WASHINGTON (Reuters)—The U.S. Supreme Court ruled Tuesday that a securities fraud lawsuit can proceed against Merck & Co. Inc. over the pharmaceutical company's disclosures to investors about its withdrawn Vioxx pain drug.

The justices unanimously upheld a ruling by a U.S. appeals court that allowed the lawsuit seeking billions of dollars in damages to go forward. The appeals court held the claims were not time-barred under the statute of limitations.

The securities fraud lawsuit was unrelated to the $4.85 billion settlement in 2007 between Merck and plaintiffs who filed personal injury lawsuits against the company over Vioxx.

Merck withdrew Vioxx in 2004 after a clinical trial showed an increased risk of heart attacks and strokes. Merck shares plunged 27% on the day of the withdrawal and fell further in the following months.

A federal judge initially dismissed the lawsuit and ruled the investors had waited too long, more than two years, to file the lawsuit after the first warnings that Vioxx might be unsafe.

But the appeals court in Philadelphia disagreed and ruled the two-year limitations period does not begin to run until the plaintiffs have actual knowledge the defendant intended to mislead investors.

Writing the Supreme Court's main opinion, Justice Stephen Breyer agreed with the appeal court's determination and said, "The complaint filed here was timely."

Merck has said the investors should have known from public information there could be problems with Vioxx because the U.S. Food and Drug Administration issued in September 2001 warnings to the company about the drug's risks.

Merck said the intense public discussion of data surrounding Vioxx had put investors on notice of the relevant issues long before Merck announced new scientific information that led to the withdrawal.

But Justice Breyer rejected the company's arguments.

"Merck is disappointed in today's decision, but believes that the allegations in the complaint are unfounded and will continue to defend itself vigorously," said Bruce Kuhlik, Merck executive vp and general counsel.

Mr. Kuhlik said the company has already made a motion to dismiss the complaint on numerous other grounds, and will renew that motion in district court in New Jersey.

The ruling was a victory for the investors who brought the lawsuit and for the Obama administration, which had argued that the lawsuit should be allowed to go forward.

The Supreme Court case is Merck & Co. vs. Reynolds, No. 08-905.