3rd Circuit Panel Reinstitutes Vioxx Action Against Merck

The 3rd Circuit Court of Appeals resurrected a securities fraud action brought against Merck & Co. related to Vioxx, an arthritis medication. The U.S. District Court for the District of New Jersey had previously dismissed the action on limitations grounds, concluding that there were ample "storm warnings" concerning the safety of Vioxx from press reports and FDA statements. However, Judge Dolores K. Sloviter wrote that the lower court "acted prematurely in finding as a matter of law" that the plaintiffs were on inquiry notice resulting in the dismissal under the statute of limitations.

Initially, the court reaffirmed the standard for inquiry notice in the circuit, stating that the question is "whether the plaintiffs, in the exercise of reasonable diligence, should have known of the basis for their claims depends on whether they had sufficient information of possible wrongdoing to place them on inquiry notice or to excite storm warnings of culpable activity.” Judge Sloviter then wrote that with regard to the claimed misrepresentations concerning the safety profile for Vioxx that "the fact that many securities analysts continued to maintain strong growth ratings for Vioxx at the same time that its safety was being questioned is certainly relevant to whether such questions constituted sufficient information of possible wrongdoing to trigger storm warnings."

A significant element of the claim involved a study of Vioxx and naproxen, a non-prescription pain reliever. The study showed a higher rate of heart problems for Vioxx users than for naproxen patients. However, Merck asserted that the disparity could be accounted for by the beneficial effects of naproxen on the cardiovascular system rather than any unreasonable danger associated with Vioxx. She concluded that "there is no reason to suspect that Merck did not believe the naproxen hypothesis" until a Harvard study in 2003 discredited the notion. Accordingly, the panel found that Merck did not know its public statements in 2001 were false.

In a dissent, Circuit Judge Jane Roth wrote that "storm warnings” alerting "a reasonable investor of possible culpable activity on the part of Merck were evident more than two years prior to the filing of appellants’ complaint." She added that "in particular, I believe that the FDA’s September 17, 2001, warning letter, in and of itself, provided sufficient 'storm warnings' to put the appellants on inquiry notice of their claims regardless of any significant change in stock price or analysts’ stock ratings or projections at that time."

In re Merck & Co., Inc. Securities, Derivative & “ERISA” Litigation