Three months ago, Merck agreed to settle a derivative shareholder lawsuit over a clinical trial for the Vytorin cholesterol pill, which caused a tremendous controversy due to the handling of the trial data by the drugmaker and its former partner, Schering-Plough, which Merck subsequently acquired.

You may recall the Enhance clinical trial was designed to boost Vytorin sales, but ended in failure. A ruckus erupted when it became known the drugmakers changed the primary endpoint, which was done without the knowledge of the lead investigator (look here), raising questions about whether patients received sufficient benefit for a heavily promoted and expensive pill (see this).

Moreover, the results were repeatedly delayed due to allegedly surreptitious maneuvering - 21 months elapsed between the end of the trial and public release of the findings - and the shareholders who filed the lawsuit maintain this caused an unnecessary drop in the Schering-Plough stock price.

To be clear, a derivative shareholder lawsuit is brought on behalf of a corporation against an insider. In this case, the insiders named were former Schering-Plough execs and board members. The execs, by the way, have long maintained that they knew nothing of the Enhance trial results until after the behind-the-scenes controversy over the endpoint was publicly disclosed.

Now, though, a deal is at hand. But what does the settlement involve? Besides paying $5 million in attorney fees, Merck has agreed to a corporate governance change. To wit, once a year, the Merck Research Laboratories unit will submit a report to the board of directors research committee regarding any clinical trial where results have been delayed, including the reasons for the delay in reporting those results and any action taken to speed things up.

How are delayed results defined? The settlement defines this as a trial sponsored by Merck for marketed products that require registration and results posted under the terms of the Food and Drug Administration Act of 2007, and where the results have not submitted for publication or to ClinicalTrials.gov within 12 months of the completion date.

Rather than continue to press their case, the shareholders apparently decided this concession would prevent a recurrence of the sort of development that had harmed their financial interests. And to bolster this decision, a corporate governance expert - Sean Griffith, who directs the Corporate Law Center at the Fordham University School of Law - offered this declaration about the proposed reform:

“The reform is highly tailored to the company’s unique context and to the specific reputational risks revealed by the aftermath of the Enhance trial. This is not an off-the shelf, one-size-fits-all reform of dubious actual value, but rather a carefully designed attempt to improve oversight and monitoring in a way that directly responds to the shortcomings identified by plaintiff” (read the document here).

In their court filing, the shareholders add the reform is “valuable” and “will confer a substantial benefit” on Merck, which Griffith estimated is anywhere from $50 million to $75 million. “This reform is carefully honed to ensure that deliberate board attention by independent board members with expertise in medicine, scientific research or drug development is brought to bear on the reason for delay in the release of major clinical trials,” according to court documents.

“By adopting this governance reform, the company will deter a repetition of the troubling situation that characterized the Enhance clinical trial release and ensuing litigations and investigations,” the filing states.(here is a related document). However, the settlement only envisions this procedure lasting for three years. After that, well, there is no such mechanism to prevent a recurrence. So what do you think?

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Hat tip to A New Merck Reviewed