Merck, Pfizer, and Johnson and Johnson. But he told ethics officials that he sold those stocks in 2002, along with stock he held in Kimberly-Clark, which makes medical devices.

Crawford also reported the sale of his stock in the company Teleflex Inc in 2002, which also makes medical devices, although “later forms show that he or his wife continued to own some shares,” the Journal reports.

On the same day that the Journal’s article was published, the Kaiser Daily Health Policy Report reported that the HHS Inspector General had confirmed that it had launched an investigation into Crawford’s departure from the FDA.

About 3 months after that, on February 8, 2006, Crawford’s new employer was revealed when the Washington Post reported that Crawford, “whose sudden resignation last fall after less than three months in office remains a mystery, has joined a lobbying firm that specializes in food and drug issues.”

“Crawford is listed as “senior counsel” to the firm Policy Directions Inc.” the Post said.

A few of the firm’s clients listed in the article, include Merck, Altria Group Inc, formerly Philip Morris Companies, and the industry’s trade group, the Pharmaceutical Research and Manufacturers of America.

According to the Post, “Crawford is barred from lobbying former colleagues at the FDA for a year, but he can give clients strategic advice about food and drug issues and can lobby members of Congress.”

Less than a month later, on March 3, 2006, the Houston Chronicle reported that before he abruptly resigned, Crawford sold more than $50,000 in shares of Teleflex Inc, “a company that makes medical devices, according to financial disclosure forms” obtained by The Associated Press.

“As head of the FDA,” the Chronicle noted, “Crawford oversaw the regulation of medical devices.”

And on April 29, 2006, the Washington Post reported that the “former commissioner of the Food and Drug Administration is under federal investigation amid accusations of financial improprieties and making false statements to Congress.”

The criminal investigation was disclosed at a hearing in a civil suit filed against the FDA over its handling of the emergency contraceptive Plan B, according to the Wall Street Journal on May 1, 2006. It seems Crawford was scheduled to be questioned under oath in the trial, but his attorney Barbara Van Gelder asked for a delay, saying she would instruct Crawford to invoke his Fifth Amendment rights.

Van Gelder said that Crawford is under criminal investigation and that the issue of his financial disclosures “is within the grand jury.”

As for how things are going these days for Dr Graham, in April 2006, he was interviewed by Life Extension Magazine and described his life as “surreal” since the Vioxx scandal broke and discussed what its like to face the same people every day who tried to destroy him for simply telling the truth.

“It’s very difficult,” he said. “I periodically have to sit down with supervisors who I knew in November were lying to Congress about me, lying to The Lancet about me, and who tried to prevent my getting protection as a government whistleblower.”

“They were doing hateful things,” he explained, “and now they pretend nothing happened.”

Dr Graham did say that the mistreatment comes only from senior management. “At the staff level,” he said, “I’m very respected and supported.”

“If anything, esteem for me has increased because they realize I told the truth,” he told Life Extension. “They know the reality of what we’re dealing with.”

In April 2006, in what has to be one of Merck’s worst nightmares, a federal judge ordered Dr Graham to testify at a deposition in the Vioxx multidistrict litigation. The MDL was created to consolidate pretrial proceedings for the thousands of lawsuits filed by users of Vioxx.

The FDA attempted to block Dr Graham’s testimony by filing a motion to quash the Plaintiff’s subpoena on grounds that his deposition would divert the agency’s time and resources, and cripple its ability to fulfill its statutory mandate, and said there was no need to depose Dr Graham, given his public statements already made.

However, Judge Eldon Fallon denied the motion and said: “This court does not see how the deposition of one employee during nonworking hours would cripple the FDA’s ability to function.”

He also noted that none of the documents in the public record could “express Dr. Graham’s opinion with the clarity and tone as he personally can in his deposition.”