Merck, Shareholders And Vioxx Fraud In 2001
21 CommentsBy Ed Silverman // December 1st, 2009 // 11:02 am
So can Merck have it both ways? For years, the drugmaker has argued there was no evidence to suggest that Vioxx was causing heart attacks and strokes before its September 2004 withdrawal. As recently as last month, Merck dismissed a new analysis in the Archives of Internal Medicine purporting to show links between the painkiller and cardiovascular disease could have been detected going back to 2000 (please see here).
Now, though, Merck lawyers are arguing before the US Supreme Court that, based on publicly available information, shareholders could have detected possible securities fraud back in September 2001. Shareholders, however, filed lawsuits in November 2003 alleging the drugmaker misled them by downplaying clinical-trial data suggesting Vioxx caused increased cardiovascular risks.
The time difference is crucial. At issue is when investors should have known there was possible securities fraud and Merck lawyers argue the two-year statute of limitations expired by the time lawsuits were filed, so shareholders are out of luck. As an example, they cited an FDA warning letter sent in September 2001 alleging Merck misrepresented Vioxx by minimizing the potential to increase heart attack risks.
One can argue that proving securities fraud may not be precisely the same thing as proving that Merck knew and failed to disclose there was a serious problem with its drug, and that patients were harmed. In any event, there does seem to be a degree of irony involved as Merck continues to tell patients there was no reason to suggest any problem in 2001 when, in fact, shareholders should have known a problem existed.
Here is the transcript from the arguments before the Supreme Court, and you can read more here, here and here
Robert
Thank you for bringing attention to this issue. Merck should NOT get a pass on this one.
Condor
I have about four separate posts up from yesterday morning, through lunch today, covering various of the Justices’ lines of questioning.
This one is unlikely to go Merck’s way, despite what Jim Edwards over at bNet Pharma is predicting.
Thus, Merck will likely have to defend, on the merits, the federal Vioxx securities class action at trial.
SO — I predict a global settlement (a al the $4.85 billion Vioxx products liability claims) — after the Supremes hand down their “inquiry notice“/statute of limitations opinion — some time in the summer of 2010.
Namaste
Arthur Itis
I agree. The courts should drop a two ton … heavy thing on those that withheld information.
Off with their (proverbial) heads!
-Art
Carey
I guess the question is whether Merck is lying today, or was lying in the past.
Melody
If INVESTORS should have known about cardiovascular risks, then DOCTORS also should have known. And if doctors SHOULD HAVE known, and prescribed anyway, wouldn’t a SC decision favoring Merck then shift lawsuits toward the medical profession and away from Merck?
Mike
Doctors did know. At least they should’ve. The data was all around them. Unfortunately, too many doctors had too little time to examine it seriously. Most primary care physicians don’t take the time (and likely don’t have the time) to read up on every single treatment out there. Drug reps could bring a valued service to docs if they, as a class, were trustworthy.
Condor
Hello Melody —
I think the central point of Ed’s story is that most of us believe the Supreme Court will agree that your “INVESTORS” were NOT yet put on what’s known as “inquiry notice” (of non-disclosures by Merck related to Vioxx) as early as 2001.
In fact, it was likely that only Merck, itself possessed all of the raw “adverse event” information, at that point. Under FDA rules, then in effect, Merck was required to conduct statistical analysis of the significance of these adverse events — and then Merck was required to transmit quarterly packets of these data and analysis to FDA — for review, from 2000 through 2004.
So — with Merck sales people widely touting the pain-relief benefits of Vioxx to doctors in endless canned speeches, and glossy marketing materials, and “opinion-leader” talks and sponsored-CME seminars. . . it is highly unlikely that ANY doctor could have deduced, on his or her own, that Vioxx was elevating the risk of CV events in patients receiving the drug.
So — simply put, the answer to your final question will almost certainly be “no“.
Much more analysis of that notion, here — if you want to see some of the weedier detail.
Namaste
Condor
Hello Mike –
Actually Drs. Ross and Krumholz just released a study last week — peer-reviewed, and published in the Archives of Internal Medicine that suggests ONLY Merck was in a position to know the rising levels of CV events associated with Vioxx use — especially in the early stages of drug launch — circa 2000 through 2002, or so.
It is simply unrealistic and unfair to expect that doctors will call each of the pharma companies, in advance, and demand all the UNPUBLISHED, unfinished raw study data, and adverse event reports — then collate the same and analyze them — for each and every drug each doctor prescribes.
That is what Merck is supposed to do — and FDA is supposed to check the integrity of that reporting. It all starts, and ends, with a need for honesty — from Merck’s door.
Namaste
Justice in MI
Condor–I have to disagree with you on this one. I’m not saying “doctors should have known,” but many did raise serious questions post VIGOR and post the 2001 FDA warning letter. And we know about the various folks like Topol that Merck tried to intimidate back in those days, the fact that some states took Vioxx off their Medicaid formulary in 2001, and the FDA Advisory meeting calling for the revised labeling.
The fact that Merck created the “cardio card” and “dodgeball” are themselves reflective of the fact that a number of docs were asking questions–even if the majority continued to rx as usual.
So I would certainly not shift the responsibility from Merck to docs. But I would also say that alert docs _could_ have known that serious questions were being raised, even before the Krumholz et al study.
Hap
OT -
Nice Empire reference, Art.
Mike
Condor:
Then how did I know? How did Dr. Graham know? How did all of the doctors who published retrospective studies, population based studies, etc. know? Each individual doctor didn’t have to compile the data. A few specific doctors did it for them. They published in peer reviewed journals.
The problem with the article you cited is that it relies SOLELY on randomized placebo controlled trials. VIGOR wasn’t placebo controlled . . . but it did show a statistically significant increase in risk for MI with Vioxx users. Merck claimed that Naproxen (the active comparator in the trial) decreased the risk, hence the disparity. However, the manufacturer of Naprosyn sent a Dear Doctor letter DENYING any cardioprotective effects. Furthermore, there were plenty of other articles (population based studies, etc.) that demonstrated Vioxx to have an increase in risk. Merck was NOT the only entity in the position to know. Plenty of people knew.
The kicker in this whole thing is that I was shocked when Vioxx was pulled off the market. I wasn’t shocked because I just found out it caused heart attacks. I was shocked that people, all of a sudden, thought it was such a big deal. Having known about the risk for so long, I thought that the powers that be calculated it as an acceptable risk. I was shocked that it suddenly wasn’t.
Condor
Dear JiM and Mike — I appreciate your perspectives.
Fair enough. I seem to have slightly overstated the case (as to a tangential matter).
My central premise, here and elsewhere — and the object lesson of the Supremes oral argument news, of Monday — is that the primary responsibility for drug monitoring and safety — after the FDA’s approval, resides and remains — always with the company that manufactures and markets the drug.
About that, there should be no quarrel.
I salute those who sniffed out Vioxx’s elevated CV event risks early-on. I think it “too cute, by half” to say stockholders must do more than the company, itself — to deduce emerging fraud — in the company’s own statements.
That is a rule unsupported by reason.
And I think the Supremes will so hold — (great riff, Art!).
Namaste
BP Observer
I don’t know how Merck can try to get out of this by saying “investors should have known.” How in the world can investors be savy enough to know that major safety issues were emerging with this drug when Merck wasn’t being tranparent about the whole thing. Baffling argument!
Mike
This case is way more tricky than it seems. The argument goes like this:
1) Merck had a “duty” to protect its brand within the limits of the law. They argue that they were doing so by denying Vioxx increased heart attack risk.
2) On the other hand, investors have a duty to wade through Merck’s BS about Vioxx and discover the truth, which, pardon my 1990’s TV drama reference, was out there.
3) Merck is therefore arguing that it was legally denying an increase in risk, but impartial observers should have seen this denial as a required farce.
What this really says it that the FDA reporting and risk-communication regulations are insufficient to force companies to be honest about the realities of the known risks for their products. Perhaps we need to include more than just Class A data (prospective, double-blinded, placebo controlled trials). How Merck got away with saying the things they did about Vioxx despite the mounting evidence is still beyond me. However, the system that allowed it to happen needs to change. Companies with billions at stake need strong incentives to remain honest, open, and transparent.
Condor
Actually, and not to wax pendandic here, Mike –
Your point (2) gets it exactly backwards.
When Merck speaks about matters that are going to be material to its financial results (like Vioxx revenue trend-lines, and the drug’s continuing place in the market) it must tell the whole truth, and nothing but — under applicable federal securities rules.
That is what this case is all about. Investors must be duly diligent, but small common stock investors are generally entitled to rely on the company’s statements, when made in SEC filings — as many of these were.
So, for Merck to now argue, essentially, that “we were only joshing you — and you should have known that, much earlier” — as a statute of limitations escape hatch. . . is simply jaw-slacking.
Either Merck wants the Supremes to decide (an issue not properly before the Court, however) that Merck committed fraud in its SEC filings, or it wants the Supremes to decide that investors should have no remedy for false statements about arguably material matters — so long as Merck was able to continue — and perfect, the ruse.
Either way, Merck will lose — in my considered opinion.
Namaste
Mike
Perhaps my language was too extreme in my contempt for Merck’s classification of the evidence at the time.
Merck had a colorable argument that Vioxx did not increase heart attack risk. The whole truth, through their eyes, can be argued to have been exactly what they disclosed. To an impartial observer, however, the weight of the argument for Merck’s position could never have sustained it.
Merck isn’t saying that they were lying. They are saying that they were duty bound to interpret the evidence presented in the most favorable light, that investors should’ve known this, and that investors should’ve examined the evidence impartially.
I still think that Merck will lose. However, I don’t think it’s as slam-dunk as commentators are making it out to be.
Condor
Mike — yours are solid points, but the way this case came to the Supremes was on a petition, by Merck, called certorari, claiming that the lower courts erred in NOT letting Merck walk-away, entirely scott-free — dismissing the case — on statute of limitations grounds.
so, to be clear, this case hasn’t progressed to the “merits” of the arguable fraud claim, yet. The parties are still arguing over whether the investors will ever have any day in court at all — i.e., any chance to prove that Merck acted badly.
Based on Monday’s widely skeptical lines of questioning — from almost all of the Justices on the Court — I think the investors will get the chance, one day, to prove-up the matters you and I are now debating.
Namaste
Mike
Condor:
True, but the case at the Supreme Court turns on when diligent investors should have known about the fraud.
To say that investors are allowed to completely rely on a company’s filing statements is to negate any duty investors have to discover the fraud. I don’t doubt that the courts give some deference to small investors relying on a company’s filing statements, but complete deference to their reliance seems a bit much. I think the real question before the court is two fold:
1) To what extent do investors in different categories have to engage in diligence despite a company’s statements to the SEC; and
2) At what time would a diligent investor have known about the purported fraud?
I don’t know what the answer to the first question will be, nor do I know the background case law in this area. I can see the answer to the second question going either way. The justices were obviously right in harshly questioning Merck’s lawyer. His argument is a hard one to make. However, the court has frequently questioned harshly and then gone the other way.
Justice in MI
Mike and Condor–Just want to say you both get “A’s”. That, 25 cents, and the earnest willingness to succeed, will get you…..
Arthur Itis
Guilt is apparent. Ed has been losing sleep over Vioxx for [God's] sake.
The severity of the penalty will determine our country’s stance on fraud of this nature. I’m not saying don’t heal the I’ll. I’m saying bring the bastards to their knees, financially or otherwise so that they have no choice but to hand over processes to another company.
Perhaps in this way, the old-school method of deception will find a way to reverse itself by the blooming of honest companies that do things differently. That do things right.
These big pharma companies laugh at these settlements and fines. SEVERE, CRIPPLING penalties are warranted. WAY too many counts of companies that withheld data for over ten years. This is PISS POOR - and you think importing drugs from Canada is dangerous? Knowingly withholding information is sick. Debarrment, jailtime (including the SOB’s who since retired and are supping cocktails on a beach included), and CRIPPLING financial penalties must now occurr and occurr regularly, else we will see the same s$&t ten years from now.
If the FDA took their heads out of the sand and their hands out of each others pockets, that may be a good start. Wastes of space and my tax money.
Jaynesday
As in so many issues pharma, the critical eye should be turned to the fundamentals of the FDA. The FDA has lost control of the industry.
Vioxx is a case in point of how a lack of control causes a multitude of problems. Not allowing, as Mike says, a company to “color” information about the safety of a drug is vital.
Companies have a right to market their product but when marketing steps over the line, the FDA should be there to crack the whip immediately and severely.
The FDA is not there. They have left their post.
Speaking of being at their post, and at the risk of offending by using this as an example…
I was at the Arlington Cemetery the other day and able to see the changing of the guard of the Unknown Soldier. This is the most impressive display of honor and duty that I have ever seen. This video’s focus is on the inspection of the guard and gun.
Watch here.
FDA – you get the idea. Get back to your post.