Wednesday, August 31, 2005

Saving Public Merck

Kevin Hassett, director of economic policy studies at the conservative American Enterprise Institute and sometimes economic adviser to Republicans, suggested in a commentary that "Instead of piling on with populist rhetoric and economically illiterate reimportation bills, Congress should seek ways to shelter firms from excessive litigation. Protections such as those in place to guard against vaccination lawsuits should be extended to all FDA-approved drugs." (See "The Misguided Assault on the U.S. Drug Industry: Kevin Hassett").
[Hassett also said: "Since foreign governments often dictate low prices to U.S. firms, reimportation is akin to allowing the French government to set prices in the U.S." While you're at it Kevin, why not also accuse the British? They also "dictate low prices to U.S. firms." C'est la vie!]

[BTW, I love it when these "free market" guys instinctively turn to the federal government to bailout corporations in trouble!]
Hassett's remarks, of course, were focused on Merck's woes in the wake of the first Vioxx liability case defeat. Analysts have estimated that Merck could end up paying $50 to $80 million in Vioxx-related damages and that as many as 48,000 people could sue the company. (See, for example, "Merck's Vioxx bill could hit $50 billion").

Members of the
PHARMA-MKTING online discussion group discussed Merck's fate and what could be done to save the company not long after the infamous Texas verdict was announced. I suggested that Merck might seek a government bailout. Here's the discussion thread: Peter C. asked:
" will Merck be able to survive the fall out here? Surely their future is just not viable after this judgment? How do you see the future game being fought? No one would buy Merck in this situation - is the future only going out of business when your assets are totally stripped, or is there an alternative scenario? Interesting to see your comments."
John Mack responded:
"One possibility is legislative action or government bailout a la Chrysler. Merck develops a lot of vaccines -- remember Bioshield and the War On Terror (sorry, global struggle against the enemies of freedom)? Not that there's anything right with that! It wouldn't be in the spirit of free enterprise or a market-driven society, would it? "
Terry N. retorted:
"I can't imagine the government bailing out Merck There are plenty of viable
companies out there, no national security implications, bailouts are out of
fashion (they watched Anderson crash and burn, in fact they practically
orchestrated it), ad pharma is even more so."
Paul M. rejoined:
"There are plenty of other companies that can make vaccines. Merck would stand a better chance of government bailout money it they were an airline or OIL company. I'm pretty sure the current administration has a 'simpatico' for oil companies."
David O. wasn't worried about Merck's fate in the long run. He wrote:
"Large settlements, whether it's the tobacco industry or state lottery winnings are seldom paid out in cash on the day of the award. The CFO is not going to write out a check, paid in full. Settlements will paid out over time and/or financed. Stretch the payments out long enough and it will feel like a bond. It will certainly be a drag on earnings for a long time, but it will get factored into the stock price and the company will move on. The NYT on Saturday even discussed the new and improved Cox-2s that are in the pipeline from GSK, Novartis, and even Merck. There are enough doctors and patients who need the class."
Rebecca O. offered Merck stockholders some advice:
"Perhaps we have only to look at past companies facing such large liabilities to see what may happen to Merck. Does anyone remember that IUD that bankrupted a company or how about the breast implants that were later found to be "safe". I don't think Merck will be filing for bankruptcy based on one verdict but that has to be in the equation now that they have one verdict against them. You can bet they will continue to fight not just to overturn this verdict but to get not guilty verdicts in other marginal cases. At a party over the weekend the subject came up in conversation with a group of non pharma people and to my surprise they were still holding on to their stock.

"My company has a War Game offering which attempts to prepare companies for something like this. We have a "model" which we've developed that is based on stock valuation and critical events. Regardless of the product there are some very important events which are predictive of the future course. Unfortunately for Merck, a guilty verdict in the first case is not a positive outcome for predicting future stock value. Based on our research there will be a downward slide for a few weeks of the stock and then with the news dying off, the stock will stabilize until the next big piece of news. My bet will be the next big piece of news will be not the trial in NJ but rather the filing of more law suits increasing the potential liability. I say this because the guilty verdict will simply redouble the efforts of attorneys to accept patients with marginal claims into class action suits.

"Having said all of this, I think anyone would be foolish to count Merck down and out. They have a powerful lobbying machine and have friends in very high places. So who knows what the future will bring for Merck, but I advised my party friend to sell Merck or short Merck ASAP. How about you guys? Still holding on?"
Tom B. managed to link Vioxx to Vietnam!:
"The preliminary decision is likely to be dramatically reduced, to around
$2 million, and then Merck will push for a class action set up. They are
unlikely to liquidate, though bankruptcy is a real possibility. They do
have good assets, so once the legal risk exposure gets nailed down, they
will make a nice addition to Pfizer or Novartis, etc.

"Irrespective of how you feel about tort reform and large jury awards,
let us not lose sight of the fact that Merck's decision to suppress this
information may have killed as many people at the U.S. lost in nearly 20
years in Vietnam. That is unconscionable."
Terry wasn't having any of that and bolstered his case with some numbers:
"Things being bad enough as they are, Vioxx isn't comparable to Vietnam.
According to David Graham, MD, of FDA, statistically estimated excess
incidence of Acute Myocardial Infarction (AMI) and Sudden Cardiac Death
(SCD) attributable to Vioxx at just over 27,000. Vietnam deaths were
over twice that (around 58,000.)"
Tom shifted gears a bit, but stayed on point:
"Fair enough. But 27,000 exceeds the 23,615 KIA (Killed In Action) in the
Korean Conflict.

"The point is that the number of people affected by Merck's decision is
significant, and should not be forgotten in the context of discussions
about tort reform or corporate survival."
I think that's a fitting place to end the debate!

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