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Merck Gets High Court Hearing on Investor Vioxx Suit
  By Greg Stohr

May 26 (Bloomberg) -- The U.S. Supreme Court agreed to consider Merck & Co.'s bid to stop a shareholder lawsuit over the now-withdrawn Vioxx painkiller in a case that might mean tighter deadlines for investor fraud lawsuits.

A federal appeals court said Merck must defend against a proposed class-action lawsuit that accuses the drugmaker of defrauding investors about the risks posed by Vioxx, which the company pulled from the market in 2004 because of links to heart attacks and strokes. Merck argues that the investors filed suit too late.

The appeal turns on the starting date for the two-year window that investors are given to file some types of federal securities lawsuits. The question for the high court concerns how much notice an investor must have about possible company wrongdoing to cause that window to open.

In the Merck case, the first investor suit was filed in November 2003, more than three years after the drugmaker released the results of a study that showed Vioxx caused five times more heart attacks than a rival painkiller, naproxen. Merck at the time said the results stemmed from naproxen's protection of the cardiovascular system.

The first Vioxx product-liability suit was filed in May 2001, and in September 2001 federal regulators said company marketing campaigns underplayed potential heart risks associated with Vioxx.

'Storm Warnings'

The 3rd U.S. Circuit Court of Appeals ruled last year that none of those events amounted to the type of "storm warnings" that triggered the two-year period.

The panel said that, as of October 2001, market analysts, scientists, the press and the Food and Drug Administration all considered Merck's theory about the cardiovascular benefits of naproxen to be "plausible, at the very least." The 2-1 ruling overturned the decision of a federal trial judge.

In its appeal, Merck said the investors had enough indications of alleged fraud by 2001 that they should have begun investigating. The company argued that the 3rd Circuit's approach would prevent the two-year window from opening until "evidence supporting specific elements of fraud claim falls into an investor's lap."

The company says other courts of appeals have started the period for lawsuits "when an investor knows, or has reason to know, that a representation on which it relied was false."

Merck is pleased the high court will review the dispute, Kent Jarrell, a company spokesman, said today. "Merck properly informed the FDA and the scientific community about scientific data as it emerged," he said in a statement.

'Wild-Goose Chase'

The investors, led by Richard Reynolds, say their case could proceed under any of the approaches that different appeals courts have laid out. They told the justices that investors shouldn't have to "launch a wild-goose chase for evidence of securities fraud" simply because a company violated product- safety rules.

The Obama administration said in a brief filed in a different case that the Merck dispute might let the Supreme Court clear up lower court disagreement on the issue. The administration didn't take a position on the outcome of the Vioxx dispute.

Merck agreed in 2007 to pay $4.85 billion to settle more than 26,000 patient lawsuits. The company, which is buying rival Schering-Plough Corp., is based in Whitehouse Station, New Jersey.

The justices will hear arguments in the nine-month term that starts in October.

The case is Merck v. Reynolds, 08-905.

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