Merck & Co. said yesterday it agreed in principle to shell out $688 million to settle two federal securities class-action lawsuits, in which plaintiffs alleged they lost money because the pharma giant waited two years to disclose the failure of a 2006 clinical trial for the blockbuster cholesterol drug Vytorin.

Merck said it would pay $215 million to resolve one of the securities class-action lawsuits against the company and some of its executives, as well as $473 million to resolve an earlier securities class action against predecessor Schering-Plough Pharmaceuticals and several of its executives.

Merck acquired Schering-Plough in 2009. Before the merger, the companies collaborated in developing Vytorin, which came to market in 2004, and last year generated more than $1.7 billion in sales.

Vytorin is a combination of pre-merger Merck’s Zocor (simvastatin) and Schering’s Zetia (ezetimibe) designed to lower LDL or “bad” cholesterol. Last year, Zetia generated almost $2.6 billion in sales; Zocor lost U.S. patent protection in 2006.

In 2005, Merck and Schering-Plough launched a clinical study comparing the drug candidate to simvastatin, hoping to show that, like Zocor, Vytorin could also reduce the risk of cardiovascular disease by thinning the carotid artery wall.

The study, called ENHANCE or “Effect of Combination Ezetimibe and High-Dose Simvastatin vs Simvastatin Alone on the Atherosclerotic Process in Patients with Heterozygous Familial Hypercholesterolemia,” proved disappointing. The shareholder plaintiffs argued that Merck and Schering-Plough knew the results in 2006 but did not disclose those results until the 2008 American Conference of Cardiology. Shares of Merck fell nearly 15% and Schering-Plough almost 21% on March 31, 2008, the first trading day after full trial results were released.

The plaintiffs—investors who purchased Merck and Schering-Plough shares between December 2006 and March 2008—filed suit in the U.S. District Court for the District of New Jersey, where the case is still active, pending approval of the settlement by Judge Dennis M. Cavanaugh.

To account for the settlement, Merck said, it recorded a pre-tax and after-tax charge of $493 million, reflecting anticipated insurance recoveries. The charge will reduce the company’s previously reported fourth-quarter 2012 GAAP earnings per share (EPS) results from 46 cents to 30 cents per share, as well as full-year 2012 GAAP results, which will also shrink EPS from $2.16 to $2.00, but did not change previously reported non-GAAP results.

In a statement, Merck said it “continues to believe that both companies acted responsibly in connection with the ENHANCE study,” and cited the absence in the settlement agreement of any admission of liability or wrongdoing.

“This agreement avoids the uncertainties of a jury trial and will resolve all of the remaining litigation in connection with the ENHANCE study,” Bruce N. Kuhlik, Merck’s executive vp and general counsel, said in a statement. “We believe it is in the best interests of the company and its shareholders to put this matter behind us, and to continue our focus on scientific innovations that improve health worldwide.” 

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