Company officials estimated the deal, if accepted, would end 45,000 to 50,000 personal injury lawsuits involving United States Vioxx users who suffered a heart attack or ischemic stroke, the type in which blood flow to the brain is blocked.
Merck pulled Vioxx from the market September 30, 2004 after its researchers determined the blockbuster arthritis treatment, then pulling in about $2.5 billion a year, doubled risk of heart attacks and strokes.
The lawsuits quickly piled up and Merck vowed to fight them all. So far, it's won 11 of 16, which is why today's settlement came as a surprise to some.
The $4.85 billion payout amounts to less than one year's profit for the pharmaceutical giant, said CBS News correspondent Nancy Cordes.
Merck executive vice president Kenneth Frazier called the agreement "responsible and reasonable" and allows Merck to better quantify its liability, once estimated as high as $50 billion.
Negotiating teams met more than 50 times in eight states and spoke hundreds of times by telephone over many months to hammer out the deal, according to attorneys.
"I think what Merck said is, 'Hold on a second, we're going to be fighting this potentially for 4 or 5 more years, that's billions of dollars in legal fees, let's take than money and instead of giving it to the lawyers, give it to the plaintiffs,'" said CBS News legal analyst Andrew Cohen.
But Merck's ordeal isn't over: It's still facing criminal inquiries into charges that it knew about Vioxx's deadly side effects, and tried to cover them up.
"Today is a great day for the court system in New Orleans and in California, Texas, and New Jersey. The potential to resolve 30 to 40 thousand cases of heart attack and stroke alleged caused by Vioxx have been resolved after 11 months of secret negotiations," said Russ Herman, a New Orleans attorney who served as chairman of Voixx plaintiff's negotiating committee.
To qualify for a settlement, plaintiffs must have filed claims by Thursday and meet several criteria, including medical proof that they suffered a heart attack or stroke, that they received at least 30 Vioxx pills and that they received enough pills to support a presumption that they were ingested within two weeks before injury.
That is a big concession by Merck, which has long claimed that Vioxx caused harm only after 18 months of use.
Those claims were dismissed by independent scientists and plaintiffs lawyers.
Merck stressed that the agreement is not a class action settlement and that it is not admitting fault.
Company executives and attorneys said as recently as last month that every case would be fought individually.
But on Friday, they said several factors made this "the right time" for the deal, including the expiration of the statute of limitations in 42 states.
Merck said it will take a pre-tax charge for the full $4.85 billion in the current quarter.
"It's a huge settlement but Merck was paying hundreds of millions of dollars every year in legal fees alone to fight the lawsuits so the company clearly figured that it was best to simply get rid of all these cases," said Cohen.
The deal does not include people in foreign countries.
Herman Saftlas, an Equity Analyst with Standard and Poor's, said Friday's announcement was "a positive for the pharmaceutical industry."
"It shows that companies such as Merck, that really took it on the chin in a big way about three years ago when the Vioxx news first broke, it shows that companies such as Merck and others are able to manage these liabilities, and come out ahead," said Saftlas.
Investors seemed to agree, as Merck shares trading jumped nearly five percent, or $2.67, to $57.44 - near their 52-week high of $58.36.
A Glance At Merck's $4.85 Billion Settlement With Vioxx Users:
Merck & Co. will pay $4.85 billion to tens of thousands of Vioxx users who can show proof they suffered a heart attack or stroke.
People who filed claims by Nov. 8, 2007, and can prove they had a heart attack or stroke are eligible. The amount that each victim gets depends the severity and date of the injury, Vioxx usage and whether they had risk factors such as smoking or obesity.
Plaintiffs get amounts that vary, depending on how badly they were hurt and the amount of time they used Vioxx. Merck gets to put a firm number on its liability and end the uncertainty of years of trials.
Some 46,000 people sued Merck after Vioxx was pulled from the market in 2004 after a company study found the painkiller doubled the risk of heart attack or stroke.
Until Friday, Merck maintained it would fight every case and made no settlements. Results at trials had been mixed, with Merck prevailing in 10 of 15 verdicts and appealing the losses.
Merck does not admit any fault, but the deal allows the Whitehouse Station, N.J.-based company to put a final price on the case and avoid years of litigation.