Merck Settles Investor Suits Over Cholesterol Drug

Merck said it had recorded a $493 million charge to cover the cost of the settlement. Merck earned $6.66 billion in net income last year on revenue of about $47 billion based on generally accepted accounting principles. So that charge is only 7.4 percent of last year’s profits.

Investors filed two lawsuits against Merck and Schering-Plough, which jointly sold Vytorin. The suits asserted that the companies had known for nearly two years that a clinical trial of the drug failed to show that it was any better than a statin drug at limiting the buildup of plaque in arteries, but they did not make the results public until 2008.

The companies’ stock dropped significantly after those results were released and a panel of cardiologists recommended the drug be used only as a last resort.

Under Thursday’s agreement, Merck will pay $215 million to resolve a class-action suit involving Merck defendants and $473 million to resolve a suit against Schering. Lawyers for plaintiffs in the suit against Schering said the settlement was the largest ever in a securities class action against a drug company.

“The settlement is even more gratifying because it underscores the value of private civil litigation to protect shareholder rights,” Christopher McDonald, one of the lead lawyers representing investors, said in a statement. Vytorin combines the statin drug Zocor, also sold by Merck, with the anticholesterol drug Zetia. Several studies — including the one in question — have failed to show that Vytorin or Zetia is more effective than statins, most of which are available as low-cost generics and have been shown to reduce the risk of heart attacks. Zetia has been shown to lower the so-called bad cholesterol, but whether it reduces heart disease is still not known.

Sales of Vytorin and Zetia have fallen since 2007, when they brought in a combined $5 billion, but they are still among Merck’s top-selling drugs. In 2012, Zetia brought in $2.6 billion and Vytorin $1.8 billion, according to company filings.

In settling the lawsuits, Merck did not admit any wrongdoing and said both companies had acted responsibly in connection with the clinical trial, which is known as the Enhance study. Schering and Merck merged in 2009.

A jury trial was scheduled to begin in early March.

“This agreement avoids the uncertainties of a jury trial and will resolve all of the remaining litigation in connection with the Enhance study,” Bruce N. Kuhlik, executive vice president and general counsel of Merck, said in a statement. “It is in the best interests of the company and its shareholders to put this matter behind us, and to continue our focus on scientific innovations that improve health worldwide.”

Daniel Berger, a lawyer whose firm represented the Dutch pension fund ABP, said the size of the settlement was noteworthy because many such suits are accompanied by a criminal or government investigation but there was none in this case.

“This was a case that we built ourselves,” he said. In 2009, the companies paid $41.5 million to settle class-action lawsuits from consumers and insurers over the same issue. Also that year, the companies paid $5.4 million to state attorneys general investigating consumer protection cases involving Zytorin and Zetia.

In their heyday, Zetia and Vytorin were heavily promoted by Merck and Schering despite continued skepticism by cardiologists that the drugs were effective. Zetia, also known as ezetimibe, was approved by the Food and Drug Administration in 2002 based on studies that showed that it lowered bad cholesterol 15 to 20 percent. Vytorin was approved in 2004. The drugs provided a comfortable source of revenue for Merck after its Zocor lost patent protection and faced competition from low-cost generic alternatives.

In 2007, about 800,000 prescriptions for Zetia and Vytorin were written each week. They made up nearly 20 percent of the market for cholesterol-lowering drugs. But by that fall, cardiologists began to complain and to question the drugs’ efficacy after the companies refused to release the findings of the Enhance trial.

Merck suffered another setback involving Zetia last year when the F.D.A. rejected its application for a drug that would combine Zetia with the active ingredient in Lipitor, a statin made by Pfizer that is now available as a generic. In January, Merck said that it had provided new information to the agency and was resubmitting the drug for approval.

Article source: http://www.nytimes.com/2013/02/15/business/merck-settles-investor-suits-over-cholesterol-drug.html?partner=rss&emc=rss