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High court rules with investors in lawsuit against Merck

Investors suing Merck over its handling of the pain medication Vioxx got a boost Tuesday from the U.S. Supreme Court.

A technician inspects Vytorin pills at the Singapore facility in August 2004. A study showing the cholesterol drug was no more effective than a generic was another setback for Merck.
A technician inspects Vytorin pills at the Singapore facility in August 2004. A study showing the cholesterol drug was no more effective than a generic was another setback for Merck.Read moreJONATHAN DRAKE / Bloomberg News

Investors suing Merck over its handling of the pain medication Vioxx got a boost Tuesday from the U.S. Supreme Court.

In a case that hinged on when a two-year statute-of-limitations clock started ticking, the court backed lawyers suing Merck & Co. Inc. in a class-action securities-fraud lawsuit.

Merck, which has substantial operations in this area, pulled Vioxx from the market in 2004 because it increased heart problems. It expects to have completed $4.85 billion in payments to patients to resolve injury claims by the end of the year, said Ron Rogers, a Merck spokesman.

Bill Fredericks, a lawyer in New York who represents Merck shareholders, described the securities-fraud case as "very large" and likely to include "tens of thousands of investors and involve investing losses in the multiple billions."

Merck shareholders have seen several setbacks in recent years, including a settlement for Medicare overbilling and a study that said Merck cholesterol drug Vytorin was no more effective than a generic.

In the Supreme Court case, Merck argued that the two-year limit had already passed when the lawsuit was filed in November 2003. It contended that the two-year time period should have started with "inquiry notice," the point when the facts would have led "reasonably diligent" plaintiffs to investigate further. The court rejected that argument and said the clock started when investors had actual knowledge of a violation or a reasonably diligent investor could have known.

"The court's decision brings greatly needed clarity to the rule of when a statute of limitations begins to run," said David Frederick, the Washington, D.C.-based lawyer who represented investors before the top court.

Fredericks, the New York lawyer, said "this decision is going to help give plaintiffs time to investigate and bring well-founded securities-fraud claims."

In a written statement, Bruce Kuhlik, Merck's general counsel, said: "Merck is disappointed in today's decision, but believes that the allegations in the complaint are unfounded and will continue to defend itself vigorously."

The shareholders' case focuses on how Merck discussed results of a March 2000 study comparing Vioxx to naproxen, another pain drug. Vioxx patients had fewer gastrointestinal side effects, but four of every 1,000 of them had heart attacks compared to 1 per 1,000 of the naproxen patients. Merck hypothesized that naproxen might have a protective effect that Vioxx lacked. This became known as the "naproxen hypothesis."

In September and October of 2001, the FDA said that was a possible explanation, but that Merck's promotional campaign had not adequately acknowledged another possibility: that Vioxx might be causing heart problems.

The shareholders' lawsuit argues that "Merck withheld from the investing public its inside knowledge that the naproxen hypothesis was false," Frederick said.

Rogers said Merck disagrees. "We think that we've made appropriate disclosures and we look forward to trying our case in court," he said.