Supreme Court Hears Vioxx Arguments on Investor Lawsuits

December 2, 2009

Lawyers for Merck & Co. told the Supreme Court this week that investors waited too late and didn’t do all of the necessary investigations to sue the drug maker over whether it properly warned about the risks of its blockbuster painkiller Vioxx.

Whether the high court agrees with the drug maker will help clarify the legal standards for determining exactly when the clock starts running for the two-year window to sue a company accused of defrauding investors.

Merck wants the high court to overturn a decision by the 3rd U.S. Circuit Court of Appeals that will let proceed a class-action securities lawsuit related to the tens of billions of dollars in shareholder value lost overnight after Merck pulled Vioxx off the market.

The Whitehouse Station, New Jersey-based company withdrew the drug from the market on Sept. 30, 2004, because it doubled the risks of heart attack, stroke and death.

Investors had accused Merck of providing misleading information or omitting information about the risks of Vioxx. After a widely publicized study comparing Vioxx to naproxen, another pain reliever, found about five times more heart attacks in the patient group taking Vioxx, Merck officials argued repeatedly that was because naproxen protected the heart.

Experts have since dismissed that.

“It would be the height of irony that for Merck’s success in concealing its fraud through the scientific uncertainty that was occurring with the naproxen hypothesis, that it would have this suit thrown out on statute of limitations grounds and never face the day in court that the investors here expect and deserve,” investor lawyer David C. Frederick said.

After it pulled Vioxx from the market, Merck was hit with a deluge of lawsuits from shareholders, patients and their survivors claiming Vioxx caused heart attacks and strokes, and from insurance plans seeking reimbursement for their costs for covering Vioxx prescriptions.

Merck says the investors should have known from public information that there could be problems with Vioxx, because the regulatory Food and Drug Administration had issued warnings to Merck about Vioxx risks late in September 2001.

“There was sufficient information in the public domain,” Merck lawyer Kannon Shanmugam said.

Merck officials, in a statement released after arguments, said they believe “the intense public discussion of data surrounding Vioxx had put investors on inquiry notice of the relevant issues.”

A U.S. district judge agreed and dismissed the November 2003 lawsuit, ruling it was filed after the two-year statute of limitations expired.

But the Philadelphia-based appeals court reversed that decision, allowing the many shareholder lawsuits, now consolidated in federal court, to proceed.

The court said the investors could not have known more than two years ahead of time of the possible wrongdoing by Merck.

Shanmugam argued that the investors should have taken it upon themselves to investigate the problems, which would have extended the statute of limitations. But the justices questioned whether it would have been possible to come across any more information than what was already publicly available.

“It’s a question of what a reasonable person would do,” Justice Stephen Breyer said.

The rule said the clock on the statute of limitations begins after the discovery of the wrongdoing, Justice John Paul Stevens said. “You argue that it should be two years after he should have discovered” it, he said.

The court will make a decision on the case next year.

The case is Merck v. Reynolds, 08-905.

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