Thomson Reuters; February 14, 2013
Merck & Co has agreed to pay $688 million to settle two U.S. lawsuits by shareholders who said they lost money because it concealed the poor results of a clinical trial involving the anti-cholesterol drug Vytorin.
The federal lawsuits led by several pension funds alleged that Merck and Schering-Plough Corp knew more than a year in advance that the trial known as Enhance was a failure, but withheld that information from investors.
Shares of Merck fell nearly 15 percent and Schering fell nearly 21 percent on March 31, 2008, the first trading day after full results of the trial were released at the American Conference of Cardiology in Chicago. The companies merged in November 2009.
Bernstein Litowitz Berger & Grossmann and Labaton Sucharow, law firms representing some of the plaintiffs, said the combined settlements are among the 10 largest in a securities class-action that did not involve a restatement of results.
Merck said it has recorded a $493 million after-tax charge for the settlements, reducing previously reported profit per share for last year's fourth quarter to 30 cents from 46 cents.
The Whitehouse Station, New Jersey-based company also said it believes both companies acted responsibly in connection with the Enhance trial, and that the settlement includes no admission of liability or wrongdoing.
"There's probably some merit (to the claims) or they wouldn't have settled for such a large amount," said Judson Clark, a health care analyst with Edward Jones, in a telephone interview. He has a "buy" rating on Merck.
Shares of Merck fell 9 cents to $41.06 in morning trading on the New York Stock Exchange.
According to a regulatory filing, Zetia sales totaled $2.57 billion last year and Vytorin sales totaled $1.75 billion.
Combined sales have nonetheless declined 17 percent since 2007, before Enhance trial results were released, a regulatory filing shows. Merck posted total sales of $47.27 billion for 2012.
LITTLE IMPACT FOUND
The Enhance trial had sought to demonstrate that Vytorin, a combination drug marketed by Merck and Schering, was more effective than a competing drug in combating artherosclerosis, the buildup of plaque in artery walls.
But the companies announced in January 2008 that Vytorin did not stop plaque any better than an inexpensive statin, Zocor, in high-risk patients with an inherited form of heart disease, though it did significantly reduce cholesterol levels.
Two months later, in announcing full results of the Enhance trial at the Chicago conference, a panel of doctors urged patients to try older cholesterol drugs before Vytorin and Zetia, which Merck and Schering also sold jointly.
Vytorin pairs Zetia with the active ingredient of Zocor. Zetia helps block absorption of "bad" LDL cholesterol in the intestines, and Zocor helps block production by the liver of LDL cholesterol.
MARCH 4 TRIAL AVERTED
Merck said it will pay $215 million to settle a lawsuit brought by investors in its securities between May 1, 2006 and March 28, 2008.
It will also pay $473 million to settle a lawsuit by investors who owned Schering securities between July 24, 2006 and March 28, 2008.
Both settlements require approval by U.S. District Judge Dennis Cavanaugh in Newark, New Jersey. The accord averts a trial that had been scheduled to begin on March 4. Settlement papers were not immediately available.
Lead plaintiffs in the Merck case included the Netherlands' Stichting Pensioenfonds ABP, Luxembourg's International Fund Management SA, the Jacksonville Police and Fire Retirement System in Florida, and the General Retirement System of the City of Detroit, court papers show.
Lead plaintiffs in the Schering case included the Arkansas Teacher Retirement System, the Louisiana Municipal Police Employees' Retirement System, Massachusetts Pension Reserves Investment Management Board and the Public Employees' Retirement System of Mississippi, court papers show.
The cases are In re: Schering-Plough Corp/Enhance Securities Litigation, U.S. District Court, District of New Jersey, No. 08-00397; and In re: Merck & Co Inc Vytorin/Zetia Securities Litigation in the same court, No. 08-02177.