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ENHANCE Federal Securities Class Action Litigation Nears Trial On Merits

It has been quite a while since we last updated the readership on the status of various pieces of material litigation at New Merck. We do so now. New Merck is the successor to legacy Schering-Plough here (and legacy Merck has been similarly sued, as well).

The claim in these federal class actions is that investors in Merck and Schering-Plough were damaged by the alleged late-2006 to March 2008 delay in disclosing the ENHANCE study null-result. That is a gross oversimplification of these cases, but it captures the essence of it.

Various of the securities defendants have asked that the trial — now docketed for March 14, 2013 — be bifurcated into two phases, the first of which would address class-wide issues of liability, and the second, individualized issues of
reliance and damages. The very able Judge Cavaqnaugh will decide that motion on February 19, 2013. [I think he is likely to grant it.]

Also pending is a motion to allow all the class members (perhaps well-into the low hundreds of thousands of individual securities holders/beneficial owners) to receive a class notice explaining their rights, as to whether they agree to be bound by the outcome of the March 14, 2013 trial on the merits — or whether they’d rather bring their own individual lawsuit.

It is my experienced opinion that time is now running short — to get such a large class notified in a meaningful way — given that many many of the holders will need to receive the notice by retransmission, from their broker or advisor. These are important decisions — so hopefully Judge Cavanaugh will allow the notice to be sent shortly. Here is a bit of that back and forth (from before Christmas 2012):

. . . .On October 31, 2012 – nearly two [now three] months ago – [plaintiffs] sent copies of the proposed notices and orders to Defendants [including legacy Schering-Plough Executive Officers Hassan, Bertolini and Cox, as well as New Merck, as successor to legacy Schering-Plough] requesting that they provide us with any comments to the language in the proposed notices and orders. . . .

On November 2, 2012, Defendants stated that, although they viewed the notices as premature, they would get back to us with any such comments. . . . Having not received a response from Defendants regarding their position on the language in the notices and orders, on November 14, 2012 and December 13, 2012, we again requested that Defendants provide us with any comments to the language in the notices and orders.

Plaintiffs first received comments from Defendants yesterday [December 18, 2012] and have incorporated most of Defendants’ changes to avoid any further delay. However, Plaintiffs cannot agree to Defendants’ request that Merck (as opposed to the notice administrator) issue the notices to the classes in these actions. . . .

Another month has passed — and still the class notices have not gone out. As I say — I am hopeful that Judge Cavanaugh will order them sent shortly. I have no role in this litigation, and I hold no investment affected by it — I just want to see the right thing done, here. Whether the securities law claims prevail, or they don’t — class members need adequate time to decide whether to “ride along, with the posse” or “go it alone.” In the vast bulk of the cases, then, these notices will need to be remailed once, and in some cases, twice, to reach the beneficial owner. Time is running out.

Here endeth the sermon — but people must know they have rights, before they may meaningfully exercise them. Thus, the notices should already be on their way to them.

Another Fred Hassan “Masterpiece” Drug Deal? This Time, In Favor Of Anacor Pharma

As this morning’s InVivo blog notes (H/T!), smallish Anacor Pharmaceuticals has restarted its efforts to go public, as of September 10, 2010 (see the refiled Anacor SEC Form S-1 registration statement here). And, to be crystal-clear, here — as a preliminary matter — I think Anacor is a fine company. [They likely saw a by-then desperate Fred Hassan a-comin’ though, toward the end of 2008, and extracted a great deal from him, for their company. As is their right.]

Anacor’s earlier attempt to go public was moth-balled by the Fall 2008 financial freeze-up, but in that earlier filing, Schering-Plough was scheduled to buy shares of Anacor (from Anacor stockholders) for $10 million (see the prospectus cover page of this the original 2008 Form S-1 registration statement): It recites that “. . .Schering-Plough. . . agreed to purchase in private placements $10 million in common stock at the initial public offering price. A portion of the stock being sold to Schering will be purchased from certain of our stockholders. . . .” [By the way, it is generally speaking no mean feat — to navigate the SEC regulations to be able to purchase, in a private offering, the same class of securities that are being concurrently sold, to the public, in a registered offering — as was contemplated by the 2008 Anacor S-1 filing’s cover page. It can be done, but it is a very complicated, nuanced and convoluted process, to prove one has secured a regulatory exemption for such a transaction. But I digress.]

Back to the main story, here — in Anacor’s new SEC filing made September 10, 2010, on page 50, we read this:

. . . .In February 2007, [Anancor] entered into an exclusive license, development and commercialization agreement with Schering Corporation, or Schering, for the development and worldwide commercialization of AN2690. Pursuant to the agreement, Schering paid [Anancor] a $40.0 million non-refundable, non-creditable upfront fee and assumed sole responsibility for development and commercialization of AN2690. In addition, in accordance with the agreement, Schering invested $10.0 million in a preferred stock financing completed in December 2008. The agreement also obligated Schering to pay all of the remaining costs for development and commercialization of AN2690, including paying us for our development-related activities to transition AN2690 to Schering. In November 2009, Schering merged with Merck & Co., Inc., or Merck, and in May 2010, [Anancor] entered into a mutual termination and release agreement with Merck. Under this agreement [Anancor] regained the exclusive worldwide rights to AN2690, Merck paid us [ANOTHER] $5.8 million and we released each other from any and all claims, liabilities or other types of obligations under the 2007 agreement. Merck did not retain any rights to this compound. . . .

In this new filing Schering-Plough/Merck is not listed as a selling stockholder, presumably because it has already agreed to some form of cancellation, or buy-back, of the shares, as a part of the most recent $5.8 million payment to Anacor. So (in part), Merck had to pay Anancor to take the Hassan-purchased shares off of its hands, and release it from a very pricey commitment to develop and commercialize the Anacor AN2690 product. Brilliant, Fred. Simply brilliant.

It would all be rather droll, if Hassan hadn’t carted off perhaps $225 million for his almost completely-failed stewardship — conducting this sort of nonsense, day after day, for six years — and put over 30,000 good people out of work, in the process. Oh, and he also — almost single-handedly — ended the life of one of the oldest independent pharma players in America. Ni-i-i-i-i-ice.