In re Merck & Co., Inc.
| Decision Date | 09 September 2008 |
| Docket Number | No. 07-2431.,No. 07-2432.,07-2431.,07-2432. |
| Parties | In re MERCK & CO., INC. SECURITIES, DERIVATIVE & "ERISA" LITIGATION (MDL No. 1658) Consolidated Securities Litigation. Richard Reynolds, Steven LeVan, Jerome Haber and The Public Employees' Retirement System of Mississippi, the Court-Appointed Lead Plaintiffs and Plaintiffs Union Asset Management Holding AG, Loren Arnoff, Robert Edwin Burns, Jan Charles Finance S.A., Martin Mason, Frank H. Saccone, Charlotte Savarese, Joe Savarese, Joseph Goldman, Sherrie B. Knuth, Joseph S. Fisher, M.D., Naomi Raphael, Rhoda Kanter, Park East, Inc. and Marc Nathanson, on behalf of themselves and the proposed class of purchasers of Merck securities during the period between May 21, 1999 and October 29, 2004, Appellants. |
| Court | U.S. Court of Appeals — Third Circuit |
Weiss, New York, NY, Paul B. Brickfield, Brickfield & Donahue, River Edge, NJ, James E. Cecchi, Lindsey H. Taylor, Carella, Byrne, Bain, Gilfillan, Cecchi, Stewart & Olstein, Roseland, NJ, Robert T. Haefele, Motley Rice, Mount Pleasant, SC, for Appellants.
Robert H. Baron, Evan R. Chesler (Argued), Cravath, Swaine & Moore, William H. Gussman, Martin L. Perschetz, Sung-Hee Suh, Schulte, Roth & Zabel, New York, NY, Roberta Koss, William R. Stein, Hughes, Hubbard & Reed, Washington, DC, Lawrence M. Rolnick, Sheila A. Sadighi, Lowenstein Sandler, Roseland, NJ, for Appellees.
Before: SLOVITER, BARRY, and, ROTH Circuit Judges.
Appellants, purchasers of Merck & Co., Inc. stock, filed the first of several class action securities fraud complaints on November 6, 2003, alleging that the company and certain of its officers and directors (collectively, "Merck") misrepresented the safety profile and commercial viability of Vioxx, a pain reliever that was withdrawn from the market in September 2004 due to safety concerns. The District Court granted Merck's motion to dismiss the complaint under Rule 12(b)(6) of the Federal Rules of Civil Procedure, holding that Appellants were put on inquiry notice of the alleged fraud more than two years before they filed suit, and thus their claims were barred by the statute of limitations. Appellants argue that the District Court erred in finding as a matter of law that there was sufficient public information prior to November 6, 2001 to trigger Appellants' duty to investigate the alleged fraud. Because the District Court dismissed on the basis of the complaint, we must accept its allegations as true.1
In May 1999, the Food and Drug Administration ("FDA") approved Vioxx, a new drug introduced by the pharmaceutical company Merck. Vioxx is the brand name of rofecoxib, a nonsteroidal anti-inflammatory drug ("NSAID") used in the treatment of arthritis and other acute pain. Most NSAIDs, such as aspirin, ibuprofen, and naproxen, function by inhibiting two enzymes: cyclooxygenase-1 ("COX-1"), which is associated with the maintenance of gastrointestinal ("GI") mucus and platelet aggregation, and cyclooxygenase-2 ("COX-2"), which is associated with the response to pain and inflammation. The inhibition of COX-1 leads to harmful GI side effects. Because Vioxx was designed to suppress COX-2 without affecting COX-1, Merck marketed Vioxx as possessing the beneficial effects of traditional NSAIDs but without the harmful GI side effects associated with those drugs. The market viewed Vioxx as a potential "blockbuster" drug for the company, App. at 469, and as its "savior," App. at 494. Merck repeatedly touted the safety profile, sales, and commercial prospects of the drug in press releases, public statements, and Securities and Exchange Commission ("SEC") filings throughout the class period.
Prior to the FDA's approval of Vioxx, officials at Merck were concerned that Vioxx could cause harmful cardiovascular ("CV") events, such as heart attacks. Internal emails from 1996 and 1997 demonstrate that Merck employees were aware that there was "a substantial chance" and a "possibility" of CV events that could "kill [the] drug." App. at 496. In 1998, an unpublished internal Merck clinical trial entitled Study 090 revealed that Vioxx caused a greater incidence of CV events than a placebo or a different arthritis drug.2
In January 1999, Merck commenced the VIOXX Gastrointestinal Outcomes Research ("VIGOR") study, which compared Vioxx to naproxen, the active ingredient in brand-name pain relievers such as Aleve and Naprosyn.3 Although the study showed that Vioxx had a GI safety profile superior to that of naproxen, it also showed that Vioxx users had a higher incidence of CV events than naproxen users. In a March 9, 2000 email, defendant Edward Scolnick, the President of Merck Research Laboratories, acknowledged the existence of CV events, commenting, "it is a shame but it is a low incidence and it is mechanism based as we worried it was." App. at 512.
Merck did not attempt to conceal the results of the VIGOR study. It made them public in a press release on March 27, 2000, that emphasized Vioxx's superior GI safety profile but also noted the incidence of CV events. Merck stated:
[S]ignificantly fewer thromboembolic events were observed in patients taking naproxen in this GI outcomes study, which is consistent with naproxen's ability to block platelet aggregation. This effect on these events had not been observed previously in any clinical studies for naproxen. Vioxx, like all COX-2 selective medicines, does not block platelet aggregation and therefore would not be expected to have similar effects.
App. at 765. The press release also stated that "[a]n extensive review of safety data from all other completed and ongoing clinical trials, as well as the post-marketing experience with Vioxx, showed no indication of a difference in the incidence of thromboembolic events between Vioxx, placebo and comparator NSAIDs." App. at 766.
The VIGOR study results were widely reported in the press, medical journals, and securities analyst reports. Market analysts and members of the press immediately understood that CV events could be a side effect of Vioxx. Nonetheless, many observers also took notice of Merck's hypothesis that naproxen lowered CV events (the "naproxen hypothesis"). The naproxen hypothesis attributed the results of the VIGOR study to the beneficial effects of naproxen's blocking of platelet aggregation rather than to the harmful effects of Vioxx in causing thromboembolic events. The issue whether naproxen lowered the heart attack risk or Vioxx caused it was thus presented. While many analysts noted that the naproxen hypothesis was unproven, some also concluded that it was the most likely explanation for the increased CV events observed in the VIGOR study.
One representative article distributed by Reuters on April 27, 2000, quoted a Merck spokesman who acknowledged the "statistically significant" finding that patients of Vioxx had a higher rate of CV events, but suggested that this might be explained by a beneficial effect of naproxen. App. at 2287. In that same article, however, a spokesperson for the manufacturer of Naprosyn explained that the company had no knowledge that naproxen prevented heart attacks or strokes; similarly, an analyst for ABN Amro suggested that he was skeptical of Merck's explanation.
On February 8, 2001, the FDA's Arthritis Advisory Committee ("AAC") held a public hearing to consider Merck's request to include the positive GI results from the VIGOR study in its Vioxx labeling. Six days before that hearing, J.P. Morgan issued a research report summing up the state of knowledge about Vioxx after the VIGOR study. The report stated that the basic idea behind the naproxen hypothesis was "poorly proven," and that there was "no way to retrospectively slice the data to prove the NSAID benefit vs. Vioxx risk argument," although one existing theory "might support a `Vioxx risk' hypothesis." App. at 2547. J.P. Morgan warned, "[t]his is the type of clinical `signal' that was ignored, and later haunted the FDA in recent drug recalls like Warner Lambert's Rezulin and Glaxo's Lotronex." App. at 2547.
During the AAC hearing, defendant Alise Reicin, Executive Director of Clinical Research at Merck Research Laboratories, explained to the panel, "when you review the results of VIGOR in isolation you don't know whether the imbalance of cardiovascular events was caused by a decrease in events on a platelet-inhibiting NSAID, naproxen, or an increase in events on a COX-2 selective inhibitor," i.e., Vioxx. App. at 995. She then suggested that naproxen was likely responsible for the difference in CV events observed in users of the two drugs. At the public portion of the hearing, the panel subsequently discussed whether to call for the inclusion of a warning in the Vioxx labeling stating that it was "uncertain" whether the CV events noticed in VIGOR were "due to beneficial cardioprotective effects of naproxen or prothrombotic effects of [Vioxx], and leave it at that, that basically we don't know the reason." App. at 1143.
Nonetheless, some press accounts reported that certain AAC panel members asserted that "[d]ifferences in cardiac risk between Vioxx and naproxen appeared to result from a beneficial effect of naproxen, not a danger from Vioxx," App. at 2311, and that there was "some reassurance that what we see, in effect, is a protective effect of naproxen," App. at 2306. In subsequent coverage, many securities analysts reported that the hearing had benefited Merck and they continued to project substantial future revenues for Vioxx. However, at least one investment firm issued a report stating, "our skepticism...
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