This is a partial transcript from "Your World with Neil Cavuto," November 15, 2004, that was edited for clarity.

NEIL CAVUTO, HOST: Just four days before testifying on Capitol Hill, Merck CEO Ray Gilmartin (search) is still under fire for his company's early handling of Vioxx (search) and whether a study called Vigor tipped off the company to early safety concerns about its blockbuster arthritis drug.

I asked Mr. Gilmartin about those concerns and whether he had known about the Vioxx trouble earlier.


RAYMOND GILMARTIN, CEO, MERCK (MRK): That's not the case at all. What has caused this impression is, you know, what did we do around the Vigor trial, what did we know when. And the Vigor trial was the trial that showed that there was a difference of cardiovascular events with Vioxx compared to naproxen. All the other data that we had up to that time for the approval of the drug showed no difference between Vioxx, other NSAIDs or placebo. So therefore, all the safety data we had confirmed the fact that there was no difference.

We looked at naproxen, and it does have aspirin-like qualities. Other NSAIDs like naproxen were shown to be cardioprotective, and so the weight of the evidence was that naproxen lowered the rate of cardiovascular events.

CAVUTO: But there's still these stories that there was evidence or anecdotal evidence, and sometimes even medical evidence to support the contrary, that you knew there were rumblings of problems related to Vioxx, the degree to which might not have been significant, but was higher than would otherwise be.

GILMARTIN: We were paying attention to those rumblings as well. For example...

CAVUTO: Why not at that point say, "All right, this doesn't look good"?

GILMARTIN: Well, what we did right at that point, because of those rumblings, we undertook a trial called APPROVe, which was originally started to look at recurrence -- if we could prevent the recurrence of colon polyps.

And we took that trail and added to it two others. And in addition to looking for the benefit, we pre-specified as an end point cardiovascular risk.

So really, just about contemporaneous with the Vigor findings, we had underway a trial that we were able to convert into a cardiovascular trial, in effect, by looking at that end point.

And that, in effect, that trial APPROVe was the trial that had this remarkable outcome that after 18 months of showing no difference against placebo, that Vioxx started to show a greater risk. And once we had that new data, we moved promptly and voluntarily removed the drug from the market.

CAVUTO: Are you worried now that if this becomes potentially something more involved, a criminal issue with the Justice Department, looking at this sort of thing, what have you, that your financial liability could be significantly higher than even you're figuring?

GILMARTIN: Well, the subpoena from the Justice Department and the informal inquiry from the SEC followed slowly closely on the article that was in the Wall Street Journal, which basically had selected portions of documents that were taken out of context.

CAVUTO: You think you'll be absolved of any criminal wrongdoing?

GILMARTIN: No matter, you know, how these documents were used to misrepresent our corporate practices or company practices, we point to what we actually did.

None of that can obscure the fact that at every step of the way, we were vigilant about the safety of the drug. We were diligent in undertaking the studies to answer any questions, and we were prompt in disclosing any information about this

CAVUTO: Yes, but let's say all of that is true, Mr. Gilmartin, and 20 million or so people were taking Vioxx, right? Even if a small fraction of them have troubles or can convince their lawyers they had troubles, you're looking at, you know, what, $150,000 or $300,000 for each person who feels they've been wronged. This could add up into the billions. I think one figure put it as high as $20 billion.

It could kill your company, couldn't it?

GILMARTIN: Well, you know, to put this all in context, first of all, that no risk even started to show up until someone had been on the drug continually for 18 months or more.

Secondly, that as the FDA pointed out in the press release, that the risk for anyone individual, for a heart attack or stroke, was very small. And heart attacks and strokes occur generally throughout the population for a variety of risk factors that people have.

CAVUTO: But you do the math, right? In a small percentage, what is in your gut, what are your lawyers telling you? Obviously, you're not going to deal with this on a class action basis. The last reports are you're going to fight this case by case. There could be a lot of cases. What are you looking at?

GILMARTIN: Well, we have very meritorious defenses. We're going to defend ourselves vigorously. You know, we can't speculate at this point what the outcome of any trial or series of trials would be.

CAVUTO: But the class action thing is out? You would never entertain that?

GILMARTIN: Well, I'm not going to comment on the litigation strategy, but as I said, we've got meritorious defenses that we'll defend ourselves vigorously. And we can't speculate at this point what the outcome would be.

CAVUTO: And obviously, you can't speculate what you do to harbor finances in the meantime, but would you entertain cutting your dividend?

GILMARTIN: No, not at all. I mean, we're very strong financially. We've got a very conservative balance sheet. We did before the withdrawal of Vioxx. We do after the withdrawal of Vioxx.

CAVUTO: Would you cut back on research and development?

GILMARTIN: Not at all, either. So we've got the cash flow, the strength of the cash flow to protect it.

CAVUTO: That's $1.5 billion a year, right?

GILMARTIN: Well, it's more than that. It's in billions.

CAVUTO: But the litigation could be in billions.

GILMARTIN: Well, but we're able to protect our dividend. And we're also able to continue to invest in research and also what it takes to do what we're now focused on, which is how to rebuild the growth of the company.

And given what we have coming through the pipe line and some of the late stage deals that we've made, which will start to be filed and approved and launched in '06 and '07, that we have that opportunity to drive the growth of this company. And we have the resources to do it.

CAVUTO: Do you see bankruptcy if things really get bad?

GILMARTIN: Absolutely not.

CAVUTO: Not at all?

GILMARTIN: Not at all.

CAVUTO: All right. But if the litigation costs hit, let's say, a magic number, in excess of $10 billion, would that have to be considered?

GILMARTIN: Well, as I say, I can't speculate on what the litigation costs might be. I'll return again to the fact that we have a very conservative balance sheet, and we've got very strong cash flow.

CAVUTO: All right, now, a merger as a possibility?

GILMARTIN: Not a possibility. You know, every analysis over the years that we've done of the benefits of mergers or lack of benefits have demonstrated to us that it doesn't add to our pipeline. It doesn't add to our long-term growth.

And that the better strategy is to continue investing in internal research, but also to continue to make the kind of deals that we've been aggressively pursuing since 1999-2000.

And that's now the prevailing view in the industry, I would suggest, is that I think most companies have returned to looking at innovation and the importance of research productivity, a place where we've been. I think companies are also starting to recognize, as we have, how important it is to be more efficient as a company, as well.

So we've been working to drive down our cost structure to be able to offer novel medicines at a competitive price and have a cost structure to support that strategy.

CAVUTO: Would you, in looking at these developments, be surprised if Americans took a look at their dependence on a lot of drug, what have you, and just say, "No, I'm not going to take it?" That people are going to stop taking medications, stop taking pills, and that not only would it be bad for Merck but the whole pharmaceutical sector itself?

GILMARTIN: Well, I think that the benefits of what we offer as Merck, for example, are so significant that people will continue to take these medicines.

The thing is that if you're a woman with osteoporosis and taking Fosamax to build back your bone density so that you prevent the risk of a fracture, that's a powerful motivation to stay on Fosamax.

For Singulair, if you're a youngster or a particularly an older person, and you can take Singulair, control your asthma so you reduce the use of an inhaler, reduce the number of emergency room visits, that's a powerful incentive to keep taking these medicines.

So that's why we've emphasized and continue to emphasize the importance of novel medicines, medicines that really provide a benefit and quality of life for saving people's lives. And that's what our strength is as a company.


CAVUTO: All right. A still fighting Ray Gilmartin over at Merck.

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