How To Bank $41 Million: Delay The Vioxx Deal
Last November, Merck reached a $4.85 billion settlement to cover most Vioxx lawsuits in the US. As with any such deal, of course, there are stipulations, including one that calls for Merck to deposit $4.1 billion in an escrow fund by a certain date. In this case, the money was to have been deposited by April 16, based on a clause citing to two items - an enrollment date and a walk-away right.
Here’s how it works: the settlement agreement gave Merck until February 29 to convince 85 percent of the eligible claimants to participate in the deal. However, the drugmaker can exercise its right to walk away from the settlement anytime up to 45 days after that deadline, which would have been April 15. Merck actually exceeded the 85 percent threshold, but has twice rolled back the final enrollment date, citing the need to give people more time to fill out paperwork and to verify claims.
The second and latest postponement moves the enrollment deadline to June 30, and this means the date by which Merck must now deposit the $4.1 billion into escrow is August 18. Why? Merck doesn’t have to deposit $4.1 billion into an escrow fund until two business days after the expiration of its walk away right, which is now Aug. 14, or 45 days after June 30. That’s also four months later than April 15.
Is four months a big delay? Well, $4.1 billion earning 3 percent interest compounded monthly amounts to nearly $41.2 million, according to Greg McBride, senior financial analyst at Bankrate.com. In other words, as a consequence of the delays, Merck gets to hold on to the interest that would have accrued to the settlement fund during those four months. Here’s a timeline.
Of course, Merck was within its rights to do so and a Merck spokesman denies this was the reason for the postponements. He writes us to say this: “The possibility of extensions like this were contemplated by both plaintiffs’ counsel and Merck in the agreement that was signed in November 2007, and the public announcement of the agreement was explicit that August 2008 was the earliest time that payments to claimants could begin.
“Merck is pleased with the number of enrollments coming in and is confident that the program will be funded because unverified enrollments are now substantially higher than the 85 percent required thresholds. The verification process is well underway and Merck expects to fund the program when the verification is complete sometime between now and Monday, August 18, which is the second business day after the Thursday, August 14 walk-way right date for Merck.”
Paul
I am confused. I have been reading that its the plaintiff lawyers that keep asking for extensions so that they can get more of their clients into the settlement. They even took the company to court to extend the deadline
Were they not saying that they needed more time to chase medical records, to have tests done, etc? If I am not mistaken, the company already put the money aside and I would imagine they just want to get this damn thing over with.
DrRadius
The longer the delay toward settlement the more legal fees the more the lawyers get and the less the patients get.
Paul
DrRadius,
I agree. The only winners in all of this are the lawyers. The losers: the company, the employees, certainly the patients, and all of the other people in need of new drugs who now have to wait even longer in this environment of paranoia and panic.
Ed Silverman
Hi Paul,
This is from an Associated Press story last week: Lawyers on the plaintiffs’ steering committee said the extension raised no concerns, adding it was anticipated because the claims administrator was still verifying documents that already have been submitted.
“The enrollment has been overwhelming and the documents have been coming in at a great pace,” said one of those lawyers, Andy Birchfield, of Beasley Allen in Montgomery, Ala.
The delays serve Merck’s purposes and not just saving the interest - the company also hopes the deal will gobble up as many eligible plaintiffs as possible. And as noted, the money to be set aside is not due until this summer.
Hope this helps,
ed
Justice in Michigan
Some may not find it credible, but one of the arguments plaintiff’s lawyers gave for taking the deal was the imminence of an FDA preemption ruling by the Supreme Court in the Fall. When that happens, plantiffs would get nothing.
Personally, I believe this also figured in Merck’s thinking. It would have “not looked good” for preemption in general if the headlines in November were that thousands of Vioxx litigants - the one case that virtually everyone has heard about - were now locked out of court. So, in the long run, better to pay up some now then risk the outrage/”bad press” that otherwise follow.
To that degree, the interests of Merck, the industry, and plaintiffs’ lawyers have been complementary. Whether justice has been served; and injured people or their survivors have been served; are different questions.
LILLI
What we need is to concentrate on preventative medicine—not medications that are causing extreme dangerous harmful conditions , serious illness and early deaths.