The class action lawsuit brought against Merck & Co by investors over its one-time blockbuster COX-2 inhibitor Vioxx (rofecoxib) has been dismissed by a federal judge in New Jersey.

Investors accused Merck of defrauding them before withdrawing Vioxx from the market in September 2004, by providing misleading information or omitting details that the drug increased the risk of heart disease. They claimed the shares were therefore inflated because they did not reflect this risk.

But Judge Stanley R Chester of the US District Court in Newark ruled that investors had exceeded a two-year deadline for filing timely cases, claiming Merck knew of the risks posed by Vioxx. “It is clear that storm warnings of fraud by the company existed more than two years before this complaint was filed,” he said.

Evidence since 2001

Evidence of safety issues with Vioxx was available as early as September 21, 2001, he said, when a warning letter from the US Food & Drug Administration to Merck admonishing the company for downplaying the risks of Vioxx was published on its web site.

“The abundant public information leading up to and immediately following the FDA warning letter – in addition to the warning letter itself – would give an investor in Merck reason for concern and charge him or her with the responsibility of conducting a diligent investigation,” Chesler wrote in a 31-page opinion.

Investors “have not argued that they conducted a diligent investigation, and nothing in the complaint demonstrates that they were unable to uncover pertinent information during the limitations period,” he continued.

The plaintiffs, who had bought Merck stock from May 1999 to October 2004, filed the first securities class-action lawsuit against Merck in November 2003, a year before the company voluntarily withdrew the drug from the market. The lawsuits were later consolidated.

Plans for appeal

Sean Coffey, co-lead attorney for the plaintiffs, says they plan to appeal. He said it was debatable whether the FDA warning letter should have acted as a signal and claimed that shortly after the FDA warning letter came out, Merck was assuring investors and analysts that this was still a blockbuster drug. “Analysts were still very bullish,” he said.

There was further good news for Merck when it was announced that a Texas judge may throw out around 1,000 Vioxx lawsuits because a recently-finalised FDA rule may exempt the company from liability on the state level.

Barbara Ryan, an analyst for Deutsche Bank, commented that, "while the uncertainty of the Vioxx litigation remains, we continue to believe that the costs will be paid out beginning several years from now, and that they will likely be at a level which is entirely manageable" for the company.

Positive earnings forecast

Merck has lost $2.5 billion in annual revenues from Vioxx and has struggled to make a profit in the past two years but, in what may be a reversal in fortune, the company says it anticipates first-quarter earnings of $0.84 a share, excluding restructuring, which is well above previous forecasts and Wall Street's expectations of $0.64 a share.

The company has also has raised its full-year 2007 outlook, saying it now expects earnings of $2.75 to $2.85 a share, excluding items.