Merck & Co has agreed to pay $688 million to settle two U.S. class-action lawsuits by shareholders who said they lost money because the company concealed the poor results of a clinical trial of the anti-cholesterol drug Vytorin.

The federal lawsuits, led by several pension funds, alleged that Merck and Schering-Plough knew more than a year in advance that the trial, known as Enhance, was a failure, but withheld that information from investors.

Shares of Merck fell nearly 15% and Schering fell nearly 21% on March 31, 2008, the first trading day after full trial results were released at the American Conference of Cardiology in Chicago. The companies merged in November 2009.

Law firms representing some of the plaintiffs said the combined settlements are among the 10 largest in a securities class-action that did not involve a restatement of financial results.

Christopher McDonald, a partner at Labaton Sucharow representing Schering investors, in a telephone interview said the settlements allow a "significant recovery" for shareholders.

He said that while the federal government has been successful in pursuing large fraud cases against some pharmaceutical companies, "it hasn't translated into any significant uptick in settlements of securities cases."

Merck, based in Whitehouse Station, New Jersey, said it has recorded a $493 million after-tax charge for the settlements, reducing the company's previously reported profit per share for the 2012 fourth quarter to 30 cents from 46 cents.

Bruce Kuhlik, Merck's general counsel, in a statement said the settlements avoid the uncertainties of a jury trial, which had been scheduled to begin March 4.

Merck also said it believes both companies acted responsibly in connection with the Enhance trial, and that the settlements include no admission of liability or wrongdoing.

"There's probably some merit (to the claims) or they wouldn't have settled for such a large amount," Judson Clark, a health care analyst with Edward Jones, said in a telephone interview. He has a "buy" rating on Merck.

Little impact found

The Enhance trial had sought to demonstrate that Vytorin, a combination drug marketed by Merck and Schering, was more effective than a competing drug in combating atherosclerosis, the buildup of plaque in artery walls.

But the companies announced in January 2008 that Vytorin did not stop plaque any better than an inexpensive statin, Zocor, in high-risk patients with an inherited form of heart disease, though it did significantly reduce cholesterol levels.

Two months later, in announcing full results of the Enhance trial at the Chicago conference, a panel of doctors urged patients to try older cholesterol drugs before Vytorin and Zetia, which Merck and Schering also sold jointly.

Vytorin pairs Zetia with the active ingredient of Zocor. Zetia helps block absorption of "bad" LDL cholesterol in the intestines, and Zocor helps block production by the liver of LDL cholesterol.

Zetia sales totaled $2.57 billion and Vytorin sales totaled $1.75 billion in 2012. Combined sales have fallen 17% since 2007, before the Enhance trial results were released. Merck posted total sales of $47.27 billion for 2012.

Court approval needed

Merck said it will pay $215 million to settle a lawsuit brought by investors in its securities, and $473 million to settle a lawsuit by Schering investors.

The class period runs from Dec. 6, 2006, through March 28, 2008, for Merck investors, and from Jan. 3, 2007, to March 28, 2008, for Schering investors, court papers show.

Both settlements require approval by U.S. District Judge Dennis Cavanaugh in Newark, New Jersey. He certified both classes of investors in September.

Settlement papers were not immediately available, and it was unclear how much was being set aside to cover legal fees.

Lead plaintiffs in the Merck case include the Netherlands' Stichting Pensioenfonds ABP, Luxembourg's International Fund Management SA, the Jacksonville Police and Fire Retirement System in Florida, and the General Retirement System of the City of Detroit.

Lead plaintiffs in the Schering case included the Arkansas Teacher Retirement System, the Louisiana Municipal Police Employees' Retirement System, Massachusetts Pension Reserves Investment Management Board, and the Public Employees' Retirement System of Mississippi, court papers show.

The law firms Bernstein Litowitz Berger & Grossmann and Grant & Eisenhofer represent the Merck class. Bernstein Litowitz and Labaton Sucharow represent the Schering class.

The cases are In re: Schering-Plough Corp/Enhance Securities Litigation, U.S. District Court, District of New Jersey, No. 08-00397; and In re: Merck & Co Vytorin/Zetia Securities Litigation in the same court, No. 08-02177.