Merck & Co. has agreed to pay $688 million to settle two shareholder class actions in federal court in Newark claiming it made false and misleading statements about the efficacy of cholesterol-reducing drug Vytorin.
The settlement, announced Thursday, includes $215 million for class members in a suit against Merck and $473 million for the class in a suit against Schering-Plough Corp., which merged with Merck in 2009 and sold Vytorin in a joint venture.
The suits claimed that the defendants delayed for two years disclosure of clinical trial results involving Vytorin, which is a combination of the drug Zetia and generic drug simvastatin.
The suits are Manson v. Schering-Plough Corp., 08-397, filed in January 2008, and Genesee County Employees’ Retirement System v. Merck & Co., 08-2177. A pension fund from Luxembourg and seven U.S. pension funds are the lead plaintiffs.
The so-called ENHANCE study, which said Vytorin was no better at treating hardening of the arteries than use of the less-costly simvastatin alone, was made public in March 2008, causing a substantial drop in the price of the companies’ stock.
Both suits, which were scheduled to be tried on March 4, accused the defendants of violating Sections 10(b) and 20(a) of the Exchange Act and Rule 10b-5 promulgated by the Securities and Exchange Commission.
The settlement came after U.S. District Judge Dennis Cavanaugh granted class certification in the suits and the U.S. Court of Appeals for the Third Circuit declined the defendants’ petition for review of class certification.
The settlement still must be approved by Cavanaugh.
Merck said in a statement that it would record a charge of $493 million as a result of the settlement, which reflects anticipated insurance recoveries.
Merck said it continues "to believe that both companies acted responsibly in connection with the ENHANCE study, and this agreement contains no admission of liability or wrongdoing."
"This agreement avoids the uncertainties of a jury trial and will resolve all the remaining litigation in connection with the ENHANCE study," Bruce Kuhlik, Merck’s executive vice president and general counsel, said in the statement.
"We believe it is in the best interests of the company and its shareholders to put this matter behind us," he added.
The suits claimed that the defendants knew the results of the ENHANCE study were not favorable but withheld the results from the public under a pretext of technical problems with the data.
Meanwhile, the plaintiffs claimed, the defendants made public statements touting Vytorin’s advantages over simvastatin.
In January 2008, when the defendants released "selected results" of the ENHANCE study, Merck’s stock price fell 9 percent, the suits claimed. On March 30, 2008, the company released the full results; its stock fell another 12 percent.
Schering’s stock price dropped 8 percent when the selected results were released and an additional 26 percent when the full results were made public.
When Cavanaugh certified classes of Merck and Schering stockholders last Sept. 25, he said: "This is a classic example of a case that warrants class action."
Merck, based in Whitehouse Station, was represented by Theodore Wells Jr. and Daniel Kramer of Paul, Weiss, Rifkind, Wharton & Garrison in New York; Douglas Eakeley and Gavin Rooney of Lowenstein Sandler in Roseland; and William McGuire of Tompkins, McGuire, Wachenfeld & Barry in Newark.
Bernstein, Litowitz, Berger & Grossman of New York was co-lead class counsel in both cases. Grant & Eisenhofer of Wilmington, Del., was co-lead counsel for the class in the Merck case, and Labaton Sucharow, also of Wilmington, was co-lead counsel for the class in the Schering-Plough case.
Salvatore Graziano of Bernstein Litowitz, who worked on the case, says Schering-Plough’s liability is greater than that of Merck because it conducted a secondary public offering of shares at the same time it was withholding the results of the ENHANCE study.
The case was a difficult one because no laws required the defendants to make timely disclosure of clinical trial results about their products, says Graziano.
"Hopefully it will set a good precedent and make companies realize withholding clinical trial results can be a securities fraud violation," says Graziano. •