Merck Under Investigation by Department of Justice, Securities and Exchange Commission Over Actions on Vioxx

Merck in documents filed with the Securities and Exchange Commission on Monday reported that the Department of Justice has launched a criminal investigation into company actions related to the arthritis medication Vioxx and that SEC also has begun an informal inquiry, the Wall Street Journal reports. According to the Journal, the investigations mark "the latest sign of the deepening crisis" for Merck over Vioxx, which the company voluntarily withdrew from the market in late September because of safety concerns. In the documents filed with SEC, Merck, which has cooperated with the investigations, said their conclusions could prove "highly unfavorable" and find evidence that "could have a material adverse effect on the Company's financial position, liquidity and results of operations" (Hensley, Wall Street Journal, 11/9).

In a separate written release, Merck officials said that DOJ has subpoenaed the company for "information related to the Company's research, marketing and selling activities with respect to Vioxx in a federal health care investigation under criminal statutes" (Masters, Washington Post, 11/9). The DOJ investigation also likely will examine whether Merck misled investors, regulators and public health insurance programs about the safety of Vioxx and whether the company "caused federal health programs to pay for the prescription drug when its use was not warranted," the New York Times reports. (Pollack, New York Times, 11/9).

The SEC investigation likely will focus "on issues of disclosure, such as whether Merck fully informed investors about the information that emerged from research about Vioxx's risk," the Journal reports (Wall Street Journal, 11/9). SEC officials consider investigations "informal inquiries" when the agency has not sent subpoenas, the Washington Post reports. According to the Post, the DOJ investigation "has more serious potential implications" for Merck (Washington Post, 11/9).

Merck spokesperson Chris Loder said that the company "acted responsibly and appropriately as it developed and marketed Vioxx," adding, "When questions arose about the safety of Vioxx, Merck took steps to investigate and address these issues" (Loyd, Philadelphia Inquirer, 11/9).

Jerry Avorn, a Harvard University medication safety expert, said, "These developments will help define the standards drug companies are expected to meet in addition to the standards the FDA may or may not have." Avorn added that DOJ and SEC "will be in a sense doing FDA's work at a time when the FDA has been asleep at the switch in its regulatory function" (Bloomberg/Los Angeles Times, 11/9).

Richard Evans, a pharmaceutical industry analyst with Sanford Bernstein, said, "The endgame of an SEC investigation or criminal probe pales in comparison to what they face in terms of product liability." DOJ and SEC officials said that they could not comment on the investigations of Merck (Wall Street Journal, 11/9).

According to the documents filed with SEC, as of Oct. 31, Merck faces 375 personal-injury lawsuits related to Vioxx that involve about 1,000 plaintiff groups (Wall Street Journal, 11/9). Merck also faces several class-action lawsuits related to Vioxx, as well as state court actions under state consumer fraud and fair business practice laws, the documents said (Philadelphia Inquirer, 11/9). According to the documents, Merck hopes to consolidate all of the federal lawsuits related to Vioxx in one case (Washington Post, 11/9). Merck said that one or more the lawsuits could proceed to trial in the first half of next year.

Merck officials also said "media reports and other sources" have indicated that the company, as well as current and former officials, could face more lawsuits related to Vioxx. Merck officials said that the company has at least $190 million in insurance to cover lawsuits related to securities law and those filed against current and former company officials, as well as about $630 million in product liability insurance. According to the documents filed with SEC, Merck is "unable at this time to determine" whether the insurance "will be adequate to cover its defense costs and losses, if any."

Evans estimated that Merck faces potential product liability of "$12 billion and climbing," adding that an "aggressive and complete discovery process" in the DOJ investigation could help plaintiffs in the lawsuits prove negligence or win punitive damages. However, according to the Journal, "proving that any particular patient died or was injured by Vioxx could be difficult" (Wall Street Journal, 11/9).

Meanwhile, Pfizer in documents filed with SEC said the company faces investigations from state attorneys general in New York and Connecticut over alleged "improper promotion of drugs" for unapproved uses, Reuters/Philadelphia Inquirer reports (Reuters/Philadelphia Inquirer, 11/9).

According to the documents, Pfizer has received a letter from New York Attorney General Eliot Spitzer (D) that seeks information on clinical trials and promotions of certain medications. Pfizer did not specify the medications on which Spitzer has focused his investigation.

Pfizer also has received a similar letter from Connecticut Attorney General Richard Blumenthal (D) that seeks information related to the pediatric use of the antidepressant Zoloft in children, the documents said. Zoloft does not have FDA approval for pediatric use (New York Times, 11/9).

According to the documents, Pfizer also has begun an internal investigation related to sales operations in Croatia. Pfizer spokesperson Paul Fitzhenry declined to comment on the investigations (Reuters/Philadelphia Inquirer, 11/9).