* Results of Vytorin test disappointed investors
* Merck, Schering-Plough co-marketed drug; later merged
* Court approval of settlement required
By Jonathan Stempel
Feb 14 Merck & Co has agreed to pay $688
million to settle two U.S. class-action lawsuits by shareholders
who said they lost money because the company concealed the poor
results of a clinical trial of the anti-cholesterol drug
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 trial results were released at the American Conference of
Cardiology in Chicago. The companies merged in November 2009.
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 financial
Christopher McDonald, a partner at Labaton Sucharow
representing Schering investors, in a telephone interview said
the settlements allow a "significant recovery" for shareholders.
He said that while the federal government has been
successful in pursuing large fraud cases against some
pharmaceutical companies, "it hasn't translated into any
significant uptick in settlements of securities cases."
Merck, based in Whitehouse Station, New Jersey, said it has
recorded a $493 million after-tax charge for the settlements,
reducing the company's previously reported profit per share for
the 2012 fourth quarter to 30 cents from 46 cents.
Bruce Kuhlik, Merck's general counsel, in a statement said
the settlements avoid the uncertainties of a jury trial, which
had been scheduled to begin March 4.
Merck also said it believes both companies acted responsibly
in connection with the Enhance trial, and that the settlements
include 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," Judson Clark, a
health care analyst with Edward Jones, said in a telephone
interview. He has a "buy" rating on Merck.
Shares of Merck fell 26 cents to $40.89 in morning trading
on the New York Stock Exchange.
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 atherosclerosis,
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
Zetia sales totaled $2.57 billion and Vytorin sales totaled
$1.75 billion in 2012. Combined sales have fallen 17 percent
since 2007, before the Enhance trial results were released.
Merck posted total sales of $47.27 billion for 2012.
COURT APPROVAL NEEDED.
Merck said it will pay $215 million to settle a lawsuit
brought by investors in its securities, and $473 million to
settle a lawsuit by Schering investors.
The class period runs from Dec. 6, 2006, through March 28,
2008, for Merck investors, and from Jan. 3, 2007, to March 28,
2008, for Schering investors, court papers show.
Both settlements require approval by U.S. District Judge
Dennis Cavanaugh in Newark, New Jersey. He certified both
classes of investors in September.
Settlement papers were not immediately available, and it was
unclear how much was being set aside to cover legal fees.
Lead plaintiffs in the Merck case include 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
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 law firms Bernstein Litowitz Berger & Grossmann and
Grant & Eisenhofer represent the Merck class. Bernstein Litowitz
and Labaton Sucharow represent the Schering class.
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.