Merck Pulls Arthritis Drug Off Market
By Ransdell Pierson
NEW YORK (Reuters) - Merck & Co Inc. on Thursday pulled its arthritis drug Vioxx off the market after a study showed it doubled the risk of heart attack and stroke, a move that sent its shares plunging and erased $25 billion from its market value.
The move, which led the company to cut its 2004 earnings forecast, could expose Merck to billions of dollars in legal liabilities at a time when it is already experiencing slower growth. It also calls into question the ability of Chief Executive Raymond Gilmartin to lead the company out of its troubles, analysts said.
"This company is on the scientific ropes and it just took a body blow in the market place," said Jim Hall, president of the life-sciences unit at Wood Mackenzie Inc. "There's no easy way for them to deal with this."
Vioxx, which has been used by 84 million people around the world since 1999, accounts for 10 percent of Merck's annual sales. It is part of a class of drugs known as COX-2 inhibitors. Pfizer Inc.'s Celebrex and Novartis AG's (NOVN.VX) experimental drug Prexige are also members of this class.
While Celebrex and others have not been shown to cause cardiovascular damage, some observers say the withdrawal of Vioxx casts a cloud over the entire class. The U.S. Food and Drug Administration said it would watch other COX-2 inhibitors closely.
"This has implications for all members of this class," said Dr. Garret FitzGerald, chairman of the Department of Pharmacology at the University of Pennsylvania.
Investors are concerned the risk may also extend to Merck's newer drug, Arcoxia, a COX-2 inhibitor that is already sold in 47 countries but is still awaiting approval in the United States. An FDA decision on the drug is expected by Oct. 30.
"We are going to be more interested in looking at long-term data on new products that come down the pike," said Steven Galson, acting director of the FDA's Center for Drug Evaluation and Research.
Concerns over Vioxx have been building for several years after earlier studies showed higher risk of heart attack and stroke, but Merck has always maintained that the drug, which last year had sales of $2.55 billion, was safe.
The decision to withdraw Vioxx came after a three-year trial showed patients taking the drug faced twice the risk of a heart attack or stroke after three years as patients taking a placebo. The risk did not appear until after 18 months, the company said. The trial was designed to see if Vioxx could prevent recurrence of colon polyps, which can become cancerous.
Merck is already facing lawsuits over Vioxx and those are likely to increase, analysts said, potentially opening the company to billions of dollars in liabilities.
"It's got to be bigger than fen-phen," said Hall, referring to Wyeth's recalled diet drug combination, which has already cost Wyeth $16 billion in charges to cover damages to people who claimed to have suffered heart damage. "Vioxx is a much bigger drug, so the exposure will be that much more."
Merck said it will defend itself vigorously against lawsuits.
"We have substantial defenses in these cases," said Kenneth Frazier, Merck's general counsel.
Despite the blow, members of Merck's board of directors said they stood behind the company's chief executive, and Gilmartin said he has no intention of resigning.
Board member Larry Bossidy said the company is looking both inside and outside the company for a potential successor to Gilmartin, who plans to retire in 2006.
"We think shareholders deserve to know we looked around for the best person we could find," Bossidy said.
The Vioxx recall comes as Merck is girding for the slated 2006 expiration of its U.S. patent on the cholesterol fighter Zocor, the company's top-selling product.
Merck said it expects costs associated with the Vioxx recall to reduce earnings by 50 cents to 60 cents per share in the second half of the year. It said it will give more financial details on Oct. 21.
Merck shares fell $12.27, or 27 percent, to $32.80 on the New York Stock Exchange. (Additional reporting by Toni Clarke, Bill Berkrot and Edward Tobin in New York, Debra Sherman in Chicago, and Lisa Richwine in Washington)