MERCK & CO. INC. SECURITIES LITIGATION IN RE: MDL1658

Filing 522

OPINION. Signed by Judge Stanley R. Chesler on 5/29/13. (jd, )

NOT FOR PUBLICATION

UNITED STATES DISTRICT COURT
DISTRICT OF NEW JERSEY

IN RE MERCK & CO., INC.
SECURITIES, DERIVATIVE & “ERISA”
LITIGATION

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THIS DOCUMENT RELATES TO: THE
CONSOLIDATED SECURITIES ACTION

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MDL No. 1658 (SRC)

Civil Action No. 05-1151 (SRC)
Civil Action No. 05-2367 (SRC)

OPINION

CHESLER, District Judge
Lead Plaintiffs bring this motion for leave to file a Sixth Amended Class Action
Complaint (“Sixth Amended Complaint”). The amendments they propose fall into two
categories: (1) allegations relating to a November 1, 2004 Wall Street Journal article and the
effect of the information contained therein had on the value of Merck stock and (2) allegations
regarding alleged misstatements about a high-risk group’s participation in the VIGOR study and
its effects on the study’s results. Defendants Merck & Co., Inc. and Alise Reicin (collectively,
“Defendants” or “Merck”) have opposed the motion. The Court has considered the papers filed
by the parties and, for the reasons that follow, will grant the motion in part and deny it in part.

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I.

BACKGROUND
In its August 8, 2011 Opinion addressing Defendants’ motion to dismiss the Corrected

Consolidated Fifth Amended Class Action Complaint (“Fifth Amended Complaint”), the Court
found that the November 1, 2004 Wall Street Journal article did not constitute a corrective
disclosure and dismissed Plaintiffs’ Rule 10b-5 claim to the extent it was based on that article’s
contribution to a drop in value of Merck shares for lack of loss causation. In particular, the Court
held that the allegations relating to the November 1, 2004 article failed to state the essential
element of loss causation because on September 30, 2004, upon Merck’s withdrawal of Vioxx
from the market because of an increased risk of confirmed cardiovascular events associated with
Vioxx use, the fraud on which this lawsuit is based was revealed to the public. The Court
reasoned that the false valuation of Merck stock based on the subject misrepresentations and
omissions about Vioxx was removed by the September 30, 2004 disclosure, which made clear
that Vioxx was no longer a commercially viable product.
In the instant motion, Plaintiffs seek to re-introduce the November 1, 2004 Wall Street
Journal article as a curative disclosure, arguing that it was not until the revelation of information
contained in that article that the market became fully aware of the extent of Vioxx-related
liability exposure faced by Merck. As the August 8, 2011 Opinion summarized, the November 1,
2004 Wall Street Journal piece described previously undisclosed internal Merck documents
which demonstrated that Merck was aware of Vioxx’s link to a greater incidence of adverse
cardiovascular events. According to Plaintiffs, Merck’s misrepresentations and omissions not
only overstated the commercial viability of Vioxx but also understated the liabilities associated
with Vioxx’s safety problems, and the latter aspect of the fraud’s effect on the overvaluation of
Merck stock could not be internalized by the market until the November 1, 2004 article reported
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various facts concerning Merck’s suppression of critical information. Plaintiffs allege that “[t]he
November 1, 2004 Wall Street Journal article significantly increased the market’s view of
Merck’s VIOXX-related litigation exposure, including potential punitive damage awards.”
(Sixth Am. Compl., ¶ 313.)
Plaintiffs indicate that, unlike the previous pleading found insufficient by the Court to
state loss causation, the proposed Sixth Amended Complaint alleges additional facts that support
the causal link between the subject securities fraud and the November 1, 2004 drop in Merck’s
stock price. The proposed amended pleading alleges that on September 30, 2004 and in the days
shortly following Vioxx’s withdrawal, analysts “recognized the significant VIOXX liability
exposure that Merck faced,” (Id., at ¶ 314) but generally found it too early to quantify that risk
with precision. At best, estimates made by analysts prior to the November 1, 2004 article put the
exposure in the range of hundreds of millions of dollars to approximately $10 billion. (Id.)
According to Plaintiffs, the impact of the article’s new information about Merck’s allegedly
deliberate misrepresentations and omission of material fact concerning Vioxx’s safety risks was
as follows:
As analysts and the press recognized, however, publication of the
November 1, 2004 Wall Street Journal article (because of its exposure for
the first time of the magnitude of Merck’s efforts to hide the adverse
information about the cardiovascular risks of VIOXX and Merck’s longheld knowledge about those risks) changed the market’s view and
significantly increased Merck’s expected exposure to VIOXX-related
litigation, including Merck’s exposure to punitive damages awards, and
led several Wall Street analysts to report significantly higher estimates of
Merck’s liability exposure in contrast to the pre-November 1, 2004
timeframe. The concerns over Merck’s litigation exposure also led to
noteworthy analyst downgrades as well as a “CreditWatch” announcement
by Standard & Poor’s. While Merck previously had removed VIOXX
from the market and reduced the drug’s near-term commercial viability to
nearly zero (barring a potential return of VIOXX to the market), the
disclosures in the November 1, 2004 Wall Street Journal article
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significantly increased the market’s estimates of potential costs to Merck
to resolve VIOXX litigation, which was a foreseeable consequence of
Defendants’ fraud, as well as the materialization of the concealed risks
concerning Merck’s exposure to VIOXX liability. The additional facts
revealed in the November 1, 2004 Wall Street Journal article further
corrected Defendants’ misstatements regarding VIOXX’s true safety risks
and proximately caused investors to suffer additional losses as the market
increased its estimates for Merck’s VIOXX-related liability.
(Id., ¶ 315.)
The other category of proposed amendments concerns allegations that Defendants falsely
stated that the inclusion of a high-risk subgroup of patients in the VIGOR trial supported
Merck’s claims that the results of the trial were attributable to naproxen’s purported
cardioprotective effect (as opposed to Vioxx’s propensity to increase the risk of a negative
cardiovascular event, or prothrombotic effect). In particular, Plaintiffs seek to add factual
allegations that Defendants deceived investors regarding the safety profile of Vioxx by
explaining that four percent of the participants in the VIGOR trial should have been receiving
prophylactic aspirin therapy to prevent heart attacks and strokes and insinuating that these were
the VIOXX-taking participants who suffered the majority of the heart attacks. (For simplicity,
the Court will refer to this alleged misrepresentation as the “4% Statement.”) According to the
proposed Sixth Amended Complaint, Merck misled investors with an analysis suggesting that the
VIGOR results (which indicated a higher incidence of heart attack in patients taking Vioxx than
those taking naproxen) were driven by the high-risk subgroup of patients who should have been
screened out in accordance with the study’s protocol. (Id.,¶ 125.) In particular, the VIGOR trial
was supposed to exclude any patients presenting a high risk for cardiovascular events and
indicated for low-dose aspirin prophylaxis. (Id., ¶ 126.) Plaintiffs allege that the 4% Statement
was materially misleading because it communicated to the public that this supposedly higher-risk
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aspirin-indicated subgroup faced a qualitatively different cardiovascular risk than the rest of the
VIGOR population, and the incidence of adverse cardiovascular events within that subgroup was
quantitatively different in a meaningful and demonstrable way. In this way, according to
Plaintiffs, Merck bolstered its claim that the results observed in VIGOR were entirely consistent
with the naproxen hypothesis. (Id., ¶ 127.) The proposed Sixth Amended Complaint avers that
the 4% Statement was made in a May 24, 2000 press release by Merck and in a November 23,
2000 article in the New England Journal of Medicine, which listed, among others, Defendant
Reicin and Merck statistician Deborah Shapiro as authors. (Id., ¶ 125.)

II.

DISCUSSION
A. Legal Standard
Rule 15(a) of the Federal Rules of Civil Procedure governs motions for leave to amend a

complaint. While Federal Rule of Civil Procedure 15(a) directs that leave to amend a complaint
should be freely given, the Supreme Court has held that leave to amend should be denied based,
among other reasons, for undue delay, bad faith, undue prejudice, and futility of the proposed
amendment. Foman v. Davis, 371 U.S. 178 (1962). Merck takes the position that the instant
motion should be denied in its entirety because expanding the Exchange Act claims in the two
ways proposed by Plaintiffs – to include allegations regarding the November 1, 2004 Wall Street
Journal article and allegations regarding the 4% Statement – would be futile. When assessing the
futility of a proposed amendment, the Court applies the same analysis it would in a motion to
dismiss under Federal Rule of Civil Procedure 12(b)(6). See In re Burlington Coat Factory Sec.
Litig., 114 F.3d 1410, 1420 (3d Cir. 1997).

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To state a claim that survives a Rule 12(b)(6) motion to dismiss, a complaint must
contain “enough facts to state a claim to relief that is plausible on its face.” Bell Atlantic Corp. v.
Twombly, 550 U.S. 544, 570 (2007). “A claim has facial plausibility when the plaintiff pleads
factual content that allows the court to draw the reasonable inference that the defendant is liable
for the misconduct alleged.” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009). The Court must
“accept all factual allegations as true, construe the complaint in the light most favorable to the
plaintiff, and then determine whether a reasonable inference may be drawn that the defendant is
liable for the alleged misconduct.” Argueta v. U.S. Immigration and Customs Enforcement, 643
F.3d 60, 74 (3d Cir. 2011)
B. Allegations Regarding the November 1, 2004 Wall Street Journal Article
Merck argues that it would be futile to expand the § 10(b) claim to include the market’s
reaction to the November 1, 2004 Wall Street Journal article because it lacks the required
correlation to the alleged fraud, that is, a disclosure which could plausibly establish a causal
connection between the fraud and the November 1, 2004 stock price drop. To reiterate from the
Court’s previous opinion in this case, a § 10(b) claim includes a loss causation element. 15
U.S.C. § 78u-4(b)(4); Dura Pharms., Inc. v. Broudo, 544 U.S. 336, 342 (2005). To establish loss
causation, a plaintiff must “show that a misrepresentation that affected the integrity of the market
price also caused a subsequent economic loss.” Erica P. John Fund, Inc. v. Halliburton, 131
S.Ct. 2179, 2186 (2011); see also McCabe v. Ernst & Young, LLP, 494 F.3d 418, 426 (3d Cir.
2007) (“In order to satisfy the loss causation requirement . . . the plaintiff must show that the
defendant misrepresented or omitted the very facts that were a substantial factor in causing the
plaintiff's economic loss”). Pleading the requisite causal connection between investment loss
and the alleged fraud requires a § 10(b) plaintiff to allege “that the misstatement or omission
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concealed something from the market that, when disclosed, negatively affected the value of the
security.” Lentell v. Merrill Lynch, 396 F.3d 161, 173 (2d Cir. 2005).
The November 1, 2004 Wall Street Journal article did not, however, disclose any
previously unknown information that revealed the falsity of Merck’s statements and omissions
regarding the cardiovascular safety profile of Vioxx. That alleged fraud – which forms the basis
of the § 10(b) securities fraud claim pled in this action – was exposed at the time that Vioxx was
withdrawn from the market by Merck based on concerns with its possible propensity to increase
the risk of heart attack or stroke. In contrast, the information reported in the November 1, 2004
Wall Street Journal, which included internal Merck communications indicating awareness of
Vioxx’s possible cardiovascular risks long before the market withdrawal, prompted analysts to
make revised estimates of the damages that may flow from Vioxx-related lawsuits. As the Court
held in its August 8, 2011 Opinion, the facts regarding Merck’s awareness of Vioxx’s safety
issues relate to Merck’s state of mind in making the alleged misrepresentations and omissions,
but that disclosure did not correct or reveal a previously unknown deception. Now, Plaintiffs
argue that the corrective disclosure of the November 1, 2004 Wall Street Journal article consists
of the revelation that, in light of the deliberate and intentional nature of Merck’s deception
regarding Vioxx’s safety profile, Merck’s liability exposure was much greater than previously
thought, according to third-party financial and market analysis of the information regarding
Merck’s knowledge. Such analysis of facts probative of Merck’s scienter may be “bad news,”
which in turn appears to have precipitated a 9.7% drop in the price of Merck stock, but it is not
congruent with the fraud alleged in this case and therefore fails to support loss causation.
McCabe, 494 F.3d at 426; Lentell, 396 F.3d at 175 and n.4 (holding that, although stock price
dropped upon a downgrade of the stock, such downgrade did not amount to a corrective
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disclosure because it did not reveal to the market the falsity of the prior recommendations by the
defendant to buy or accumulate the stock); In re Tellium, Inc. Sec. Litig., No. 02CV5878 (FLW),
2005 WL 2090254, at *4 (D.N.J. Aug. 26, 2005) (holding that “an announcement of bad news
that does not disclose the fraud” does not plead loss causation as required to state a § 10(b)
claim). Just as the underlying state of mind information reported in the November 1, 2004 Wall
Street Journal article did not make Defendants’ alleged fraud known to the public, interpretation
by analysts of that information did not disclose the fraud on which Plaintiffs ground their § 10(b)
claim and could not, therefore, “correct” that fraud’s artificial inflation of Merck stock. This
lawsuit is not premised on allegations that Merck misrepresented or concealed from investors
material facts concerning Merck’s exposure to liability stemming from products liability suits
and consumer fraud claims related to the alleged cardiovascular risks of Vioxx. Indeed, the
public knew of such lawsuits being filed against Merck as early as May 29, 2001, yet as
Plaintiffs themselves have maintained, the fraud giving rise to their § 10(b) claim is distinct from
the negative Vioxx information disclosed to the public by virtue of those lawsuits.
In spite of Plaintiffs’ arguments that due to the November 1, 2004 Wall Street Journal
article, the market finally became fully aware of the losses the company could face as a result of
Vioxx litigation and reacted accordingly, the Court concludes that Plaintiffs have failed to
demonstrate that the information publicized in that article concerned the very facts Plaintiffs
allege were misrepresented and/or omitted by Merck. They have not pled a causal connection
between the November 1, 2004 drop in stock price and the fraud at issue. As the loss causation
element of the § 10(b) claim fails to meet the plausibility standard of Rule 8(a), amendment of
the claim to include the allegations relating to the November 1, 2004 Wall Street Journal article

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and its effect on the price of Merck stock would be futile. Leave to file an amended complaint to
add these allegations will be denied. 1
C. Allegations Regarding the 4% Statement
The 4% Statement appeared in two publications. According to the proposed Sixth
Amended Complaint, it was first made in a Merck press release dated May 24, 2000 and then
repeated, in essence, in a November 23, 2000 article in the New England Journal of Medicine
concerning the VIGOR study. Merck argues that as to both publications of the 4% Statement,
leave to amend must be denied because the statement was not false or misleading and thus fails
to support a § 10(b) claim. It points out that the proposed Sixth Amended Complaint does not
quote the actual text of May 24, 2000 press release, in which the 4% Statement, as characterized
by Plaintiffs, first appeared. That press release stated, in relevant part, as follows:
In VIGOR, there was no difference in cardiovascular mortality and the
incidence of strokes between the groups treated with Vioxx or naproxen.
As previously reported, significantly fewer heart attacks were seen in
patients taking naproxen (0.1 percent) compared to the group taking Vioxx
(0.4 percent) in this study. [footnote omitted]
The reduction in heart attacks is consistent with naproxen’s ability to
block platelet aggregation by inhibiting COX-1. This effect on platelet
aggregation is similar to low-dose aspirin, which is used to prevent second
cardiac events in patients with a history of heart attack, stroke or other
cardiac events. Patients taking low-dose aspirin did not participate in
VIGOR although 4 percent of patients enrolled in the study did meet the
criteria for use of aspirin to prevent second cardiac events. Among the 96
percent of patients in VIGOR who were not candidates for low-dose
aspirin for such cardioprotection, there was no significant difference in

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Relatedly, the Court rejects Plaintiffs’ effort to revive as actionable Gilmartin’s September 30, 2004 statements,
made following market withdrawal of Vioxx. Plaintiffs argued in their motion that, because the fraud was not fully
known until November 1, 2004, Gilmartin’s September 30, 2004 statements “have a whole new meaning in light of
the liability-side analysis Plaintiffs now present.” (Reply Br. at 15.) In light of the foregoing discussion, the Court’s
holding that Gilmartin’s September 30, 2004 statements were immaterial remains the law of this case. See In re
Merck & Co., Inc. Securities, Derivative & ERISA Litig., No. 05-1151, 2011 WL 3444199, at *17-18 (D.N.J. Aug.
8, 2011).
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heart-attack rates – 0.1 percent among patients taking naproxen and 0.2
percent among patients taking Vioxx.
(DeMasi Decl., Ex. 17 at 2.) 2 Similarly, the New England Journal of Medicine article stated:
Four percent of the [VIGOR] study subjects met the criteria of the Food
and Drug Administration (FDA) for the use of aspirin for secondary
cardiovascular prophylaxis . . . but were not taking low-dose aspirin
therapy. These patients accounted for 38% of the patients in the study
who had myocardial infarctions. In the other patients the difference in the
rate of myocardial infarction between groups was not significant (0.2
percent in the rofecoxib [Vioxx] group and 0.1 percent in the naproxen
group).
(Id., Ex. 19 at 1523.) Merck further argues that insofar as the 4% Statement appeared in the New
England Journal of Medicine article, the proposed additional allegations would be futile for the
additional reason that Plaintiffs fail to allege that either Merck or Dr. Reicin “made” the
allegedly offending statement, in compliance with the Supreme Court’s holding in Janus Capital
Group, Inc. v. First Derivative Traders, 131 S.Ct. 2296, 2302 (2011).
The Court is not persuaded by either of Merck’s futility arguments as to the allegations
regarding the 4% Statement.
First, as Plaintiffs argue without conceding, even if the 4% Statement made in the press
release was partially or technically accurate, the proposed Sixth Amended Complaint alleges that
in making this assertion about the aspirin-indicated subgroup, Merck omitted to state that the risk
of adverse cardiovascular event observed in the subgroup was not statistically different from the
risk in the remainder of the VIGOR population. Securities law requires that once a defendant
speaks about a particular subject, it must not omit material information required to convey
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Pursuant well-established law concerning materials the Court may consider upon review of the sufficiency of a
complaint, the press release, while not quoted in the proposed Sixth Amended Complaint, may be considered as an
undisputedly authentic document expressly referenced and relied upon by the pleading. Tellabs, Inc. v. Makor
Issues & Rights, Ltd., 551 U.S. 308, 322 (2007); Pension Benefit Guar. Corp. v. White Consol. Indus., Inc., 998
F.2d 1192, 1196 (3d Cir. 1993). The same holds true for the Court’s consideration of the text of the New England
Journal of Medicine article.
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accurate and complete information to investors on that subject. Merck, 2011 WL 3444199, at *9.
Assuming the facts alleged to be true, the proposed Sixth Amended Complaint plausibly states
that investors were misled to believe that the 4% subgroup was responsible for the higher
incidence of heart attack and stroke in the Vioxx-arm of the study.
Second, regarding what it means to make a statement in the securities fraud context, the
Supreme Court held in Janus that “[f]or purposes of Rule 10b-5, the maker of a statement is the
person or entity with ultimate authority over the statement including its content and whether and
how to communicate it.” Id. at 2302. In contrast, “[o]ne who prepares or publishes a statement
on behalf of another is not its maker.” Id. The New England Journal of Medicine article was in
fact co-authored by Merck employees, including Defendant Reicin, as well as non-Merck
employees. Moreover, by the time the article was published, on November 23, 2000, Merck had
already explicitly disseminated its 4% Statement through the May 24, 2000 press release. The
article reiterates Merck’s analysis concerning the aspirin-indicated subgroup’s participation in
the VIGOR study. Reading the allegations as a whole and with consideration of the context and
circumstances surrounding publication of the article, the proposed Sixth Amended Complaint
sufficiently alleges that Defendants made the 4% Statement in the New England Journal of
Medicine article. See id. (holding that “attribution within a statement or implicit from
surrounding circumstances is strong evidence that a statement was made by – and only by – the
party to whom it is attributed.”). Defendants argue that publication of the article following peer
review as well as collaboration by various authors, including individuals not affiliated with
Merck, negates attribution of the 4% Statement to Merck and/or Reicin because these facts
indicate that Defendants did not control the statement. Janus, in holding that explicit or implicit
attribution of a statement to a party – both of which are alleged in this case as to Defendants –
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demonstrates that the party made the statement, would appear to undercut Defendants’ argument.
The article containing the 4% Statement was not prepared or published on behalf of Defendants;
Merck and Reicin, as authors, had authority over it, assuming the facts alleged in the proposed
Sixth Amended Complaint to be true.
In short, the Court concludes that amendment of the Complaint to add allegations
concerning the 4% Statement satisfies the standard of Rule 15. As alleged, the 4% Statement,
read in context, bolsters the naproxen hypothesis (Merck’s explanation of the VIGOR results as
attributable to the cardioprotective qualities of naproxen as opposed to the prothrombotic effect
of Vioxx) and thus relates to the core of Plaintiffs’ § 10(b) claim. For the reasons stated, the
Court finds that Plaintiffs have sufficiently alleged that the 4% Statement is actionable under §
10(b) and Rule 10b-5.

III.

CONCLUSION
The Court will deny the motion for leave to amend insofar as it concerns expanding the §

10(b) claim to include the November 1, 2004 Wall Street Journal article and contemporaneous
drop in Merck stock price, as such an amendment would be futile for lack of loss causation to
support the claim. It will permit Plaintiffs to file a Sixth Amended Complaint which adds
allegations concerning the 4% Statement, as discussed above.
The Sixth Amended Complaint, moreover, must conform to all prior rulings in this case
identifying which alleged misstatements and/or omissions the Court has held do not give rise to a
claim under Rule 10b-5. While the binding effect of the Court’s orders dismissing certain
statements as inactionable may seem obvious, the Court must make this point explicit in light of
Merck’s indication that the proposed Sixth Amended Complaint contains allegations which
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reassert statements that the Court addressed in its August 29, 2012 Opinion on Merck’s motion
for judgment on the pleadings pursuant to Federal Rule of Civil Procedure 12(c) and that it held
insufficient to state a claim. The August 29, 2012 Opinion expressly listed paragraphs, per the
numbering of the Fifth Amended Complaint, which failed to state a claim upon which relief
could be granted. The Sixth Amended Complaint may not revive claims by repeating portions of
previously dismissed factual allegations that Plaintiffs believe continue to remain viable.
An appropriate order will be filed.

s/Stanley R. Chesler
STANLEY R. CHESLER
United States District Judge

Dated: May 29, 2013

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