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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 (CE) after long-term use. In the years since then, many lawsuits have been filed against Merck. This article 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 (IRR) for Merck, I calculate the expected profits from future Vioxx sales. I then use data on financial effects to show how the Market Value (MV) of Merck reflects their probability of winning legal cases concerning Vioxx.
