Recently, Merck & Co. made a major splash across headlines by offering NuvaRing plaintiff's a $100 million dollar settlement proposal. Is this settlement offer reflective of Merck's failed corporate governance policies? One would think it is, even after the $4.5 billion dollar Vioxx settlement that Merck endured.
In 2004, Vioxx, a painkiller manufactured by Merck & Co., was voluntarily removed from the market by Merck after the drug was linked to a potential increase in the risk for heart attack and stroke. Plaintiffs in the Vioxx suit alleged Merck improperly marketed Vioxx for off-label uses and hid the risks associated with the drug. In 2010, in response to a related derivative suit, Merck agreed to implement internal controls to improve their corporate governance including appointing a chief medical officer responsible for overseeing safety plans for drugs in development. This appointment implicitly suggests that, prior to the Vioxx settlement, Merck's internal governance was lacking. Yet, just a few years later Merck again has to answer for another drug that allegedly poses threats to heart health. At first blush, it seems very cut and dry Merck & Co. did not learn its lesson after Vioxx and so were doomed to repeat past mistakes. However, there are several reasons why this conclusive brush-off that the NuvaRing settlement is continued evidence of failed corporate governance policies at Merck is unwarranted. In fact, it seems the opposite may be true this settlement may reflect how Merck's internal governance policies are sounder than they were a decade ago.
Consider the discrepancies in the settlement amounts. Both drugs allegedly cause the same harm, increased risk for and death from heart attack or stroke so what accounts for billions of dollars' worth of difference?
One reason for the difference may be the population each drug affected. Vioxx was widely prescribed to men and women for the broad purpose of pain relief. More than 52 million prescriptions were written for Vioxx while it was on the market. NuvaRing, an oral contraceptive prescribed to women, has a less prolific application and, unlike Vioxx, will remain available for consumers. At the time the NuvaRing settlement was offered, an estimated 1.5 million women worldwide were using the contraceptive. Consider, the Vioxx settlement was paid to 3,468 claimants out of 58,022 potential claims. David Voreacos and Allen Johnson wrote in Bloomberg that "[t]he average payment for all heart attack cases was $186,825. The payments for fatal heart attacks ranged from $18,743 to $1.79 million, with the average at $374,112. Average payments for all stroke cases was $61,165. Payments for fatal strokes ranged from $5,015 to $818,119, with the average at $119,618." Merck said 3,800 cases were eligible for the NuvaRing settlement at roughly $58,000 per case.
However, a compelling reason the settlement offers may be so different is the differences in the alleged wrongdoings by Merck & Co. In both settlement offers, Merck & Co. denies any actual civil wrongdoing. But, in the Vioxx settlemet the plaintiffs alleged Merck promoted Vioxx for "off-label" uses or uses outside of what Vioxx was FDA approved for. While physicians may prescribe drugs for off-label uses, pharmaceutical companies are not allowed to promote drugs based on these uses, though the advantages to doing so are obvious. NuvaRing was not allegedly promoted for off-label uses. This is a serious allegation that also got Bayer into trouble with its contraceptives, Yaz and Yazmin, leading them to pay out over a billion dollars to settle. Does the lack of this allegation in the NuvaRing lawsuits reflect Merck's changed corporate governance policies?
Merck's current corporate governance policies reflect their goal of transparency. Merck also offers a short video about what "responsibility" means at Merck. Merck posts its post-marketing requirements on its website in an attempt to foster transparency. Notably, Merck openly states that their employees are not allowed to offer goods or services in exchange for the promotion of their products and that their employees are expected to offer truthful, non-misleading information to the medical community. While it is difficult to prove a negative that the absence of these allegations in this lawsuit indicates the absence of these practices by Merck employees and thus an effective governance program the absence is telling.
Another indication that Merck's governance policies are achieving their desired results is the difference in settlement amounts between what Merck is offering to the NuvaRing plaintiffs in the wake of the above-mentioned Bayer settlements. The NuvaRing lawsuits are focusing on products liability and failure to warn. However, plaintiffs have had difficulty showing a causal connection between the alleged harm and the contraceptive device. In other words, had the doctors known about the increased risk for harm, it would have influenced them not to prescribe the device. Bayer was accused of intentionally misleading women and prescribers about the uses and safety of Yaz and Yazmin. How did Bayer's straightforward compliance plan affect their liability? Bayer, a German company, is required to release an annual declaration of compliance with the recommendations of the Government Commission on the German Corporate Governance Code pursuant to Section 161 of the German Stock Corporation Act (PDF). Bayer's website goes on to say that Bayer "expects legally and ethically impeccable conduct from all of its employees in daily business operations, as the way they carry out their duties affects the company's reputation." Bayer's website reflects governance policies that are startlingly similar to Merck's so what went wrong?
Bayer seems to exemplify a "window-dressing" approach to governance. Once you move past the façade of the warm inviting house it is empty and broken inside. The policies are in place because they're required to be, but are they successfully implemented or taken seriously by the people in charge? The answer to this question often boils down to the company's corporate culture. What is important to the company? Is the bottom line ruling the day, or are the policies put in place to balance profit-driven agendas effective? What is the company's corporate social responsibility profile? Investors and consumers alike should consider this factor when investing, purchasing or using a product from these larger-than-life corporate conglomerates. Corporate governance policies may be mere window-dressing without a strong socially responsible culture.
Though Merck's corporate governance policies may have mitigated the potential losses they will suffer in the NuvaRing lawsuits, obviously the best indication that Merck's corporate governance policies are working would be a complete absence of settlement offers and negative headlines. Staying out of court should be at least one goal of governance policies.
Kristen Swift earned her B.S. from West Chester University of Pennsylvania in Criminal Justice. She is the Web Content Editor for the Delaware Journal of Corporate Law and a member of the Alternative Dispute Resolution Society. She currently clerks for the Delaware Supreme Court.
Suggested Citation: Kristen Swift, Straight to the Heart: Does Merck & Co.'s $100 Million Dollar NuvaRing Settlement Offer Reflect Failed Corporate Governance Policies? , JURIST - Dateline, Apr. 7, 2014, http://jurist.org/dateline/2014/04/kristen-swift-nuvaring-settlement.php.
This article was prepared for publication by Endia Vereen, an associate editor for JURIST's student commentary service. Please direct any questions or comments to her at email@example.com