Posted On: March 27, 2012 by Allen, Flatt, Ballidis & Leslie

Merck Settlement: Patients May Benefit from Greater Transparency

In California and throughout the United States, consumers depend upon drug companies to conduct studies into the safety and efficacy of their products. Shareholders who invest in these drug companies also expect honest reporting of information on the drugs the companies make so that the market price of the stock can be set fairly. When drug companies fail to report properly, lawsuits can arise as a result, including shareholders derivative lawsuits. In the case of the settlement between the drug maker Merck and its shareholders, consumers may benefit from the greater standards of transparency to which the company will be held in its pharmaceutical research, explains a personal injury attorney in the state.

The shareholders derivative lawsuit arose from the company’s nearly two-year delay in releasing the results of a study into the safety and effectiveness of its cholesterol drugs and. Researchers had found that the medications were no more effective at alleviating arterial blockage than less expensive treatments already on the market. Sales of the drugs not only plummeted after the release of this information, but a subsequent study linked the medications to cancer, furthering the company’s problems.

Shareholders responded by filing a derivative lawsuit against Merck. Such legal actions provide an important opportunity for partial owners of a company who have stock to take action when a board of directors abuses the trust that has been placed in it. In the Merck case, the shareholder's derivative suit included claims that the board of directors had breached their fiduciary duty. A fiduciary duty is the highest duty of care and it imposes on the Board an obligation to always put the best interests of the company first. In addition, the complaint also alleged gross management on the part of the board and waste of corporate assets. Finally, the suit alleged unjust enrichment since the board had been rewarded by the artificially inflated stock price.

The terms of the settlement between Merck and its shareholders require the company to report delays of 12 months or more in the release to the public of research findings to a committee. Merck must also provide an explanation to the committee as to why findings were not published, at which point the committee may opt to investigate further. The requirement should prevent the company from concealing information concerning the safety and effectiveness of its products from the public.

Patients in California and throughout the U.S. place their trust in drug companies every time they take medication. When drug companies abuse that trust by failing to release relevant information, consumers suffer. Sometimes they suffer financially, by paying for more expensive medication. In more serious and grave cases, they may suffer physically if the medication they are taking turns out not to be helpful or even to be harmful. Drug companies need to be given every incentive possible to be honest with the public. Lawsuits arising from bad drugs are one way to help keep companies honest, but reporting requirements such as those imposed by the Merck settlement are another important step towards making sure people make informed choices about their medical needs.

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