Merck faces renewed legal threat over Vioxx scandal

Shareholders who saw billions wiped off the value of the drugmaker Merck when it withdrew its painkiller Vioxx in 2004 have been given new hope of compensation, following an appeal court ruling in New Jersey.

A three-judge panel ruled that a group of shareholder lawsuits should be sent back to the federal court which dismissed them last year, reviving a significant legal headache for Merck.

The company already faces more than 28,000 lawsuits from patients who say Vioxx caused them or their loved ones to suffer a heart attack, and that Merck managers covered up the risks for years before finally taking the pill off the market. In September 2004, it bowed to evidence from a large-scale clinical study which showed that Vioxx significantly increased the risks of heart attacks and strokes.

The plaintiffs in the shareholder suits say that, if managers had heeded earlier warning signs, they would not have opened the company up to expensive litigation and the share price may not have collapsed. The withdrawal of Vioxx eliminated $2.5bn in annual sales.

Plaintiffs' attorney Darren Robbins praised the appeal court ruling. "The decision is a tremendous victory for Merck shareholders who were victimised by company insiders in connection with the Vioxx debacle," he said. "We look forward to returning to the district court to prosecute the cover-up of one of the most egregious drug scandals in recent memory."

Merck has maintained that it acted promptly when the dangers of Vioxx became clear and was never negligent. It said it would fight the revived shareholder lawsuit in the same way that it is fighting each and every one of the patient suits.

Ted Mayer, an attorney for the company, said: "We look forward to presenting our arguments anew to the district court under the guidance provided by the appellate court."

The appeal court concluded that Judge Stanley Chesler erred in not allowing the plaintiffs to amend their complaint with additional materials. The panel said the lower court judge needs to determine whether the additional materials would affect the lawsuit's merit.

Of the patient liability cases which have gone to trial so far, Merck has won 10 and lost five, and it has managed to cut the sums awarded in damages by several juries. So far it has set aside about $1bn to cover legal fees, but no money to pay damages, since it says it is too early to estimate the ultimate payout.