*4 naproxen, inhibiting function two OPINION THE OF COURT enzymes: eyclooxygenase-1 (“COX-1”), SLOVITER, Circuit Judge. which is associated with the maintenance Co., Appellants, purchasers (“GI”) of Merck & of gastrointestinal platel- mucus and stock, Inc. filed the first of several class et aggregation, and cyclooxygenase-2 (“COX-2”), complaints action securities fraud No- which is "with the associated 6, 2003, alleging vember that the company response pain and inflammation. The and certain of its officers and directors inhibition of COX-1 leads harmful GI “Merck”) (collectively, misrepresented designed side effects. Because Vioxx was safety profile viability and commercial suppress COX-2 affecting without Vioxx, COX-1, pain reliever that was withdrawn Merck possess- marketed as from September the market in due the beneficial effects of traditional safety concerns. The District Court NSAIDs but without the harmful GI side granted motion to dismiss the drugs. effects associated with those 12(b)(6) complaint under Rule potential the Fed- market viewed Vioxx aas “block- Procedure, eral holding Rules Civil drug company, App. buster” for the Appellants “savior,” were put inquiry notice and as its Merck sales, years repeatedly safety profile, fraud than two touted the suit, before filed prospects thus claims drug commercial releases, statements, were barred press public the statute of limitations. and Se- Appellants argue Exchange the District Court curities Commission judicial 1. The District Court took notice merits] or were aware of them is immaterial. public They only various documents submitted to it in serve to indicate what was in the time, Ap connection with public the motion to dismiss. at the realm whether the pellants challenge do not this decision on contents of in fact [documents] those appeal and we see no it. reason disturb true.” Benak ex rel. Alliance Premier Growth L.P., analysis objective Mgmt., "The Capital notice is an v. Fund Alliance (3d Cir.2006). appellants one. Whether read the [docu- 401 n. 15 on March press in a release (“SEC”) peri- public the class them throughout filings 27, 2000, emphasized superior Vioxx’s od. inci- noted the safety profile
GI but also Approval and VIG- A. Pre-FDA of CV Merck stated: dence events. (1996-March Study OR fewer thromboembolic [Significantly Vioxx, taking patients approval the FDA’s were observed events Prior study, GI were concerned in this outcomes at Merck officials naproxen’s cardiovascular abili- harmful Vioxx could cause consistent (“CV”) events, In- heart attacks. This aggregation. ty platelet such to block and 1997 demon- from 1996 had not been ob- ternal emails on these events effect were aware employees any strate that Merck clinical studies previously served chance” and Vioxx, “a that there was substantial like all naproxen. COX-2 “kill events that could “possibility” medicines, of CV pla- not block does selective an App. at 496. drug.” [the] therefore would aggregation and telet clinical trial unpublished internal expected to have similar effects. not be Study 090 revealed entitled press 765. The release also stated App. at *5 of events incidence CV greater caused a safety of data that extensive review “[a]n a different arthritis placebo than a or ongoing and clini- completed all other from drug.2 trials, post-marketing as cal well January 1999, Vioxx, Merck commenced the In no indica- experience with showed Re- Outcomes VIOXX Gastrointestinal of a difference in the incidence tion of (“VIGOR”) study, compared Vioxx, search which between thromboembolic events in ingredient active naproxen, the Vioxx to placebo comparator NSAIDs.” as Aleve pain relievers such brand-name study Although Naprosyn.3 widely results were The VIGOR safety profile a that Vioxx had GI showed journals, in press, medical reported it naproxen, also superior that analyst Market an- reports. and securities higher a inci- users had showed Vioxx press of the immedi- alysts members naproxen than users. dence of CV events a events could be ately understood CV email, Ed- In a defendant March Nonetheless, many side effect Vioxx. Scolnick, of Merck Re-
ward the President hy- took notice of Merck’s observers also Laboratories, acknowledged the ex- search pothesis naproxen lowered CV events events, a commenting, “it is istence of CV (the hypothesis”). naprox- The “naproxen it is it a low incidence and shame but the results of hypothesis en attributed based as we worried was.” mechanism study to the beneficial effects VIGOR App. at 512. blocking platelet aggregation naproxen’s than the harmful effects of Vioxx attempt to conceal the rather Merck did not causing in study. It made thromboembolic events. results VIGOR 14, 2004) (tran- rely upon Appellants television broadcast Nov. 2. The sources LexisNexis). script available pub- making allegations were first made these 2004, approximately year lic in November FAQs, http://www.aleve.com/ ALEVE See Appellants complaint. after filed initial 25, 2008); (last July faqs.html# g21 visited Mar- See Anna Wilde Mathews & Barbara U.S., Prod- Pharmaceuticals in the Our Roche tinez, Suggest Warning Signs: E-Mails ucts, http://www.rocheusa.com/ Naprosyn, Dangers Early Stage, Vioxx’s Wall St. Knew (last July visited products/naprosyn/ Al; J., 1, 2004, (CBS Minutes Nov. 2008). During issue whether lowered heart hearing, AAC Al- defendant Reicin, attack risk or Vioxx caused it was ise thus Executive Director of Clinical many presented. analysts While noted Research Merck Laboratories, Research naproxen hypothesis explained that the unprov- panel, was to the you “when review en, some also concluded that it was results of VIGOR in you isolation don’t likely know whether the explanation most the increased imbalance cardiovas- cular events observed events was study. CV caused decrease NSAID, events on a platelet-inhibiting na- representative One article distributed proxen, or an increase events 27, 2000, Reuters on April quoted a Merck inhibitor,” COX-2 i.e., selective Vioxx. spokesman acknowledged who the “statis- App. at 995. She suggested then significant” tically finding patients of naproxen likely responsible for the events, higher had a rate of CV but difference in CV events observed users might suggested that this be explained by drugs. the two At public portion naproxen. a beneficial effect of App. at the hearing, panel subsequently dis- article, however, same cussed whether to call for the inclusion spokesperson for the manufacturer of Na- a warning in the labeling stating prosyn explained that the company had no that it was “uncertain” whether the CV knowledge naproxen prevented heart events noticed in VIGOR were “due to strokes; similarly, or analyst attacks an cardioprotective beneficial na- effects of for ABN suggested Amro that he was proxen prothrombotic [Vioxx], effects of skeptical explanation. of Merck’s that, leave it that basically don’t *6 know the reason.” App. at 1143. Hearing (February 8, B. FDA AAC Nonetheless, press some accounts re- 2001) ported certain panel AAC members “[djifferences asserted that in cardiac risk 2001, 8, February On the FDA’s Arthri- between naproxen appeared Vioxx and (“AAC”) Advisory tis Committee held a result from a beneficial effect of naproxen, public hearing to consider request Vioxx,” danger 2311, a from App. at positive to include the GI from results and that there was “some reassurance study in labeling. VIGOR its Vioxx Six see, effect, what protective is a effect days hearing, Morgan before that J.P. is- naproxen,” App. at In subsequent 2306. sued a research report summing up the coverage, many analysts report- securities knowledge state of about Vioxx after the ed that hearing had benefited Merck study. report The stated that the and they continued project substantial basic idea behind the hypothesis However, future revenues for at Vioxx. “poorly proven,” and that there was least one investment report firm issued a way “no to retrospectively slice the data to stating, skepticism “our relating to naprox- prove the NSAID benefit vs. risk Vioxx having en cardioprotective a effect rein- is argument,” although existing theory one hearing. forced” App. AAC at “might support a risk’ hypothesis.” Vioxx 2703. warned, App. Morgan at 2547. J.P. “[t]his type ‘signal’ of clinical that was Liability C. First Vioxx Product ignored, and later haunted FDA 2001) (May Lawsuit drug recent recalls like Warner Lambert’s Rezulin and App. May product Glaxo’s Lotronex.” at a liability lawsuit 2547. jointly against was filed and day Celebrex, publi- after the JAMA article’s rival selec- The COX-2
makers of cation, press Merck issued a release stat- complaint The tive inhibitor. and the overall “stands behind “have companies con- pharmaceutical safety profile cardiovascular and Celebrex as sistently marketed Vioxx also App. 540. Merck sent VIOXX.” drugs pa- pain relief highly effective “ physicians ‘Dear Doctor’ letters osteoarthritis,” de- suffering from tients disparaging the ar- throughout country that “Merck’s own research” spite the fact any new clinical ticle as ‘not based on were that “users demonstrated physicians assuring stud/ likely heart attacks times to suffer four as the overall and car- Merck ‘stands behind expensive other less medi- compared safety of VIOXX.’ profile’ diovascular cations, App. thereof.” or combinations at 540. App. “emergency sought The plaintiffs 1748. pa- and revised notice to class members (September Warning E. FDA Letter form warnings, in the of additional tient 2001) presently being labeling which medical posted FDA September On App. the FDA....” considered on its website letter that its Advertising, Drug Marketing, Division of (August 22, D. JAMA Article (“DDMAC”) had and Communications sent 22, 2001, August Journal On days regarding to Merck four earlier (“JAMA ”) American Medical Association marketing promotion Vioxx. In the of Vioxx the results of reported letter, the DDMAC stated that Merck’s clinical trials. JAMA and Celebrex and materials” for “promotional activities “false, article asserted available data raised marketing lacking “cautionary flag” balance, the risk of CV misleading about in fair or otherwise Food, Drug, with COX-2 inhibitors. of the Federal events associated violation Act) “[ejurrent (the applicable reg- Act It also Cosmetic stated The letter ex- ulations.” suggest that use of selective data would *7 plained: might lead to increased COX-2 inhibitors App. at 752. The
cardiovascular events.” engaged promotional You in a cam- have published, day before that article paign po- for Vioxx that minimizes the statement Bloomberg reported News tentially findings serious cardiovascular already that “[w]e a Merck scientist in the [VIGOR] were observed beyond thus, what have additional data study, misrepresents and safe- cite, very, very findings Specifically, your and are re- ty profile for Vioxx. any in assuring. promotional campaign does not result discounts the fact VIOXX study, patients events com- VIGOR increase cardiovascular were observed to have four to The Vioxx pared App. to at 539. placebo.” myocardial fold infarc- five increase garnered JAMA extensive cover- article (Mis) compared patients to on the tions analysts age. responding Some securities comparator non-steroidal anti-inflamma- to publication the article on date (NSAID), Naprosyn tory drug (naprox- the article referred the basic content of en). news,” as “not new at and noted App. many
that the “debated of the same in- Although FDA the exact reason for the at February year,” rate of Mis in the issues creased observed unknown, your panel hearing. App. group AAC 2751. Vioxx treatment selectively pres- ports campaign focused on the fact promotional mere of the following explana- letter,4 hypothetical warning ents the analysts securities tended observed increase in Mis. tion emphasize impact the warning letter Vioxx does not increase You assert that likely would prospective have on the Vioxx risk Mis and that the VIGOR (which labeling changes were not forth- finding is consistent with naproxen’s 2002),5 coming April until Merck’s ongoing ability platelet aggregation like block efforts,6 promotional position possible explanation, That is a aspirin. in the report by market.7 A issued UBS you that your expla- but fail to disclose explained, Warburg pointed FDA “[t]he hypothetical, nation is has not been dem- out that there is no study prov- definitive evidence, by onstrated substantial and ing or disproving either [re- conclusion expla- that there is another reasonable garding higher incidence CV events nation, that have pro-throm- Vioxx associated with in the Vioxx VIGOR properties. botic study].... position The FDA’s appears The also App. letter directed own, similar our is that the data provider” “Dear Healthcare Merck issue available date are simply definitive.” misleading “to correct false im- letters App. Nonetheless, at 2768. securities ana- pressions App. at 719. and information.” lysts projections one voice in their Vioxx; warning analysts FDA from letter received wide- CIBC Markets, spread media securi- World coverage Credit Suisse First Bos- analysts. many (“CSFB”), Rauscher, ton Although ties media re- Dain Lehman representative examples predictive 4. A few Reu- ter follow: will be of the FDA’s actions regulators charged ters—"U.S. ... pending change.... Warning Vioxx label misleading Merck ... with doctors about its certainly letters of this nature are not unusual painkiller promotions blockbuster staple pharmaceu- and in fact almost downplayed possible risk of heart at- industry today.... pointed tical As out App. tacks.” Associated Press— letter, warning FDA dispute DDMACdoes not argued [the “Merck has App. Merck’s claims.” at 2765-66. falsely risky results be- make] look[] blood ... cause thins the and thus report Lynch 6. One issued Merrill stated: fact, protects] against ‘In heart attacks.... "The issued FDA letter to Merck clear,’ [according the situation is not at all to] looking [and] for Merck to cease all Today— the FDA....” at 2360. USA promotional violative activities.... We do not efforts, marketing mainly "Merck’s aimed see helpful how this issue can be to Merck in doctors, have minimized Vioxx’s known promoting Vioxx.” risks, potential cardiovascular the FDA wrote eight-page 'warning in an letter’.... So far *8 report 7. A year, Dain Rauscher focused on drug companies Vioxx’s this the FDA has sent i.e., letters, position marketplace, warning in the the fewer than a dozen which the actual agency signifi- reserves for that th[e activities raise office: “We believe FDA warn- doctor’s public App. at cant health concerns." 2355. ing unlikely significantly is letter] alter regulators Wall Street Journal —“Federal physicians’ prescribing practices [because it] improper marketing & warned Merck Co. for likely already that these issues are common Vioxx, drug saying of its blockbuster arthritis knowledge community....” in the medical company misrepresented drug’s had Meanwhile, App. CIBC at 2762. a World safety profile potential and minimized its report warning Markets considered how risks.... While the FDA out dozens of sends might impact price: "The letter Merck’s stock annually, only routine citations it issues a warning a FDA recent JAMA letter well as warning handful of these more-serious letters raising risk article concerns of cardiovascular year.” App. at each 2361. stock, pressure will continue to now trad- App. 52-week low.” close its example, report by 5. For a issued Lehman Brothers stated: "We do not believe this let- Cowen, slight increase in very side effect—a Brothers, Warburg, SG UBS App. at 653. How- rat- risk of heart attack.” their all maintained Stanley Morgan “[tjhe ever, risk explained article “buy” “hold” at or ings Merck stock for proved,” hypothesized, fu- project increased continued to and/or ... specialists say “leading arthritis ture for Vioxx. revenues they pre- and that are not concerned 20, September days five between patients who drugs scribe the 2001, 25, Merck’s September 2001 and at The App. disease.” 653. heart $4.16, 6.6%, or price stock declined is the subtle “[a]t article noted that issue Reu- September at on closing $59.11 evidence,” App. question of what counts as 25, drop September reported ters 653, that the risk COX-2 explaining “[sjhares Merck & Co. explaining that blood-clotting origi- cause inhibitors regulators accused fell ... after U.S. nally posed theory years as a a earlier few claims making firm of unsubstantiated University a of Penn- by scientist from drug Vioxx hot-selling arthritis about its sylvania. risk of heart possible downplaying taking the medicine.” attack from addressed defendant Seol- article 2001, however, 1, By October length. According nick’s statements rebounded price stock had article, said that Merck Scolnick $64.66, closing price its higher than $1.39 at- heart specifically excess “look[ed] warning public was made before the letter in” tacks and strokes the VIGOR just earlier. over week pa- higher and found a incidence “ App. at 654. ‘There taking tients Vioxx. (Sep- F. Lawsuits Additional Vioxx interpretations,’ are Dr. Scol- possible two 2001) 27, tember at- ‘Naproxen nick lowers heart said. A fraud lawsuit was filed consumer rate, it.’ tack or Vioxx raises users on against Merck on behalf of Vioxx on, “while 654. The article went [Merck] September product 2001. A second findings the heart attack announced injury law- liability personal lawsuit and public, and the looked back at doctors In articu- shortly suit thereafter. followed using drugs data from studies different mis- allegations of fraud and lating their It comparison to Vioxx. dummy pills representations by consumers found increased the no evidence users, fraud and the consumer attacks, risk of heart Dr. Scolnick said.” large part product liability suits relied company that the App. at 654. “He said article, FDA the JAMA interpretation likeliest decided ‘the letter, reports concern- and various media the data is that lowered ing Vioxx. thrombotic event rate’.... He added question without the theoretical raised (October New Article
G. York Times scientist], University Pennsylvania [the question remaining ‘no one would have York their mind that an New might be [sic] On October *9 ” Times interpretation.’ App. about additional at 654. published an article COX-2 World; reported conceding as The article Scolnick inhibitors entitled “The Doctor’s Reliever, are Questions findings For of Risk Re- that “none of the to date Pain fully enough prove The arti- the issue is App. main at 653. Unresolved.” is proof why That lack of reported “troubling questions cle about resolved. explain both unexpected an that Merck whether Vioxx F.D.A. demanded telling That hypothesis, day, sides of the doctors and Merck’s stock price dropped $45.72, from patients that it not known whether na- down 6.5%. $48.91 heart proxen protects against attacks or 30, 2003, On October the Wall Street likely.” App. Vioxx makes them more at published Journal an article entitled 654. Study Risk,” ‘VIOXX Sees Heart-Attack which study addressed a recent significant no There was movement Brigham Harvard-affiliated and Women’s following stock price publica- Hospital in Boston that an found increased York tion of New Times article. risk of heart attack in patients taking compared Vioxx patients taking Cele- Labeling H. Modified to In- Vioxx’s (the placebo brex study”). “Harvard 2002) (April clude CV Risks App. article, at According 571. to the “[i]n required Merck was not to include the days, found, the first 30 the researchers labeling risk CV in its until events VIOXX was linked a 39% increased April 2002. The labeling ultimately incor- compared heart-attack risk with Celebrex. porating explained information days, Between 30 and 90 increased stated, study VIGOR results and “the risk relative risk was 37%.” at A App. developing serious cardiovascular researcher stated that this was “the best significantly higher thrombotic event was study to date” and that it “greatly substan- in patients treated with VIOXX ... our tiates concerns about the cardiac side compared patients naprox- treated with App. effects” of Vioxx. at 571. significance en.... The the cardiovas- Merck’s stock price dropped below the S findings cular is unknown.” time, & P during 500 Index did incorporated 553. This language was into not during rise above that index re- “precautions” section la- period. mainder class beling, “warnings” rather than the section. In a call discussing conference the label- J.Merck Withdraws Vioxx From the ing changes, spokesperson a Merck reiter- (September Market company’s ated the “belief that the effect September On an- seen in [sic] results of it withdrawing nounced was anti-platelet effect of naproxen.... from the market on a new based So, I think a position that’s Merck has an showing “increased risk of confirmed always quite clearly had and now its [sic] beginning cardiovascular events after laid labeling.” App. out therapy.” App. months of continuous price dropped 584. Merck’s stock Falling
I. Vioxx Sales and the Har- per than day, share that to close $12 (October 2003) Study vard $33.00, day’s down 27% from previous analysts expressed close. Securities 22, 2003, On October published Reuters surprise at the ac- suddenness of Merck’s 4,400 an article entitled “Merck to Cut tion. Jobs, posts Earnings,” Flat it
reported by falling that Merck “hurt On November the Wall Street reported, sales arthritis medicine VIOXX and a Journal “internal Merck e-mails paucity profitable drugs.... marketing new materials as well as inter- arthritis drug suffering from clinical tri- views with outside scientists show that al suggesting might slightly company fought forcefully years data raise safety keep the risk heart attacks.... from destroying concerns
160 III. prospects.” App. drug’s commercial dropped another price 589. Merck’s stock of Review Jurisdiction and Standard news, The news. 9.7% on this based jurisdiction The District Court had year after nearly published first 22 of action to section pursuant over this complaint, prompted Appellants filed 77v; § Act, sec the Securities 15 U.S.C. remark, in- “new analyst to one securities Act, Exchange 27 15 tion of the Securities that the situation indicates us formation 78aa; § § 1331. We and 28 U.S.C. U.S.C. as we as innocent might not be jurisdiction pursuant to 28 U.S.C. that investors recommend thought.... We plenary § review over 1291. We exercise shares.” sell Merck of Appel Court’s dismissal the District comply lants’ for failure claims v. of limitations. DeBenedictis statute II. 209, Co., Inc., Lynch Merrill & History Procedural (3d Cir.2007). Because District 215 dismiss, motion granted Court com- first class action securities The allegations true ‘accept must all “[w]e was filed on plaint initiating lawsuit and all reasonable inferences complaint 6, 2003, just after the weeks November therefrom, view that can be drawn results of-the Harvard reported media light them in the most favorable to After declining Vioxx sales. study and ” v. non-moving party.’ (quoting Id. Rocks actions were nationwide class numerous (3d 644, F.2d 645 City Philadelphia, 868 consolidated, filed a fourth Appellants Cir.1989)). upheld The dismissal must be com- class action amended consolidated “ certainty no only appears ‘if it “Defen- The plaint. complaint any be granted relief could under set during and omissions dants’ statements proved.’ (quot Id. facts which could be materially misrepresen- the Class Period Enters., County Inc. v. Bucks D.P. viability safety ted the and commercial (3d Coll., 943, Cmty. 944 Cir. VIOXX,” of sec- App. at in violation 1984)). 11, 12(a)(2), and 15 of Securities tions 10(b), 20(a), and 20A
Act sections IV. Act Exchange the Securities Discussion thereunder. promulgated and Rule 10b-5 contain their The relevant statutes each Appellants’ moved to dismiss A complaint own statute limitations. time- grounds on the were claims “fraud, deceit, manipulation, or alleging Appellants had failed to barred and that Ex- contrivance” under Securities granted claim. The District Court state a change “may Act not than brought be later claims that motion on the basis years the earlier of ... 2 after discov- Co., In Merck time-barred. re & violation; facts ery constituting Sec., Litig., Inc. Derivative & “ERISA” years after such violation.” (D.N.J.2007).8 1658(b). Ap- § F.Supp.2d U.S.C. Claims under the Secu- shorter, subject are one- appeal. filed a notice of rities Act pellants timely Litigation standards of the Private Securities District Court did not address Merck’s scienter, allegations argument pleading contained in that the Act of Reform 1995 for class action fourth amended consolidated express any opinion on this issue. do satisfy heightened complaint failed to
161
Merck,
year
period
limitation
from the
of
time
In re
F.Supp.2d
483
at 419. The
discovery,
may
but
no event
filed
be
Court also noted what it characterized as
years
later
after
public
than three
the “overwhelming collection of informa-
security.
of
offering or sale
15 U.S.C.
signaling
by
tion
deceit
Merck with re-
Thus,
§ 77m.
if Appellants knew of the
spect
safety
VIOXX
had
[that]
6,
prior
basis for their claims
to November
public
accumulated in
by
realm”
2001,
years
two
before the first securities
date,
particular,
the FDA warning let-
filed,
complaint
all
was
of their claims are
ter.
Id.
In concluding that
sufficient
by
barred
the statute of limitations. See
warnings
storm
of fraud
existed
than
DeBenedictis,
warning.’
In re
400 ‘Whether signifi- ” statements or ty misleading claims that for their of the basis have known Id. had been made.’ “sufficient cant omissions they had depends on whether opin- court unpublished district wrongdoing (quoting to possible of information ion).10 Second, inquiry, described an we notice’ ‘inquiry place them NAHC, objective,” into subjective and “both re 306 F.3d (quoting In added). met their bur- plaintiffs take this the had therefore whether (emphasis We they reason- for in- “to that exercised clarify the standard den show opportunity yet unable to diligence due this circuit. able quiry notice then not- injuries.” Id. We discover discussion comprehensive first Our Ap- with the Court of agreement ed our inquiry notice for appropriate the standard peals the Seventh that courts Circuit aof claim filed place in the context took dangers of the should be “mindful Influenced and to the Racketeer pursuant interpretation an too broad adopting (“RICO”).9 Act Corrupt Organizations Law v. inquiry (citing notice.” Id. 253 Mathews, In at 241. Math- 260 F.3d See II”), Research, (“Medco Inc. 113 Medco ews, securities sued in low-risk investors (7th Cir.1997); Fujisawa 786 F.3d had the securities lost their broker after v. 1335 Kapoor, Pharm. Co. value, alleging half their more than (7th Cir.1997)). them the nature misled about broker charged excessive fees funds later, year applied this A we standard affirmed dis- and commissions. We pleaded under federal securities claims grant summary judgment trict court’s NAHC, In re 306 at 1318. laws. See F.3d complaint broker because shareholders’ claims in case arose analyzing In time-barred. Id. provider’s collapse from a health care after filed before plaintiffs’ whether suit was government regula- the federal enacted run, had we of limitations RICO’s statute negatively impacted provid- tions from two-pronged test derived applied long-term er’s care services business. Id. inquiry standard other courts notice the in- formally adopting at 1318-21. in the context of securities applied had claims, notice standard for securities quiry fraud claims. Id. at 251-52. “[wjhether plaintiffs, we stated diligence, the exercise of reasonable should
First,
to make
requirement
we noted the
have known of the basis for their claims
objective
whether
de-
inquiry
an
into
they had
depends on whether
‘sufficient
“to show the
fendant had met its burden
possible wrongdoing
Id. at 252.
information
warnings.’
existence of ‘storm
place
warnings “may
“inquiry
them on
notice” or
excite
explained that storm
We
“
forms,”
culpable
fi-
‘any
warnings”
such as
activi-
take numerous
“storm
” 11
nancial,
(quoting
Id.
v.
legal
ty.’
or other data
would
Gruber
Mathews,
possibility
Quoting extensively
from
we re
knew or should
known
" Mathews,
("storm
cently
warnings”)....'
inquiry
notice standard
of fraud
reiterated
unpublished
(quoting
v. Kirwan Financial
Practices Finally, in a just case decided year, last (D.N.J.1997)). we considered investors’ claims that Mer- dismissal affirming In the district court’s Lynch rill misled by failing them to dis- plaintiffs’ arising claim from the that a certain close class of mutual fund regulations of the federal on the impact shares was “never a rational choice of in- long-term care defendants’ services busi- vestment for them and that Merrill bro- ness, disclosures, we held that a series of larger kers received commissions on sales accompanied which a drastic decline in the DeBenedictis, of such shares.” company’s price, stock id. at articles, argued 210. Merrill that news culminated with the defendants’ announce- National Association of Securities Dealers off writing goodwill ment that (“NASD”) releases, press and the mutual selling nominal their business for con- registration funds’ put statements the sideration, put plaintiffs inquiry the on inquiry class notice than two previous goodwill notice that valuations of years before the complaint was filed and inflated, had been id. at 1326-27. This should be therefore dismissed as holding by plaintiffs’ was bolstered Id. quoting time-barred. After admission that the market had written off “probability” language by first used that business even before the defendants’ Mathews, district court we ad- announcement. Id. at 1327. category dressed each warnings storm alleged. registra- We noted that Merrill’s recently,
More
we considered
tion statements disclosed the fee structure
by
whether a suit filed mutual fund inves-
shares,
for the different classes of
against
tors
fund advisors who had invest-
allowed investors to determine the relative
heavily
by
ed
in Enron was barred
shares,
costs
benefits of the different
Benak,
statute of
limitations.
applying
and the different commissions
decision,
In
our
we dispensed with
Id.
those shares.
at 216-17. We further
probability
altogether,
language
in-
concluded
storm warnings
existed be-
holding
stead
that storm
could
“
reports
press
cause
news
releases
triggered by
be
‘sufficient information
by
identified
the defendants revealed that
possible wrongdoing....’”
Id. at 400
NAHC,
1325). many
had
(quoting
disciplined
re
brokers
been
In
306 F.3d at
recommending
very
NASD
class
Applying
inquiry
our
notice standard to
case,
distinguished
undergirded
plaintiffs’
the facts of that
we
shares
Accordingly,
mutual fund investors from direct
claims.
Id. at 217.
we con-
inves-
ground
plaintiffs’
tors
that mutual fund inves-
cluded that
claims were
rely
intermediary
on an
learn
tors
about
time-barred.
NAHC,
misleading
significant
(quoting
statements or
As
“probability” with ever-in-
occasionally “possibility” or
clear, although we have
makes
(as
intensity
creasing frequency and
both
may
trig
be
inquiry
notice
stated
argu-
oral
parties did in their briefs and at
alerting an investor to
gered by evidence
ment)
Rather, we
hardly
useful.
review
we have
wrongdoing,
probability
parties
forth
information set
inquiry
no
just
emphasized
often
eye
practical effect of
with an
toward the
by sufficient infor
triggered
tice
be
partic-
at a
drawing
notice line
This im
possible wrongdoing.
mation of
vein,
empha-
In this
ular date.
the sense of
plies
probability,
*14
no-
“[u]ndergirding
inquiry
that
sized
likelihood, wrongdoing
of
nearly certain
a
analysis
that
assumption
is the
tice
in
warnings
storm
necessary
trigger
not
plaintiff
or should have been
either was
Therefore,
we reaffirm
circuit.
this
able, in
of
dili-
the exercise
reasonable
of
the exercise
plaintiffs,
“whether the
gence, to
an
securities
adequately pled
file
diligence, should have known of
reasonable
of an
date.”
complaint
fraud
earlier
depends
their claims
the basis for
Benak,
Similarly,
F.3d
401.
435
at
of
they had sufficient information
whether
Circuit,
of
the Seventh
Appeals
Court
place them on in
possible wrongdoing to
applied
possibility
has
a
stan-
also
quiry
warnings
notice or to excite storm
I,
444,
dard,
has
see Medco
54 F.3d
Benak,
activity.”
fraud (3) inhibitors, 748; at FDA warn- App. extricably with the defendant’s intertwined letter, with “en- charged which Merck Discovery one misrepresentations. for promotional campaign in a gag[ing] immediately discovery of almost leads potentially seri- that minimizes the Mathews, Vioxx F.3d 260 at the other.” findings that were ob- ous cardiovascular materiality, we Similarly, in the context thus, study, market, [VIGOR] served in “an efficient have stated that Vioxx,” safety profile misrepresents in- important to reasonable ‘information (4) fraud, 713; prod- the consumer App. at immediately incorporated vestors ” liability, personal injury lawsuits uct Stafford, Oran v. price.’ the stock into 2001; and throughout filed against Merck (3d Cir.2000) (quoting 282 226 F.3d (5) article, in New York Times Litig., Burlington Factory Sec. re Coat possible there “two Scolnick stated were Cir.1997)). (3d “If the 114 1425 F.3d results, interpretations” for the VIGOR no information has disclosure of certain App. at 654. Because disclosures prices, on follows that effect stock categories ultimately each of these arise was immaterial as information disclosed study, from the results the VIGOR NAHC, at of law.” In re matter recap study. briefly the details of Burlington re Facto- (citing In Coat 1425). ry, 114 F.3d compared naprox Because information that is material hopes establishing en incor- immediately reasonable investors is than traditional profile had a better GI price, porated into stock effect re Although hopes NSAIDs. those market, learned, purported alized, storm Merck also and subse own to compel while insufficient quently public, “signifi notified has been cantly conclusion that notice fewer thromboembolic events were is, contrary to triggered, position, patients taking than naproxen” observed Newman, inquiry. See relevant our patients taking Vioxx. cpurt’s (asserting
F.3d effect on suggested naproxen’s “holding is further the fact supported platelet aggregation responsible price difference, did not [defendant’s stock this but conceded any significant following” movement hypothetical “had not observed effect been disclosure); Berry, identified previously any clinical studies.... significant (concluding that the lack of Merck also that all other stated *18 the conclu- stock movement a “bolster[ed]” trials “showed no indication of Vioxx trig- that inquiry sion notice had not been in the incidence of thromboem difference gered). Vioxx, and placebo bolic events between comparator 766. App. NSAIDs.” at (and this
The District Court Merck on duly analysts press of informa- Securities and the appeal) emphasized five classes tion, reported the results of and the each of which was disclosed on VIGOR instance, 9, 2001, naproxen hypothesis. For an ar- purportedly before October which (1) a warnings: Bloomberg and ticle News triggered published storm articles re- hypothetical month after the VIGOR results were reports commenting on the hypothesis leased reiterated Merck’s about explanations the results of VIGOR (2) article, aggregation, study; naproxen’s platelet the JAMA which assert- effect (i.e., a “[n]aproxen ed that and but noted that doesn’t available data VIGOR effects on the study) “cautionary flag” protective a documented Celebrex raised stated, heart,” analyst an quoted beling presently being and who which is considered “that increases cardiac risk ... conjunction FDA [in with the AAC true, but it far too to make that be soon hearing.]” App. course, at 1748. Of inves- at judgment.” App. kind of 2292. Simi- tors, unlike Vioxx patients, presumed larly, Morgan report April J.P. from a publicized to be aware outcomes of appeal 2000 noted the intuitive of the theo- studies, VIGOR, research such as ry that “the thromboembolic event issue is underlay the allegations product of that ” ‘NSAID-issue,’ an but explained that the Benak, liability lawsuit. See at protective ben- “theoretical cardiovascular (explaining “a direct ... investor Naprosyn efits of have not been clini- can be deemed to have consistent knowl- ” cally App. at 2376. In anoth- proven.... edge of his or her holdings”). securities article, er spokesperson the makers stated, JAMA article Naprosyn knowledge, our “[t]o evaluated Vioxx Celebrex, prevent heart naproxen does not attack or both COX-2 selective inhibi view, tors, at App. stroke.... 2288. In our together; findings were not limit category con- of disclosures does not concluded, ed to Vioxx. The article based misrep- stitute storm that Merck VIGOR, “[cjurrent part data safety profile resented Vioxx’s to investors suggest would that use of selective COX-2 give in a manner might rise might inhibitors lead to increased cardio contrary, securities fraud claim. On the App. course, vascular events.” at 752. Of analysts press recog- securities and the simply this is the alternative to na naproxen hypothesis nized the it for what proxen hypothesis. The JAMA did article was, unproven hypothesis, recog- an present any data that suggest would hypoth- nized that there was an alternative that Merck did not have propose reason to esis, “that increases cardiac hypothesis. Accordingly, is of little App. risk....” surprise that a Deutsche Banc securities analyst Shortly types questions described the hearing, during before AAC raised in the JAMA article as which the FDA considered how Vioxx’s “not new labeling Moreover, should news-” incorporate be modified study, results J.P. reassuring Merck issued statements the Morgan report research described the ef- day day before after the article fect of NSAIDs such as on CV published. Again, we are of the view “poorly proven” explained events as article, that the JAMA own, taken on its way that there was “no retrospectively did not constitute sufficient information slice data AID prove the NS benefit possible wrongdoing under the securities argument....” vs. Vioxx risk laws so as to raise storm hearing, Reicin, 2547. At that defendant culpable activity under the securities laws. the Executive Director of Clinical Re- The FDA warning letter demands Laboratories,
search Merck Research scrutiny. analyzing effect argued support who of the naproxen *19 through prism letter the hypothesis, admitted at the outset that the notice, we must not lose focus of the na explanation for the of the results VIGOR allegations ture of in letter study The and was uncertain. first Vioxx (which, authority. product liability scope regulatory of the FDA’s lawsuit incidental- ly, charged “promotional targeted the makers of Celebrex with The FDA Merck’s 713, Vioxx,” wrongdoing) shortly campaign App. identical followed at under its thereafter, seeking authority regulate prescription “additional medical la- ad- drug
170 regulations 352(n); FDA misrepresentation. § see a vertisements, 21 U.S.C. see must be Trust not provide that advertisements Employees generally Pa. Benefit balance,” Inc., 21 248-49 in fair C.F.R. “lacking Fund v. Zeneca Cir.2007) (3d au 202.1(e)(6), the FDA’s (discussing prohibit § advertisements advertising). drug thority prescription representation sug- over a] “[c]ontain[ compo distinct The focused three has drug letter is safer than it gestion that that the promotional campaign nents of by to be substantial been demonstrated (1) promotional of concern: six FDA found experience clinical or substantial evidence conferences, at presumably aimed audio from ... or selects information otherwise doctors professionals care such as health drug way that makes a any source (2) a dated release press and pharmacists; than been demon- appear to be safer has “Merck May 2001 entitled Confirms l(e)(6)(iv). contrast, strated,” § In 202. id. Safety Profile of Cardiovascular Favorable laws, fact or omis- under the securities “a (3) 718; Vioxx,” represen oral App. at if is a substan- only is material ‘there sion representa Merck by made sales tations have been tial likelihood that would care tives, to health again, presumably hav- by viewed the reasonable investor as FDA chastised professionals. significantly the “total mix” of ing altered campaign for “dis promotional Merck’s available to the investor.” information’ counting] fact the VIGOR NAHC, (quoting at Basic re study, patients on Vioxx were observed Levinson, 231-32, v. U.S. Inc. myocar a four five fold increase have (1988)). S.Ct. 99 L.Ed.2d (Mis) compared patients dial infarctions Second, description the FDA’s naproxen, “selectively pres on” quite is simi- truth about naproxen hypothesis as enting]” long had lar to the evidence CV reason for the incidence of increased the market had acknowledged and which 713. The stated App. events. FDA incorporated. the FDA stated Specifically, campaign promotional that Merck’s naproxen hypothesis hypothet- “is explanation is that the to disclose that “fail[ed] [its] ical, by not not demonstrated sub- hypothetical, has been demonstrated has been evidence, evidence, and that there is substantial stantial there another explanation, may that Vioxx explanation, another reasonable that Vioxx reasonable pro-thrombotic properties.” have pro-thrombotic properties.” App. reasons, 713. For number implicit This information are hesitant to conclude that the FDA that the long-standing admission Merck’s trigger warning letter was sufficient to posited anticoagulant effect inquiry notice. “on events had not been observed [CV] na- previously any clinical studies for with, begin acting the FDA was
To App. at 765. basis proxen.” On regulator drug advertising, rather than announcements, securities public regulator as a of the securities markets. analysts of “a discussed existence Thus, contrary to Merck’s contention at hypothesis” seven months ‘Vioxxrisk’ over the FDA’s actions are argument, oral the FDA letter was issued. before analogous hardly allegations of account- Indeed, the FDA did SEC, regu- fraud issued Indeed, charge naproxen hypothesis the securities markets. lates wrong did in the or that Merck not believe drug advertising regulations and FDA’s rather, wholly validity agen- provide hypothesis; different securities laws *20 clear cy Merck to be more respect simply with to what constitutes directed standards widely hy- known alternative an alleged about storm warning on defendant’s pothesis dealings with health care price stock bolstered inqui- conclusion that and, presumably, professionals consumers. ry notice was not triggered). This conclu- sion is also supported by the fact that Third, components two of the three a than half-dozen securities analysts subject promotional campaign continued to maintain their for ratings reprimand FDA’s consisted statements Merck project stock fu- increased and/or professionals made health care ture revenues for Vioxx the warning after of targeted course audio conferences and letter public. was made personal compo- conversations. The third promotional campaign targeted nent of the emphasizes Merck also the three release, FDA press was the but additional lawsuits filed after the FDA merely that press repeated release course, warning letter. Of none of these same information that was first contained alleged Rather, lawsuits securities fraud. release, i.e., press “signifi- the VIGOR they alleged fraud, product consumer lia cantly fewer heart attacks were observed bility, personal injury claims. The in patients taking naproxen compared ... claims in those lawsuits Merck Vioxx,” group taking to the “the VIGOR faded provide publicly available infor finding naproxen’s is consistent abili- consumers, mation to Vioxx rather than to ty platelet aggregation by to block inhibit- Merck investors. In Dep’t re Ames Cf. COX-1,” ing first time this “[t]his Stores, Litig., Inc. Note effect naproxen cardiovascular events (2d Cir.1993) (stating different has in a study,” been observed clinical may concerns debt and equity holders “[ojther potential explanations” re- call for distinct notice dates for the Release, possible. sults were Merck Press investors). two classes of Co., Inc., & Merck Confirms Favorable Vioxx(R) Safety Cardiovascular Profile Finally, question the District 2001) (available (May on PR Newswire Court’s conclusion that the New York LexisNexis). Times article warning. constituted storm The Finally, District Court we consider effect the FDA reasoned defen- dant warning Scolnick’s letter had statements in that article on the market. “a price dipped significant departure Merck’s stock constituted from slightly follow- company FDA line as warning explanation disclosure to the closing letter before it for the higher than did results.” re Merck, just before that F.Supp.2d disclosure week and a at 420. But Scol- half Although later. nick significant the lack did not the naproxen hypoth- abandon esis; rather, movement in price following Merck’s stock he reiterated conclusive, warning the FDA letter is not “found no evidence Vioxx increased it supports conclusion that the letter did the risk of heart attacks” when looked not suggestion constitute a sufficient comparing back at its data Vioxx to other trigger securities fraud to drugs placebos storm and “that ‘the likeliest of culpable activity interpretation under the securities of the data is that See, e.g., Berry, laws. 705 lowered ... thrombotic event (asserting that the “negligible impact” of rate’-” App. at 654.15 Even in the New explained they York Times article also are not concerned and that hypothesized, proved,” prescribe "[t]he drugs patients risk who “leading specialists and that say arthritis heart disease.” *21 letter, then, significance of the car- stated that “[t]he the FDA
wake of the findings investing [from the diovascular to reassure Merck continued study] the is unknown.” at 553. Merck behind na- stood public that Merck investing the public continued to reassure acknowledging hypothesis, while proxen (i.e., time, explaining naproxen that the at this explanation that another events) “a has al- position was possibility. hypothesis a remained causes CV (“Reas- Benak, clearly quite had ways [sic] and now See F.3d at n. in at 559. On labeling.” App. out the dissipate apparent storm laid can surances us, no there is reason ordinary intelli- the record before if investor of warnings an rely them to that Merck did not believe reasonably suspect on gence would concerns”) (citation until the Harvard hypothesis naproxen allay the investor’s omitted). study in an increased risk It 2003 revealed quotation marks internal patients taking in Vioxx com- “significant no heart attack there was also notable taking pared patients follow- Celebrex price Merck’s stock movement” of Newman, time placebo. This for the first publication. the article’s Thus, repeated assurances cannot conclude as belied F.3d at 195. responsible disparity for the naproxen that this article constituted was a matter law in and that Vioxx did CV events VIGOR warning. a storm incidence of com- higher not have a CVs summary, we conclude that Dis- In NSAIDs, pared comparator or placebo prematurely finding acted as trict Court such as Celebrex.16 Appellants a matter of law that alleged fraud before inquiry notice of V. date, 9, As of market
October 2001. scientists, and even the analysts, press, Conclusion17 naproxen hypothesis agreed FDA forth, re- very For the reasons set we will least. None plausible, re- judgment verse the of dismissal and that Merck believed otherwise. suggested ap- FDA mand to the District Court further Accordingly, April proceedings opinion. consistent with this proved labeling change dissent, warnings, rereading op. at two statements in the Dissent There are 16. issues, although going majority opinion clear arguably to minor will make response. majority states that agrees call for The dissent with the dissent that such quoted the October Scolniclc’sstatement factors are relevant to storm was "the first 2001 New York Times article inquiry, required. supra p. but not See dissent, that the VIGOR results although noting [the time statement It is ironic that the explained by be either the effect of could might misrepre- what be viewed as Merck's been made Vioxx] had sentations, apply would the statute of limita- fact, company.” op. at 177. as Dissent deprive plaintiffs opportunity to tions to Reicin, above, noted Alise Executive Di- against prove a viable case Merck for such Research at Merck Research rector Clinical misrepresentations. Laboratories, possibili- as to had testified ty hearing before the AAC as FDA's 17. Because we have concluded that the Dis- 8, 2000, early February eight than finding Appellants in- trict Court erred in months before the New York Times article. stage quiry notice of the fraud at this p. supra See Appel- litigation, we do not address Second, remaining arguments regarding the sug- lants’ the extent that the dissent purchased plaintiffs who stock after gests majority claims that the holds that fluctuations viability Appel- price analysts’ ratings pro- October 2001 and stock jections necessary finding are section 20A claims. storm lants'
173
ROTH,
Judge,
quiry
dissenting.
notice’ or to excite ‘storm warnings’
Circuit
added).
of culpable activity”) (emphasis
warnings” alerting
I
“storm
believe
Furthermore,
it is well established that
possible
of
ac-
culpable
reasonable investor
“[t]he
of
existence
storm
is a
tivity
part
on
Merck were
the
evident
totally objective inquiry[,]” that is based on
filing
years prior
than two
to the
whether a
ordinary
“reasonable investor of
I
complaint.
In
be-
appellants’
particular,
intelligence would have
the
discovered
in
17, 2001,
September
that the FDA’s
lieve
recognized
formation and
aas
storm
letter,
itself,
provided
warning[,]” Mathews v. Kidder Peabody &
warnings”
put
ap-
sufficient “storm
Co.,
(3d Cir.2001)
Inc.,
260
252
F.3d
pellants
inquiry
on
notice of their claims
added);
(emphasis
NAHC,
see
In re
also
any significant change
regardless
306 F.3d at
not require
1325. We do
ratings
price
analysts’
stock
or
stock
or plaintiffs “know all of the
or ‘nar
details
time.
I
re-
projections
therefore
aspects’
row
of the alleged
trigger
fraud to
spectfully dissent.
the limitations
but
period[,]”
rather “the
begins
run
period
from the time at
test,
“inquiry
notice”
stat-
Under
which plaintiff should have discovered the
ute
limitations for securities claims “be-
general
NAHC,
fraudulent
In
scheme.”
re
gins
plaintiffs
to run when the
‘discovered
(internal
quotations
1326
diligence
or
the exercise of reasonable
omitted).
citations
importantly,
Most
should have discovered the
for their
basis
recognize that triggering data
“storm
against
claim’
v.
defendant.” Benak
warnings” may
any
include
information
L.P.,
Capital Management
Alliance
435 that would alert a reasonable investor to
(3d Cir.2006)
F.3d
In re
(quoting
the possibility that
the defendants en
NAHC,
Litigation,
Inc. Securities
306 gaged
“general
in the
scheme
fraudulent
Cir.2002) (citations
(3d
F.3d
complaint.
(emphasis
in the
Id.
omitted)).
plain-
In order to establish that
added).
Finally,
triggering
such
data
notice,
inquiry
tiffs were
defendant
directly
misrepresen
must
“relate[ ]
that,
must demonstrate
as of
particular
alleged.”
tations and omissions
DeBened
ictis,
date,
suffi-
warnings”
(quoting
there existed “storm
in The pro- down the explanation, naked that Vioxx walked Emperor *23 reading investor any properties. reasonable thrombotic street — warning September the FDA’s with problem Yioxx— letter could see risks minimizing potential these Your safety profile of its misrepresentation safety profile misrepresenting the and fraud- that Merck had “possibility” and the and significant for health Vioxx raise misrepresented the cardiovascular ulently misrepresenta- Your safety concerns. product. The safety its “blockbuster” is safety profile for tion of Vioxx Merck, pub- was to which warning letter because we particularly troublesome website, public stated the FDA’s lished on letter, previously, in an untitled part: pertinent objected promotional materials for promotional in a engaged You have misrepresented Vioxx that also minimizes the campaign for safety profile. Vioxx’s cardiovascular potentially serious find- in the ings [VIGOR] that were observed thus, misrepresents and
study,
press
re-
We have idenitified Merck
safe-
your
Specifically,
ty
for Vioxx.
profile
entitled, “Merck
Favor-
lease
Confirms
fact
promotional campaign discounts
Safety
able
Profile
Cardiovascular
study, patients on
VIGOR
VIOXX,”
May 22,
is
dated
have a four to
Vioxx were observed
similar rea-
misleading
also
or
for
false
myocardial
infarc-
increase
five fold
Additionally, your
sons stated above.
(Mis)
on the
compared
patients
tions
press
claim in
release
VIOXX
(na-
[NSAID], Naprosyn
comparator
safety
has a
cardiovascular
“favorable
proxen).
simply incomprehensible,
is
profile,
in-
for the
Although the exact reason
given
rate MI and serious cardio-
in the
Mis observed
rate of
creased
compared
naproxen.
events
vascular
unknown, your
is
group
Vioxx treatment
implication
The
that Vioxx’s cardiovas-
pres-
selectively
promotional campaign
superior
to other
profile
cular
explana-
following hypothetical
ents the
fact,
misleading;
NSAIDs is
serious
in Mis.
tion
the observed increase
as fre-
cardiovascular events were twice
does
increase
You assert that Vioxx
quent
group
in the
treatment
VIOXX
Mis and that
the VIGOR
risk of
(101
2.5%)
events,
as in the naproxen
naproxen’s
finding
consistent
(46
1.1%)
events,
in the
group
treatment
like
platelet aggregation
ability
block
Study.
VIGOR
possible explanation,
aspirin. That is
added).19
713-14,
App.
(emphasis
your expla-
you
but
to disclose that
fail
warning
explicit-
and
clearly
letter
has not been
hypothetical,
nation is
(1)
evidence,
reprimanded
deceptive
by
ly
Merck
demonstrated
substantial
exclaimed, “But,
par-
Vioxx-taking
Dad-
creased heart attack rates of
It
until a child
wasn't
ticipants
study
un-
dy,
nothing
that the crowd real-
in the VIGOR
and several
he has
on!”
by
spoke
superiority
the truth.
claims made
ized that
child
substantiated
715-16,
App.
Merck about
718-19.
Vioxx.
letter,
Finally,
warning
with a
concluded
in the
the FDA identi-
letter
Also
required
plan
specific
Merck in
corrective action
fied
statements made
"
provider' letter
promotional
'Dear Healthcare
audio conferences
and
issue
misleading impressions and
demonstrating
false
Merck's
to correct
Merck’s sales force
misrepresentation
in-
information.”
minimization and
misleading
publicly
safety
and,
conduct in
endors- vascular
consequent
naproxen hypothesis
ly,
as the sole
impact
that Vioxx would have on
for the
explanation
higher rate
cardio- Merck’s financial health. See DeBenedic
tis,
217-18; see,
partici-
vascular events
e.g.,
Amend
Vioxx,
taking
despite
pants
knowing
Complaint,
ed
(stating
any purported
protective
cardiovascular
ef-
... materially
“Defendants made
false
(2)
unproven,
misleading
fect of
statements
omissions
safety
downplaying
potential
problems
concerning
safety profile
of ...
*24
VIOXX”);
failing
possibility
in
the
that
App.
disclose
at 470 (stating that “De
misrepresented
Vioxx increases
risk
heart attack.
fendants
profile
the safety
VIOXX,
explained,
As
letter
this was not the
including concealing and mini
charged
first
time the FDA had
Merck mizing
significantly
risk
increased
misrepresenting
safety pro-
with
Vioxx’s
heart
in patients
taking
attacks
language
drug”);
file. The
used
the letter was
(describing
at 482
a “wrong
particularly
strong and
ful
indicated
scheme ... which included the dis
significant
public’s
FDA’s
concern for the
materially
semination of
false and mis
Aso,
warning
health.
letter cannot be
leading statements and concealment of
speculation,
said to have
facts”);
constituted mere
material adverse
report
“objec-
but was rather a formal
(stating that
falsely
“Defendants
condi
Benak,
tive wrongdoing.” See
435 F.3d at
tioned the market to believe VIOXX was
that,
safe”).
(explaining
in determining wheth-
I
Accordingly,
believe that
notice,
plaintiff
er a
has
“[sjpecula-
warning
FDA’s
letter to Merck sufficient
given
weight
ly
tion should not be
the same
alerted a reasonable investor to the
reports
objective wrongdoing”).
possibility
fraudulently
that Merck
mis
Furthermore,
warning
pub-
represented
letter was
safety
the cardiovascular
lished on the FDA’s
website where
Vioxx—its
product.20
“blockbuster”
would have been discovered
a reason-
assuming
Even
that the FDA’s warning
NAHC,
able Merck investor.
In re
See
letter
did
sufficiently
alone
not
excite
nancial
2001)
Merck,
Journal,
(reporting
against
September
with
charges
the FDA’s
&
noting
regulators
that such
warned Merck
reports
that “Federal
some
serious offend
are
the more
of its block
improper marketing
reserved for
Co.
(Reuters, Sep
Vioxx,
e.g., App.
ers.
drug
saying
See
arthritis
buster
2001)
(reporting that “U.S.
tember
misrepresented
drug’s
had
company
...
charged ... Merck
Regulators have
potential
safety
minimized its
profile and
about
blockbus
misleading
with
doctors
risks[,]”
the FDA sends out
and “[w]hile
promotions
ter
painkiller Vioxx
annually, it is
dozens of routine citations
at
of heart
possible risk
downplayed a
only a handful of these more-serious
sues
(Merrill Lynch, Sep
tacks”); App. at 2752
year”); App. at 2363
warning letters each
FDA
(stating
“[t]he
tember
(The
Times,
September
New York
[and]
letter to Merck
issued
2001) (stating
has or
“[t]he [FDA]
to cease all violative
looking
for Merck
Company
pro
&
to cease
dered Merck
*25
not see
We do
promotional activities....
persuade
to
to
motions intended
doctors
...
to Merck
helpful
how this
can be
Vioxx,
painkiller
say
prescribe its arthritis
(USA
Vioxx”);
App.
2355
promoting
potential
minimize
promotions
2001)
25,
Today, September
(reporting
risks”).
rec
appellants
Even
themselves
marketing
that
efforts ...
“Merck’s
complaint
that “FDA
ognized
their
potential
minimized Vioxx’s known
only
Letters are sent
to address
Warning
risks,
FDA
in an
wrote
cardiovascular
circumstances.”
App.
serious
this
So far
eight-page ‘warning letter’....
Furthermore,
to the first
addition
drug companies
year, the FDA has sent
warning
lawsuit filed before the FDA’s
letters,
warning
fewer than
dozen
letter,
product liability and
three
consum-
for activities that raise
agency reserves
in Septem-
er fraud actions had been filed
concerns”); App.
significant public health
2001, all
that
alleging
ber and October
(UBS
25,
September
Warburg,
misrepresented
Merck had
the cardiovas-
2001)
that
“FDA
is
(stating
[has]
safety
App.
cular
See
at 1748
Vioxx.
marketing
warning to Merck for
sue[d][a]
2001,
29,
(May
product liability class ac-
only
safety argu
one side of
Vioxx
alleging
tion
that “Merck’s own research
times
ment. ... Merck was cited several
users of Vioxx were
[demonstrated that]
story that the outcome
promoting
heart
likely
four times as
to suffer
attacks
to
study
Naproxen
was due
the VIGOR
expensive
to
less
medi-
compared
as
other
no
cardioprotective
that there is
being
...,
...
cations
Merck
[but that]
[took]
safety
with
unusual cardiovascular
risk
no affirmative
to
steps
communicate
Press,
(Associated
Vioxx.”);
App. at
members”);
to
critical
information
class
2001)
25,
September
(reporting
2001,
27,
(September
at 1557
con-
argued
“Merck has
[the
fraud
action
alleging
sumer
class
risky
falsely
make]
look[]
results
omitted,
or
suppressed,
“Merck
con-
[had]
... and
naproxen thins the blood
because
concerning
cealed material
dan-
facts
thus
attacks....
protects] against heart
clear,’
risks
the use of
gers and
associated with
fact,
all
‘In
the situation is not
Vioxx, including
prob-
...
FDA”);
cardiovascular
App. at 2757
[according
to]
25,
Boston,
purposely downplayed
lems
September
[and]
Suisse First
0Credit
understated the serious nature
(stating that “the FDA
issued
[has]
and/or
Vioxx”);
making
the risks associated with
citing
letter
Merck with
2001,
28,
liability
misleading
promotion
(September
product
statements in the
quiry
Appellants
action
alleging
argue
and consumer fraud
notice standard.
warnings”
“storm
could not have ex-
“misrepresented
Merck had
that Yioxx
prior
Study
isted
to the 2003
..., when in
Harvard
was ...
safe and effective
public
total mix
because the
information
drug
prob-
fact
causes
medical
serious
did
a negative
price
not have
effect on the
as an
risk of cardio-
lems such
increased
analysts
Merck stock or
drop
cause
to
strokes,
events, including
vascular
heart
ratings
their
for Merck or
pro-
lower their
(Octo-
death”); App. at 1611
attacks and
jections
true,
It
sales.
as the
product liability
alleg-
action
ber
out,
majority points
past inquiry
that our
to
ing that
failed
“[ ]diselose[ ]”
notice decisions have taken into consider-
attacks”).
causes heart
While
“Vioxx
ation the market’s
response
disclosures
allege
these
suits did not
law
securities
warnings.”
to constitute “storm
fraud,
general allegations
contained
However,
requires
I do not
believe
law
complaints
relating
within
these
that, in
order make a determination that
misrepresentation
intentional
exist,
“storm warnings” in fact
the total
safety similarly
regard
Vioxx’s
public
mix of
information
(purported
complaint.
the basis of appellants’
formed
warnings”)
constitute “storm
must have
Moreover,
article,
The Neto York Times
negative
prices
effect on stock
or cause
quoted
dated October
defendant
analysts
drop
ratings
their
or lower
explicitly stating
Scolnick
that “[n]a-
Benak,
projections.
See
435 F.3d at
rate,
proxen
attack
lowers
heart
(“information
only
suggest] pos-
[need
*26
(emphasis
it”
raises
wrongdoing
sible
...
to
‘storm
excite
added). Based on
the rec-
my review of
NAHC,
warnings’”)
(quoting In re
ord,
express acknowledgment by
added).
(emphasis
F.3d at
As we
representative
possibility
of the
recognized in In re NAHC:
actually
that Vioxx
the
of heart
raises
risk
[S]torm
take numerous
only
attack
to
appears
be not
the first time
forms, and we
attempt
pro-
will not
such statement
been
had
made
They may
vide an exhaustive list.
in-
company, but
stark
also in
contrast
clude, however,
substantial
conflicts
Therefore,
prior representations.
Merck’s
representations
between oral
I perceive
significant
because of what
to be
brokers and the
of the prospec-
text
analyst
media and financial
attention di-
tus,
the accumulation of informa-
explicit
rected at the
and serious
nature
a period
tion over
time
con-
that
letter,
warning
allegations
FDA’s
flicts
representations
that were
multiple
followed,
lawsuits
origi-
made
when
securities were
change
and
tone in
the October
nally
any financial,
purchased, or
le-
9, 2001, article, I
see
cannot
how a reason-
gal or other data that would alert a
able investor could not be aware of the
person
probability
reasonable
to the
possibility
Merck had been fraudu-
misleading
signifi-
statements or
lently misrepresenting the cardiovascular
cant omissions had been made.
safety of Vioxx.
Mathews,
1326 n.
(quoting
306 F.3d at
objective
(internal
Because
evidence indicated
warning letter Plus, Protection C.A.R.S walking down street Emperor was not Inc.; Fred Kohl merely It means with no clothes on. emperor’s new analysts saw the Inc., Plus, C.A.R.S Protection as described them —not clothes Merck Appellant at No. 06-4508. reality presented.21 06-3625, Nos. 06-4508. I there foregoing, on the submit Based warnings” more “storm were sufficient of Appeals, States Court United filing years prior appel- two than Third Circuit. minimum, I At a lants’ believe complaint. September the FDA’s 9, 2008. Sept. than sufficient letter constituted 01-ev-02352, District Civil No. in- warnings” put appellants “storm WD/PA Cohill, B. The Honorable Maurice claims, Judge: particularly their notice of quiry Jr. fail to demonstrate either appellants since they diligent investigation conducted Davis, Pittsburgh, PA, Gary M. for Jane accrual of years two such
within Doe. were warnings” “storm unable during pertinent to uncover information Plus, Inc., Murrys- C.A.R.S. Protection Accordingly, period. time because PA, ville, se. pro years bring appellants waited over two NYGAARD,
suit, I claims filed conclude were RENDELL and Before: McCLURE,1 dismissed properly Judges, out of time and Circuit District by the District Judge. Court.
ORDER RENDELL, MARJORIE O. Circuit Judge. recently panel entered three orders appeal: the order connection with DOE, Appellant at No.
Jane 06-3625 grant judgment, vacating summary Court; remanding case to District
v. granting proceed an order a motion “to pseudonym”; under seal and in and an PLUS, C.A.R.S PROTECTION denying sought by sev- INC.; order intervention Kohl. Fred gust Regardless, price did 2001 when the VIGOR cardiovascular Merck's stock decline up sharply leading in the months October presented fully in the [JAMA data was 2001, 9, public controversy about Vioxx added). (emphasis at 1225 article].” 9, raged. January to October From price $24.32 stock declined Merck's McClure, Jr., 1. Honorable James F. District appellants at 1770-73. As or 27.4% Judge Court United States District price alleged, themselves “Merck's stock be- Pennsylvania, sitting by Middle District gan approximately January slide designation. Au- and continued and worsened after