A federal judge on Tuesday certified as class actions a pair of suits claiming Merck & Co. and the former Schering-Plough Corporation withheld information about the effectiveness of the anticholesterol drug Vytorin.
Schering, the drug’s maker, comarketed it with Merck through a joint venture prior to the merger of the two companies in November 2009.
The lead plaintiffs — pension funds that invested in the companies — allege they concealed unfavorable results of a clinical trial known as the ENHANCE study, which was completed in 2006.
“This is a classic example of a case that warrants class action,” said U.S. District Judge Dennis Cavanaugh, who has also managed shareholder derivative litigation over Vytorin marketing’s after-effects.
According to the judge’s opinions, the ENHANCE study was expected to show that Vytorin — which contains Merck’s Zetia and Zocor — was superior to generic statin drugs at reducing arterial plaque. Instead, the study showed that Vytorin was no more effective.
The plaintiffs claim Schering purposely failed to disclose the unfavorable results, blaming the delay on data issues, all while still touting Vytorin’s benefits.
On Jan. 14, 2008, Merck and Schering released partial study results, and reports that the companies were being investigated for questionable marketing of Vytorin soon followed.
As a result, Schering’s stock price fell by 8 percent, Merck’s, by 9 percent.
The full study results, released March 30, 2008, again showed Vytorin offered no greater benefit than generics.
After that, a panel of medical experts advised doctors to rein in use of Vytorin and Zetia, and the stock prices dropped even more sharply: Schering’s by 26 percent and Merck’s by 13 percent.
The suits, In Re Schering-Plough Corp. ENHANCE Securities Litigation, 08-cv-397, and In Re Merck & Co. Inc., Vytorin/Zetia Securities Litigation, 08-cv-2177, were filed in 2008. In September 2011, each group of plaintiffs moved for class action certification.
On Tuesday, Cavanaugh, sitting in Newark, certified a class of investors who from Jan. 3, 2007 through March 28, 2008 bought Schering stock or call options, or sold put options; did not sell their holdings on or before Jan. 14, 2008; and thereby suffered damages.
The Merck investor class is the same, except the class period begins on Dec. 6, 2006.
Cavanaugh found the cases satisfied the numerosity, commonality, typicality and adequacy elements of Federal Rule of Civil Procedure 23(a).
He said numerosity is obvious where the securities issuer is a large, prominent publicly held company. He noted that Merck’s and Schering’s shares of common stock numbered in the billions during the class periods.
He found the claims of fraudulent conduct by the companies are common to all plaintiffs.
As for typicality, the plaintiffs assert a “fraud on the market” theory and are entitled to a presumption of reliance on the ENHANCE study results, Cavanaugh said, noting the high volume of trading, the numerous reports by financial analysts and publications, and other factors.
He found the defendants failed to sufficiently rebut that presumption of reliance by pointing out that the lead plaintiffs, as retirement funds, only bought the stock as part of broad investment strategies involving purchase of various securities. “[I]ndex purchases and the like are in fact a perfect example of reliance on the market,” he added.
Cavanaugh also found that the plaintiffs met the predominance and superiority requirements of Rule 23(b)(3).
“Plaintiffs seek to represent large Class[es] of securities purchasers who are geographically dispersed and whose individual damages may well be small enough to render individual litigation prohibitively expensive,” he wrote. “Further, given the amount of Class members, individually litigating these matters could certainly raise the possibility of conflicting outcomes.”
The defendants challenged the length of the class period because, they argued, the partial disclosure of the study on Jan. 14, 2008, was curative of any prior misrepresentations. But the judge said that is a fact issue for the trial.
Cavanaugh, contrary to the defendants’ urging, included traders of stock options and preferred stock in the class, even though the lead plaintiffs bought common stock.
The plaintiffs’ counsel, Salvatore Graziano of Bernstein Litowitz Berger & Grossmann in New York, says “the expectation is, these cases are going to be tried together” on the scheduled trial date, March 4.
Graziano calls the rulings “very important” and the plaintiffs’ monetary losses “very significant.”
Lead defense counsel Daniel Kramer, of Paul, Weiss, Rifkin, Wharton & Garrison in New York, did not return a reporter’s call seeking comment.
The Vytorin issue has spurred shareholder derivative suits under ERISA.
In May, Cavanaugh gave final approval to a $12.25 million settlement in In re Schering-Plough ENHANCE ERISA Litigation, 08-cv-1432.
In Febrary, Cavanaugh approved a settlement in Plymouth County Contributory Retirement System v. Hassan, 08-cv-1022, that paid no money but required Merck to adopt reforms valued at $50 million to $75 million and pay $5.1 million in legal fees.
A hearing on final approval of settlement in a third derivatives case, In Re Merck Vytorin ERISA Litigation, 08-cv-1974, was scheduled for Sept. 25 before Cavanaugh, according to court documents.