Product Liability Litigation: An Issue of Merck and Lawsuits over Vioxx" Seton Hall Public Law Research Paper No. 1151271, January 2009
Applied Financial Economics, Vol. 20, Is. 24, 1867-1878, December 2010
Kurt W. Rotthoff, Ph.D. Department of Economics and Legal Studies
Merck & Co., Inc. pulled Vioxx, a $2.5 billon a year nonsteroidal anti-inflammatory drug, off the shelf in September 2004. The removal followed a study that was published reporting Vioxx increased the risk of cardiovascular events after long-term use. In the years since then, many lawsuits have been filed against Merck. This paper examines the incentive to recall a product and the effects of Merck pulling Vioxx from the shelves. Using the market’s expected internal rate of return for Merck, I calculate the expected
profits from future Vioxx sales. I then use data on financial effects to show how the market value of Merck reflects their probability of winning legal cases concerning Vioxx.