The maker of Vioxx has agreed to pay $4.85bn to settle legal claims that the controversial drug caused many users to suffer strokes and heart failure.
Vioxx was withdrawn from sale in 2004
Merck & Co said it was setting up a fund to compensate victims, adding that claimants would only receive payment if certain key conditions were met.
To qualify, individuals must prove they suffered serious illness, at the most two weeks after they bought the drug.
The deal may end multiple lawsuits but Merck has not admitted any liability.
More than 26,000 separate lawsuits have been launched against Merck, alleging the drugmaker failed to alert users properly to the possible dangers of taking the painkiller, used to treat arthritis and other conditions.
Merck has always denied claims of negligence, maintaining that it voluntarily withdrew the drug in September 2004, following research suggesting its use could significantly increase incidence of heart attacks and strokes if taken for 18 months.
Of those cases that have gone to court so far, Merck has won 12 and lost five.
The firm said the settlement was "good and reasonable" and, if finalised, would ensure that litigation would not "stretch on for years".
The compensation offer would settle 95% of outstanding Vioxx claims, although it will not apply to class-action suits, of which there are currently more than 260.
Under the terms of the offer, Merck will pay a fixed amount into a fund. Individual awards will then be made following thorough evaluation of their merits.
Payments could be made as early as next August, although Merck said it reserved the right to rescind the settlement if key conditions were not adhered to.
These conditions include:
- Claimants must provide medical proof of serious illness
- They must provide evidence they bought at least 30 Vioxx pills
- They must provide proof to support the presumption they took Vioxx within two weeks of suffering illness
- Only US residents and those who were ill after taking the drug in the US are included
- The settlement will only be valid if 85% of all pending claims agree to the offer by 1 March 2008
Merck said the agreement would provide a "significant degree of certainty" that the bulk of lawsuits against the firm would be resolved.
"This agreement is the product of our defence strategy in the US during the past three years and is consistent with our commitment to defend each claim individually through rigorous scientific scrutiny," said Bruce Kuhlik, Merck's senior vice-president.
Lawyers who successfully fought the first Vioxx lawsuit in August 2005 welcomed the settlement.
"We are grateful that the people at Merck recognised that it was the right thing to do," said Mark Lanier, a Texas-based lawyer who represented the wife of a former marathon runner who died after taking Vioxx for eight months.
Hundreds of British patients who claim they had heart attacks after taking Vioxx lost the right to fight for compensation in the US after a prolonged legal battle last year.