Wednesday, May 14, 2008

More from Cain v. Hassan, et al. -- On the Relevance of Dr. Bots' Views of ENHANCE Data

I will probably post a few more items from this very-comprehensive shareholders' derivative suit, [my previous summaries of it are here and here] in the coming days, but let me highlight here what the complaint had to say about the relevance of Dr. Bots' views of the ENHANCE data:

. . . .95. In January 2007, to further stall the dissemination of the ENHANCE results, or at least try to discredit it, the Company hired an independent contractor, Michiel L. Bots, Ph.D. of the University of Utrecht, to review the ENHANCE study data. After reviewing the data, the independent contractor, Bots, issued a report on his findings on January 26, 2007. In his report, Bots stated, “the evidence shown to me is sufficient to indicate that the CIMT data in the ENHANCE are fine: i.e., no better, no worse than what has been reported in the literature.” [Emphasis added] Bots also stated that Schering wanted to reduce the measurement variability in the data. However, after suggesting techniques that, as he said, “might reduce measurement variability to some extent,” Bots expected the “effects on variability are however likely to be modest.” [Emphasis added] Despite Bots’ findings that the ENHANCE data was “fine,” that any attempts to reduce variability “might reduce” measurement variability and that any reduction in variability would be “modest,” Director Defendants nevertheless chose to continue to suppress the results of the ENHANCE study. . . .

. . . .105. On August 20, 2007, in yet a further effort to delay publication of the ENHANCE study or to discredit it, the Company decided to convene an Independent Expert Panel on November 16, 2007, to discuss the design and management of the protocol, data management, image recording procedures and data acquisition of the ENHANCE trial and to seek the best path forward with respect to the study-related issues despite the conclusion of Bots that “the CIMT data in the ENHANCE are fine” and despite Dr. Kastelein’s highly regarded abilities and experience in conducting clinical trials, and despite Dr. Kastelein’s well-founded concern that the Company’s refusal to disclose the results would be viewed as a cover-up. . . .

This is a critical new theory of the case being advanced here -- that Dr. Bots was actually retained to either massage the data, or declare it unworkable -- and he, exhibiting great integrity, in a moment of high-pressure -- essentially chose to do neither. There are several additional examples of this sort of behavior listed in the suit, and I will get to them, one by one, over the next few days.

[The power is out in my locale -- has been for much of the day -- and now this laptop's batteries are dying, so I may not continue this until tomorrow. Keep on keepin' on!]

Back on the grid, now.

I'll close-out for tonight, with a fun piece of trivia: Last week, I wrote this:
. . . .If, for very rough-estimation purposes, we were to similarly value [CEO Hassan's] most-recent May 2008 option grant of 836,000 shares, in the way the 2007 proxy has valued some of his earlier, as yet unvested, stock option grants, we would learn that this latest grant has an unvested fair value (at date of grant) of a total of something like $9,129,621. Of that amount, $1,391,510 is the value that is subject to 2008 performance goals -- it may be lost, if he doesn't perform. The balance, or about $7,768,112, is not subject to any performance based measures, at all -- all he has to do is keep his seat for three years [he actually gets one third of the total, on each of the anniversary dates, May 1 of each of the next three years -- so it is actually even sooner, for a good chunk of these amounts]. . . .

Now -- those are figures I alone had derived (I know, because I looked -- and really looked(!) around -- before I created them), on the web -- in that particular way.

And so, it is with a tremendous sense of pride -- that I now show you Paragraph 128 of the Cain v. Hassan, et al. Complaint -- which Paragraph calculates a value for Mr. Hassan's 836,000 shares under a stock option-grant dated May 1, 2008, thus:
. . . .128. On May 1, 2008, despite the aftermath of the gross mismanagement of the disclosure of ENHANCE study results, the Compensation Committee reviewed defendant Hassan’s performance in “light of corporate goals and objectives” and decided upon affirmance of the Board to give the CEO a discretionary 836,000 share [stock-option] grant at an exercise price of just $18.85, under Schering’s 2006 Stock Incentive Plan. The 836,000 shares [of stock option] grant is valued at approximately $9,130,000 of which about $7,700,800 is not subject to the CEO satisfying any performance criteria. By awarding the CEO this additional compensation in light of his performance in 2007, overseeing the Company’s unethical and unlawful activities, resulting in the tremendous diminution of stock price and value of the Company, the Director Defendants ratified the CEO’s unlawful and unethical conduct. . . .

Well, but for the rounding, those are my figures. Actually, those are my figures, rounded.

And they are correct -- correct enough to give a Black-Scholes sense of the value at grant-date. Now, remember, CEO Hassan received that $9 million grant seven days after he flip-flopped, on the First Quarter Earnings Conference Call. Wow.

No comments: