SEC investigates Vioxx recall by Merck

Merck is reporting that on January 27, 2005, the company received notice that the Securities and Exchange Commission (SEC) has issued a formal notice of investigation relating to its recall of Vioxx in September 2004. Merck adds that, "This action was not unexpected and the company will continue to cooperate with the SEC." (Related article: Vioxx recall hearings in the United States Senate)

What does SEC do?

The Securities and Exchange Commission has five Commissioners who are appointed by the President of the United States with the advice and consent of the Senate. The primary mission of the SEC is to protect investors and maintain the integrity of the securities markets. A formal probe of Merck's action with regards to withdrawal of Vioxx gives the SEC staff the power to issue subpoenas for documents or testimony. (Related articles: SEC announced an informal investigation of Merck in Vioxx case in November 2004 and Merck sued by New York Attorney General)

Why is Merck being investigated by the SEC?

Since Merck is a publicly held company with its shares held by both individual shareholders and institutional investors, SEC's job is to make sure that their interests are protected at all times by a company. If SEC finds out that a company withheld information from investors or did not disclose it on time or misled investors, the company is liable for legal action. (Related article: Vioxx recall leads to shareholder lawsuits against Merck)

As readers may recall, Merck withdrew Vioxx on September 30, 2004. However, disclosures made since then clearly establish that Merck may have known as early as 1998 (according to some claims) that Vioxx was not a safe drug and could lead to heart attacks and other side effects, including death. However, the company pushed Vioxx for an approval by the FDA using the fast-track process. (Related article: Vioxx should have never been approved, FDA scientist says) Merck continued to advertise Vioxx aggressively spending hundreds of millions of dollars, targeted mostly at patients who were unlikely to benefit from Vioxx (and were more likely to suffer from heart diseases). Merck scientists also knew that Merck was no better than an over-the-counter drug like Ibuprofen or Paracetamol. (Related article: Vioxx patients misled by Merck)

When more evidence emerged that Vioxx was actually injuring tens of thousands of people (Related article: According to latest estimates by the FDA, as many as 140,000 Americans alone have been injured by Vioxx), Merck recalled the drug. Since that day, Merck's stock has dropped rapidly in value wiping out tens of billions of dollars in market value. This has adversely affected both shareholders and pension plan participants. Merck's credit rating has also continued to drop since analysts believe that Merck is refusing to make provisions for Vioxx related liabilities that could be as high as $55 billion according to some estimates.

Merck is also being investigated by The US Department of Justice and certain Congressional committees. Hearings are also scheduled by the FDA and European Medicines Agency (EMEA) in coming weeks to assess if all Vioxx-type Cox-2 inhibitor drugs, for example, Celebrex, Bextra, Prexige, Arcoxia, etc. should be recalled.

According to Associated Press, as many as 700 lawsuits have been filed against Merck so far and the number of Vioxx plaintiffs is expected to rise to tens of thousands in coming months, making it the largest product liability class action lawsuit in America. A panel of federal judges met yesterday to consider where the lawsuits should be consolidated.

Recommended article: Litigators prepare Vioxx class action lawsuits against Merck