Monday, June 30, 2008

It is usually unwise to complain about the FDA, for the record, in your company's name, in the Wall Street Journal

. . . . but, in the case of Schering-Plough, and CEO Fred Hassan -- that rule doesn't really apply, inasmuch as Schering has so very little good-will left to lose with the FDA. Mr. Hassan certainly has seen his credibility tarnished -- with the FDA, various states attorneys' general (NY, CT and OR, at least), the DoJ, the SEC, and at least two investigatory arms of Committees of Congress, as well.

So Hassan fires the long guns, this morning, at FDA ($, subs. req'd.). . . . and misses the target altogether:

. . . .Over the past 16 months, Schering-Plough Corp. Chief Executive Fred Hassan and his top scientists have pulled the plug on two drug-development projects -- one for obesity and the other for cholesterol -- that had the potential to produce big sellers. And they're considering scrapping a third [VLA 4]. . . .

. . . ."What will it take to get a new drug approved?" asks Mr. Hassan. "The point is, we don't know. . . ."

Well, that doesn't exactly inspire confidence, does it?

Moreover, to suggest pulling the plug on already-filed NDAs or ANDAs -- due primarily to excessive levels of regulation -- is puzzling. Isn't this supposed to be a core competency -- navigating FDA back-waters -- of any credible pharmaceutical company? I think so. Apparently, Mr. Hassan doesn't. Odd.

His remarks ought to make the shareholders very happy (not). I am sure they are glad they spent all that money -- just for Mr. Hassan to say, effectively, "UM. . . never mind". doubly odd. Such a maneuver would decrease Schering's pipeline when it desperately needs new products -- and when we've all been told that it has one of the best pipelines in all of pharma. Could that have been a less-than-complete truth? What piece of news -- very likely negative -- about Schering -- is this interview, preemptively granted by Mr. Hassan, designed to draw the bee's sting away from?

Should Hassan decide to pull VLA 4 (a candidate-drug to treat multiple sclerosis, and to be taken orally -- an injected version, developed by another company, now under review at FDA, has been linked to brain infections), it will save some (mostly nominal) expense-burn-rate, though -- to be fair.

Sugammadex's delay is also highlighted -- presumably as a result of remarks made by Hassan, or other Schering spokespeople -- in the Wall Street Journal article -- so it could be year-end 2008, or later, before that drug is approved in the US. [Earlier, stock analysts' models expected revenue from that drug in the third quarter of 2008. That seems impossible, now.]

Blaming the federal government because the CEO chooses to pursue what have turned out to be unsuitable drug candidates (for FDA approval) is transparently unbecoming -- it is simply an attempted blame-shift.

Et tu, Fred?

I guess his strategem is "what do we have (left) to lose?" Not really a reason to inspire new investment positions in Schering-Plough, eh? The traders, over on the NYSE, this morning, agree with me, I gather -- Schering stock is once-again now falling.


Anonymous said...

Fred doesn't know what it takes to get a drug approved?

The law is clear. It has to be Safe and Effective.

Now this is relative as all prescription drugs are inherently unsafe, that's why you need a prescription.

Now contrary to what some ex-Wyeth CEO Fred Esser has implied that a drug has to be as good as current treatments that is not so. It's what is the overall risk benefit of a drug when viewed in totality. In fact that's what Pharma itself very effectively argued to get accelerated approvals and phase IV commitments through Congress.

Fred seems to be implying that when it works the otherway he doesn't like it.

With regards to the Organon due diligence I took a look at Scherings Board. Why do they only have two genecists on the board and no one with any drug development experience. You don't see that with Glaxo's board.

Even so didn't any of these exceptionally successful business people ask why is AzkoNobel selling off Organon after they were going to take it public and keep the 70% for themselves, plus this is right after Pfizer backed out of their joint venture.

Maybe Fred thought he had a guaranteed fix in at the FDA?


Condor said...

Or, Salmon, CEO Hassan already knew -- as Melissa Davis, of The Street, has openly argued in her column -- that ENHANCE was going to be a bust, and Schering. simply. had. to. have. a. new. deal.

So it was Organon -- even though most would have (did!) take a pass on it, after seeing the diligence files. . . . Schering and Hassan pressed on -- paying top-dollar for it (circa $15 billion!).

He knew he'd need a new "shiny object" to point to, when the truth of ENHANCE came out.

Or so Melissa Davis has argued.

As ever, thanks for your cogent commentary!

Do stop back!

Anonymous said...

Do examine the dividend per share that has been announced for owners of Schering common stock - $.06 and contrast it with the preferred dividend of - +-$3.75.

Am I wrong or should I run right out and buy some Schering common so I can get my $.06, while the few can get their $3.75? The preferred likely meets legal requirements for advertising but who really knows about it except the top execs? My understanding is that the price is expensive but contains a guaranteed rate of return. Is this all on the up and up?Many at the top own this preferred and are cleaning up at the rests' expense. NO?

Anonymous said...


Of course you are right that Fred had to have something.

What I wonder is considering the information that is out there why couldn't Fred cut a better deal.

Organon has been beating the same group of molecules to death since the mid-1960's at least. That's right 60's and maybe even longer, clozapine (asen-apine, olanz-apine) was discovered in 1957.

It looks to me like AzkoNobel was trying to salvage something off a big long term investment that apparently wasn't paying off very well.

So why did Fred pay top dollar? Pfizer's interest I understand, (more to come later if Congress ever looks into this).


Condor said...

I wanted to get back to the question on Schering's preferred -- and tomorrow, or the next day, I'll likely put up a whole separate post on it, as this is a fairly wide-spread source of befuddlement:

Anon. asked "My understanding is that the price is expensive but contains a guaranteed rate of return. Is this all on the up and up?Many at the top own this preferred and are cleaning up at the rests' expense. NO?"

In a word -- No.

I'd not buy the preferred. It is a suckers' bet. And here's why:

The preferred -- trading now at around $190 a share -- will automatically covert into a variable number [bracketed by buckets] of shares of Schering common stock in August 2010 (at an implied price of no less than $27.50 per common Schering share). That single fact is why the preferred trades a fair amount like Schering equity (common), and not so much like debt.

Now, if Schering's common is below $27.50, in August 2010, then Schering's issuance of the shares will be dilutive -- Schering will have to pay out $27.50 worth of value when the market is pricing the stock below that. That's a bad thing, for Schering, and a good thing for the preferred holder.

Between the Schering common prices of $27.50 and $33.69, in August 2010, it will be a straight exchange/convert. (That's a generally-neutral thing.)

If Schering common shares are above $33.69 in August 2010, the issuance will be non-dilutive to common-holders. And that would be a good thing, to Schering, all other things being equal, and a bad thing (absent some special tax situation, unique to a given holder) to the preferred holder.

By my most-recent calculations, the preferred needs to be trading below $147 right now, with Schering common where it is (around $19.40) -- to make the preferred a "good deal".

I'll explain more fully in a future post.