GIC Sues Merck Over Fraudulent Share Prices

One of Singapore’s sovereign wealth fund has claimed the drugs company made misleading statements on two anti-cholesterol drugs, artificially inflating the share price.

(January 30, 2014) — GIC has filed a fraud claim against one of the world’s largest drug companies, claiming it misled the market on two statin drugs, pushing the price of the stocks up as a result.

In particular, GIC has accused Merck and subsidiary Merck-Schering-Plough, the makers of cholesterol-lowering drugs Zetia and Vytorin, of failing to tell the market about the “unqualified disaster” results of clinical trials, which found both drugs had no additional benefit to slowing the progression of arteries being clogged up by high cholesterol levels.

The case relates to a 15-month investment period between December 6, 2006 and March 28, 2008, during which GIC bought millions of shares in Merck, according to court documents filed at New Jersey’s district court.

The clinical trials for the drugs were completed in 2005 and early 2006, before GIC’s investment period, but the manufacturers deliberately delayed the results from hitting the market, according to GIC.

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By 2007, the plaintiffs alleged, certain medical internet forum members were suggesting that the drug companies knew the results “were a bust”, but the general public could not know about this until 2008, when specific studies mentioned in the posts were substantiated by Merck and Schering-Plough.

The plaintiffs then alleged that the drug companies deliberately attempted to change the primary goal of the drugs at the clinical trial, skewing the results to focus on the site of the arterial wall most favoured by Vytorin. The companies were later forced to abandon this idea when the medical regulator FDA and Congress came down hard on them.

After Congress became involved, and news of a congressional investigation into the defendants’ withholding of data surrounding the drugs hit the media, Merck’s share price began to drop from $60.55 on January 11, 2008 to $47.79 on January 25, wiping out $25 billion of Merck’s capitalisation.

When Merck revealed the full results of the clinical trial on March 20, 2008, the share price fell further still, closing at $37.95 on March 31, 2008. This marked a 38% drop in share price from the January highs of more than $60 a share.

GIC argued the delay in the release of these results allowed Merck to reap “hundreds of millions of dollars” in sales of Vytorin which would not have been made had the public known the details earlier.

A similar situation occurred with the other drug Zetia, where trials proved that when it was combined with Zocor (another drug), there was no additional benefits in terms of removing more arterial plaque.

Two individuals are also being sued, Richard Clark, the chairman of the board at Merck from April 2007 to December 2011, and Deepak Khanna, senior vice-president of the Merck-Schering-Plough joint venture. Merck acquired Shering-Plough in 2009. Today it is known as Merck and Co.

GIC alleged these two people wielded power within the organisations, had access to information before the public, and profited from being able to sell their shares at a higher price before the news of the trials became public.

“Merck insiders”, as the legal filing termed them, collectively made $26 million by selling their shares before the results of the trial were publically released, and Clark himself sold $2 million worth of shares in May 2007, having had no previous history of selling shares in the company.

Kirby McInerney, the legal counsel for GIC, has demanded a jury trial for undisclosed damages caused to the sovereign wealth fund.

Merck could not be reached for comment at the time of going to press.

(January 30, 2014) — The Church of England has appointed MSCI as its new ethical screening partner, following a competitive tender process.

The Church Commissioners fund—which is a hybrid pension/endowment—hit the headlines last year after it was discovered that a private venture capital fund it held invested in controversial payday lender Wonga.

The Church fund has not directly invested in door step lenders, payday lenders, and pawn brokers for some time, but due to the opaque nature of private venture capital arrangements, there was no way for it to know about the Wonga holdings.

Contrary to some media reports, today’s appointment of MSCI as an ethical screening partner is in no way related to the Wonga story of last July, the Church’s CIO Tom Joy told aiCIO.

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The fund’s ethical investment advisory secretary Edward Mason expanded further, saying the bespoke screening in support of the church’s policies on high interest rate lending offered by MSCI was also offered by the previous ethical screen partner EIRIS.

Instead, it was MSCI’s breadth of coverage across the investable market that won them the tender, Mason said.

“We had a competitive tender and there were some very good bids that came in. We felt MSCI best met our needs, as set out in that tender process…because of their wider coverage,” he added.

The Church fund has subscribed to MSCI ESG (environment, social governance) Research’s full suite of products to ensure that global companies in which they invest meet their ethical investment standards. Key aspects of this work will cover an investment universe of more than 9,000 companies and include:

1) Screening for companies involved in faith-based exclusion criteria such as tobacco, adult entertainment, gambling, defence, and weapons

2) Bespoke screening in support of policies on high interest rate lending and, for CCLA’s Charity Ethical Fund clients, energy coal extraction

3) Identification of companies involved in major controversies or that have breached UN Global Compact standards.

The church’s national investing bodies have also subscribed to MSCI ESG IVA ratings to support the integration of material ESG factors into their engagement and portfolio analysis processes, and to examine the potential for further ESG integration.