Remember the January 23, 2008 FDA-Mandates (Ordering REVISIONS to the Zetia/Vytorin Advertising Materials)?

Or. . . . Your 90 days are. . . . over!

Well, in the last few days, the Schering/Merck website has begun to implement the FDA January 23, 2008 mandates (click on the small FDA letter image, below right, to read those mandates) -- The quote below is from the last line, on the first page, of the NEWLY-REVISED Vytorin web-advertising; the second paragraph (in blue, below) is from the Zetia page, on that same site [Emphasis below, is as it appears in the original]:

". . . .VYTORIN contains two cholesterol medicines, Zetia (ezetimibe) and Zocor (simvastatin), in a single tablet. VYTORIN has not been shown to reduce heart attacks or strokes more than Zocor alone. . . .

[Ed. Note -- And, from the new Zetia page:]

The most common cholesterol-lowering medicines, known as statins, work mainly with the liver. ZETIA works in the digestive tract, as do some other cholesterol-lowering medicines. Statins are a good option. As you can see in the animation above, ZETIA works differently. Now there are some other medicines, such as fibrates, bile acid sequestrants, and niacin, that work in the digestive tract to help lower cholesterol, but ZETIA is unique in the way it helps block the absorption of cholesterol that comes from food. Unlike some statins, ZETIA has not been shown to prevent heart disease or heart attacks. . . ."

Wow. I'm going to pay up to four-times more, at least here, in the U.S. (where about 80 percent of the sales of Vytorin/Zetia were generated, last year), for Vytorin/Zetia, but Schering's website tells me that, unlike statins, it "has NOT been shown to prevent heart disease." Note particularly this sentence, as well:

"Statins are a good option." Wow.

Then, on the Vytorin page aimed at "people already taking Zocor", we read this, right near the top of the very first page:

"VYTORIN contains two cholesterol medicines, Zetia (ezetimibe) and Zocor (simvastatin), in a single tablet. VYTORIN has not been shown to reduce heart attacks or strokes more than Zocor alone. . . ."

[The same language (immediately above, with the same emphasis) appears on the page aimed at people taking Lipitor or Crestor -- and it even still refers to "Zocor" -- hmmm -- that seems like a typo, no?]

These revisions are almost word-for-word, what FDA earlier wrote it would expect Schering/Merck to say, in order to avoid "misleading" the public, post ENHANCE. And now -- the object-lesson, here? When the regulator holds your license-to-sell in its hands -- it has quite a bit of negotiating ju-ju, no?

I am, quite frankly, uncertain as to how a salesperson for the Joint Venture product(s) would go about handling any doctor who, during a sales-call, took even one moment to point these web-pages out, to that sales representative [shivers!]. Said another way, it would seem a very tall-order to "talk around" these recitations, in one's own marketing materials -- especially that the competitors' products (at a fraction of the price!) are a "good option."

And, of course, it remains a largely-open question as to whether, and for what purposes, these now very-public changes and revisions will be admissable as evidence in the various RICO/consumer fraud lawsuits now pending against Schering, and Merck, and the joint venture each helps operate.

NOT Claritin -- on Clarinex® Redi-Tabs Potential $800 Million Patent Vulnerability. . . .

[UPDATED: 04.2930.08 @ 4 PM: FiercePharma is now also following this story, of mine. Very cool; with one bit of white-out to FiercePharma's, here: the generic-makers could -- emphasis could -- be in the market in the second-half of this year, 2008, not next year, 2009, IF Latham & Watkins' position wins the day, for Orchid Pharma -- see below. . . .

4.29.08: That gracious fellow, Sir Pharmalot, has once again hat-tipped this blog, for the below story. . . . Cool!]

As we all likely know by now, that Claritin combo-pill won't ever see the after-glow of commercial sales in the US, on drugstore shelves, at least. And the reason the markets shrugged today, in response, is because it is likely that the loss of that potential incremental future revenue (from such an imaginary combo-drug) is probably just about offset by the avoidance of incremental running-costs of marketing that would-be combo pill, at Schering-Plough. . . .

I strongly suspect this will not be the case for Clarinex, an almost $800 million per year (in sales -- not profits) juggernaut for Schering, at least until now.

There is a deeper, apparently-entirely new story here -- one I entirely missed, at first. I literally blew past this court filing, last week, thinking there were already generic versions of desloratadine (sold by Schering, prescription only, as Clarinex^®) inside the US market.

What I missed was just how very near to the market, the amassed-hoard of generic descloratadine purveyors/competition may sit, tonight -- and how much there is to gain -- and lose -- in this battle, now. Last year, according to the Form 10-K, sales of Clarinex increased about 11 percent to $799 million in 2007, over 2006. For the first quarter of 2008, sales of Clarinex grew another 4 percent (in the allergy off-season), adding another $213 million to Schering's top-line. That is not insignificant, given the expected Vytorin/Zetia fall-offs, for all of 2008.

While the chemical compound commonly known as desloratadine (imaged, at right, which is sold by Schering as Clarinex^®) doesn't come off of a Schering patent until about 2020, an important new development has appeared, in court documents just filed April 16, 2008, in Schering's own suit to keep several would-be generic makers from selling desloratadine, as the chemical equivalent of Clarinex RediTabs.

In the In Re Descloratadine Patent Litigation (MDL No. 1851, Case No. 3:07-CV-3930 US Dist. Ct. NJ), Orchid Chemicals, an Indian company, and one of the would-be generic competitors, filed an Amended Answer to Schering's Original Complaint on April 16, 2008. Orchid's new answer sets out a very-interesting factual counterclaim to Schering's assertion that so-called FDA "Orange Book" status applies to Clarinex RediTabs. Now, generally speaking, if the branded manufacturer (here, Schering) files suit for patent-infringement within 45 days of learning of a generic's plans (here, Orchid, and others), on a patented-drug it has listed in FDA's so-called Orange Book, the court generally must automatically grant the branded drug (Clarinex) at least 30 months of continued exclusivity (or to at least March 2009, here), during the pendency of the dispute. That's the general rule (albeit an immensely over-simplified version of it). And, that, is just what Schering did. "So, what's the boggle, here, friend?" Well. . . .

What Orchid now says (actually, swears, by the way), is that the chemical compound out of which Clarinex RediTabs are made, was never covered by Schering's so-called '274 patent -- the one at issue here -- and the one Schering did file in FDA's Orange Book. The '274 patent, Orchid swears, covered compounds made of salts -- and the much-beloved, quick-dissolving Clarinex RediTab, is not made from any salt, at all, apparently (See above, right -- Yeah I took high school chemistry too. Pass-fail. J/K -- Heh!).

Quoting from the Orchid Answer, now:

. . . .18. Defendant Orchid filed an ANDA for desloratadine orally disintegrating tablets (No. 78-356), which referenced Plaintiff Schering’s CLARINEX^® RediTabs NDA, and included a paragraph IV certification for the ’274 patent listed in the Orange Book. Orchid provided notice to Schering of the certification, Schering sued within the required 45-days, and now FDA presumptively is prevented from approving Orchid’s ANDA for 30-months, or until about March 2009, absent prior action by this Court.

19. Schering improperly caused the FDA to list the ’274 patent with regard to NDA No. 021-312 because the ’274 patent does not cover Clarinex^® RediTabs. The ’274 patent discloses and claims desloratadine compositions containing a basic salt. However, as the FDA-approved label for Clarinex^® RediTabs confirms, Schering’s orally disintegrating formulation does not contain a basic salt. June 26, 2002 Final Draft Labeling at 1.

20. Orchid is in a position to enter the market for generic desloratadine orally disintegrating tablets but for the presumptive 30-month stay associated with Schering’s filing of the instant lawsuit relating to Orchid ANDA No. 78-356. Thus, as Schering is aware, Orchid has fully and finally resolved a separate lawsuit with another pharmaceutical company involving another patent listed in the Orange Book for NDA No. 21-312 and another listed patent has expired. Orchid expects to obtain tentative approval to market its generic desloratadine orally disintegrating tablets in the near future. In short, the 30-month stay is the only remaining barrier to the availability of generic desloratadine orally disintegrating tablets to the public.

21. Concerned that pharmaceutical companies might improperly list patents in the Orange Book to thwart potential generic entry, Congress has specifically authorized courts to issue an order that the NDA holder “correct or delete the patent information submitted by the holder . . . on the ground that the patent does not claim either — (aa) the drug for which the application was approved; or (bb) the approved method of using the drug.” 21 U.S.C. § 355(j)(5)(C)(ii).

22. Orchid is entitled to an order that Schering be ordered to delete the ’274 patent from the Orange Book with respect to NDA No. 21-312 on the grounds that the ’274 patent neither claims the drug for which NDA No. 21-312 was approved nor an approved method of using the drug. . . .

Thus, if there is no Orange Book-listed protection for the '274 patent to reach the RediTab formulation of Clarinex^®, then Orchid (and, presumably, all of its co-defendants) may begin marketing the generic "at risk", almost immediately. Orchid, for its part, indicated (see Answer excerpt, above) it is ready to begin, but for these court proceedings.

This court filing was made on April 16, 2008 -- a full seven days before the Schering-Plough Q1 Earnings Conference Call. Interesting.



We shall see whether this development appears in the Form 10-Q, due in very short order [but how much more quickly do you think Clarinex sales will slow, if, correlatively -- Claritin costs $25 a box, and the generics cost about $12.50 a box -- how much will a generic form of desloratadine sell for? Half-off? Wow.]

That 10 percent revenue growth, on over $800 million in Schering sales, from Clarinex, in 2008 looks to be in fairly serious peril, from where I sit. The central question, then, is whether Orchid (and the others) will be willing to go forward with "at risk" generic launches (and risk owing additional damages, if all the counter-claims are found without merit). If a good portion of $800 million is to be gained, though, I think it likely at least some of them will launch.

Now, it is possible that Orchid is mistaken, in these assertions in its filing, but Orchid is represented by Latham & Watkins LLP -- a very large, careful, well-respected firm (out of the Newark, New Jersey office of Latham, actually) -- and so, it is extremely unlikely that this is all some big mistake, on Orchid's part. No, it looks to me, to be yet a[nother] likely mis-cue, by Schering.

If Schering does not, in fact, have an FDA Orange Book-filed patent number that covers non-salt formulations of Clarinex, the generic tidal wave may be forming, and rising, even as I type this note. . . . and, if that's so, you ought to buckle-up for quite a ride in the back half of 2008.

Blogosphere-Weather-Adivsory -- A Forecast of Light-to-Intermittent Blogging, here. . . .

But fear not, gentle readers, I am working on a rather large narrative for you. . . .

Yep -- THIS IS IT.

It may take a day or two -- but I promise, it will not disappoint. [This is NOT it, BTW. Nor is this.]

Until then, though, you might consider reading the Schering-Plough company board over at cafepharma.com.

Back before too terribly long. Play nice -- and be safe, out there.

More evidence of a shift in the winds at FDA, here. . . .

[UPDATED 04.2830.08 AM -- Another very-well researched, and well-written piece (from that shiny-new pen of PM, at Gooznews) on the changing tides at FDA. . . .

4.28.08: As will, no doubt, be the case, repeatedly, in the future, Pharmalot is on this, now -- and he's done a bang-up job of making it easy to read, and yet coveying all the essence of it. . . Kudos!

And, from the very same friend of this blog as below -- this would seem to confirm all of the below.]

This just in, from a friend of this blog (Thanks!) -- and, as additional evidence of an emerging trend toward more rigorous review-before-approval at FDA -- I've been alerted to the fact that FDA told Isis and Genzyme that they will need to conduct a study with clinical endpoints before FDA will even consider approval¹. The drug is Mipomersen (formerly Isis 301012). This is plainly significant, because the companies clearly had been hoping to get approval based on LDL-lowering alone. I think this reflects new thinking at FDA on clinical v. surrogate endpoints -- and that, in turn, sounds a lot like FDA has learned some "hard lessons" from the ENHANCE study train-wreck.

From the Genzyme Form 8-K, of April 23, 2008:

. . . .Mipomersen for high-risk cardiovascular disease

Genzyme expects to finalize its license of mipomersen from Isis Pharmaceuticals in the second quarter and subsequently communicate a development plan for the product. Mipomersen is a lipid-lowering agent being developed primarily for patients at significant cardiovascular risk who are unable to achieve target cholesterol levels with statins alone or who are intolerant of statins. The product offers an innovative approach to addressing a serious unmet medical need, and Genzyme believes it could prove to be the most effective lipid-lowering agent for high risk cardiovascular disease patients for whom conventional therapies are not sufficient. The product may provide significant benefit over the standard of care and targets a well-defined and severely ill patient population. Mipomersen is currently being studied in a Phase 3 clinical trial involving patients with homozygous familial hypercholesterolemia. . . .

~~~~~~~~~~~~~~~~~~~~~~

[Footnote 1: This FDA directive does not affect the accelerated approval track of the drug, for homozygous familial hypercholesterolemia patients.]

Probably this wasn't ever going to "move the needle" very much at Schering, but. . . .

. . . .this is plainly a disappointment for the Fred Hassan/Schering-Plough strategy of taking older, mature-market drugs, and re-igniting them by combining them with another active agent. [Think of Vytorin's marrying of Zocor with Zetia, here.] While the company said it was "evaluating its response" to the non-approvable letter from FDA, it probably means a[nother] write-off of at least $50 million in development costs, ad pitch consulting and strategy materials, etc. associated with the combo's one-and-one-half-year journey from FDA submission (August 2007), to last night.

I wonder whether the letter is also a harbinger of things to come at FDA: is this the beginning of a new -- more skeptical -- FDA review and approval process, when the clinical benefits of these combos appear marginal (as compared to taking the two drugs as two separate footballs), but the protections against patent-expiry, or generic incursions, seem to be one of the company's main motivating factors for submitting an ANDA?

I think it likely. Of course, Pharmalot's Ed Silverman has an even wider, and more cogent, meta-narrative he points us to, this morning -- and I think he is largely right. Brilliant, that one (though, Ed, isn't photocopying US currency, at least theoretically. . . . still a Class B felony? Heh!).

I do think, insofar as meta-narratives go, this is additional proof¹ that the pendulum at FDA is swinging toward "slow to approve/quick to issue warning letters" -- [as to Schering, then, think about a slower path for its Sugammadex product, even though it holds an FDA "approvable" letter, at the moment -- it is not yet "FDA approved"] and thus, relatively-speaking, away from where it had been for a good portion of the two Bush/Cheney administrations.

~~~~~~~~~~~~~~~~~~~~~~~~~

[Footnote 1: I'll note in passing that FDA drug unit chief Woodcock, and Baxter CEO Bob Parkinson, will appear before a Congressional Committee, at a hearing provocatively-entitled "The Heparin Disaster: Chinese Counterfeits and American Failures", on this coming Tuesday, to explain how it was that, between FDA inspections of the wrong Chinese supply-plants, and Baxter's filling and packaging operations (in reliance on various global suppliers, of course) -- the batches of Heparin (both the Baxter-versions, and the competitors' versions) got contaminated, in the first place, shipped into hospitals, in the second place, and injected (or dripped) into the IV lines of patients, in the final analysis. Which is to say, I think it likely that the legislative/investigatory pressures from Sen. Grassley, and Reps. Dingell and Stupak, will not abate -- and FDA is adjusting its course, accordingly.]

Just a Couple More Insights into Schering's 2007 Proxy Statement

~~~~~~~~~~~~~~~~~~~~
[UPDATED APRIL 25 @ 11:25 PM EDT]
~~~~~~~~~~~~~~~~~~~~

I had intended to spend some time, this evening, doing some calculating (inside the various buckets of compensation) to determine whether the 2007 Executive Compensation payments made by the Schering-Plough Compensation Committee seemed "out of proportion" to what would-have-been the increase (or decrease) in "Market Capitalization" -- the metric that Schering has wholly-removed from the factors influencing compensation, this year, as indicated below.

But instead -- and I can't explain why this did not hit me when I was originally writing this, this morning (not enough coffee? too much?) -- I simply want to point out that it is generally inappropriate to use market cap growth as a metric for determining compensation. Issuing shares (dilution) drives it up, but to be fair, so does stock price appreciation.

And yet, Schering has apparently done so, for at least two full yars, since Mr. Hassan took the helm. Why?

I believe it especially inappropriate because, at a company like Schering, that means stock price gets a "double-weighting" in figuring compensation levels. This is so because "Total Shareholder Return" is already factored in (see page 21 of the 2007 proxy). Note that "market capitalization" is simply share price, times the number of outstanding shares. Note also that total shareholder return is really stock price appreciation, plus dividend payments.

Thus, for most of the last three years, it seems, the Compensation Committee has been double-weighting the rise in Schering-Plough stock prices -- but now, as the stock price is declining, the Committee has entirely removed the double weighting effect. So, there is little need to do detailed analysis, here, it was, in part, overweighting compensation in good (rising) stock price years, and only now, will it "normalize" the weighting in a (presumably) falling stock price environment. Well, that IS interesting, no?

And if that weren't unusual enough, note that the 2005 Schering proxy, at page 42 -- while soliciting a shareholder vote to adopt this plan, the description of it does not even list "Market Capitalization" as one of the allowed metrics for measuring performance (and thus determining/awarding executive compensation)! Take a look:

. . .the Compensation Committee may select under the Plan include one or more of the following (in absolute values or relative to the performance of one or more comparable companies or an index of comparable companies):

• Net operating profit after taxes;
• Operating profit before taxes;
• Return on equity;
• Return on assets or net assets;
• Total shareholder return;
• Relative total shareholder return;
• Earnings before income taxes;
• Earnings per Share;
• Net income;
• Free cash flow;
• Free cash flow per Share;
• Revenue (or any component thereof);
• Revenue growth;
• Share performance;
• Relative Share performance;
• Economic value added; and/or
• Return on capital. . . .

That, my friends, is rather astonishing. I have to say that I have never seen that occur. The shareholders approved a plan, and it listed many variables, in sort of a la carte fashion, here -- for measuring performance. . . . and then, for at least two full years, the Compensation Committee determined performance, in part, on a factor that was NOT permitted -- and, in effect, double-weighted for that very factor.

It would be hard to overstate the ramifications, here: Should all that compensation from 2006, and 2007, and now part of 2008, be re-assessed, and re-calculated, to exclude any amounts awarded in reliance on the impermissible, or double-counted, factors? [I don't know -- but all those plaintiffs' lawyers will definitely have a view on this.]

And what are we to make of the fact that the proxy for this year (2007) simply fails to mention ANY of this -- the word "capitalization" does not appear once in the 2007 proxy -- run a "find text on this page" on it, for yourself. It doesn't. No, it just disappears this year, without any explanation of whether the prior double-counting was an unfortunate, but "inadvertent" error, or whether it was intentional.

I am going to need to sleep on this, and return to it -- it is, as ever, possible that I've made some sort of a mistake here -- and, I'd encourage all my Schering readers (another wave!) to point 'em out -- if they see 'em. . . . because, at least from where I sit right now, this looks pretty discouraging, in terms of assessing the competence, and carefulness, of the decision-making around top executive compensation at Schering-Plough, for at least the last two full years. Wow.


~~~~~~~~~~~~~~~~~~~~
[END, UPDATED PORTION]
~~~~~~~~~~~~~~~~~~~~

It seems that Schering's "designated" Compensation Consultant, Ira Kay, of Watson, Wyatt [pictured, below, left, and a recent, and repeating, visitor to this blog! Big Wave, here!], on behalf of his patron, Hans Becherer, the Chairman of the Compensation Committee of Schering-Plough's Board of Directors (pictured, at right), has recently decided to remove "Growth in Market Capitalization" as one of the general metrics upon which Executive Compensation levels were judged, in 2007.

It was one of the metrics in the 2006 proxy (page 25), rising from $25.5 billion in 2004, to $35.5 billion in 2006. For 2007, by my lights, the analogous number would have been only a little more than $39 billion -- nothing like the rise in prior years (over 18 percent per annum, v. under 10 percent per annum for 2007).

This drop in annual percentage increase is due to the fact that the Schering stock price had already begun to decline, in large part as a result of mid-December 2007 announcement of Congressional investigations of the ENHANCE matter. So, by December 31, 2007, Schering stock prices (and thus "Market Capitalization", as a straight multiple of that price), were in decline. To be clear, then, while the 2006 proxy disclosed a 38 percent growth from base (2004) levels, there would have been scant growth in this metric for all of 2007.

Could this be why it was spiked?

Could it be that -- as the Compensation Committee Report rather oddly admits, about March 31, 2008 -- that "none would have been payable", had the measurement of "Total Shareholder Return" been made as of March 31, 2008 (instead of the previously-structured December 31, 2008 date) -- that very little, or none, of that "bucket" of the incentive compensation package would be payable, had "Market Capitalization" trends been included in this year's Schering Executive Compensation model?

I don't know. But that is a question I intend to investigate today -- and provide answers for -- unless other duties interfere. Back later.

Part Two of my Rant about "Hassan's buy shows confidence. . . ."

Today, Fred Hassan went through with his purchase of $2 million worth of Schering-Plough common stock -- first announced January 18, 2008, but executed at today's market prices (Now, was that an unregistered put-option, in favor of the shareholders, as of January 18, 2008? But I digress). . . .

[Here is Part One of my Rant, as a backgrounder.]

▲ One -- he essentially used the $2.087 million cash incentive that Hans Bechereer & the board paid him in 2007, for 2006-07 performance, to make this buy -- so, in a very real sense, this is actually from the shareholders' own money -- a bet placed with the house's funds.

▲ Two -- when he said he'd do this, on January 18, 2008, the stock closed on the NYSE at 21.28. He promised to spend $2 million. That would have netted him about 93,985 shares.

He waited -- to let the markets discover what he knew, re ENHANCE -- and waited, for Year end 2007 results -- and, then waited, for the ACC Panel debacle to fully-unfold. . . . and now, only now, after Q1 is out, does he "buy in" at $18.26, today.

So, now, he gets 109,530 shares for his $2 million. He gets 16 percent more shares, for his $2 million of "spent" 2006 SGP bonus money. He now owns about 720,000 shares outright.

So -- tell me again, now -- how was that a "show of confidence"?

[Query whether his open dispute, with Merck, about the veracity of the $700 million fall-off in the Vytorin Joint Venture's equity income for 2008, makes this "buy" in some way subject to the insider-trading rules. Is there "adequate public information" about the "known trends. . . and uncertainties" of Q2, and Q3, and Q4 "in the public market", simply because Richard T. Clark explained it, on Monday -- or is it considered "undisclosed", as to Schering's stock price, at least -- because Fred Hassan denied the existence of such a model, only yesterday. 'Tis perplexing, indeed. I am sure this -- as an anonymous hypothetical -- will be on an Advanced Securities Regulation final exam, at some law school, one day.]

Why isn't Jami Rubin -- at Morgan Stanley -- Excoriating Schering-Plough, today?

So, now I'll wade into truly shark-infested waters, here. . . . and ask a truly impertinent -- provocative -- question:

As I noted yesterday, and the call-transcript confirms, Jami Rubin of Morgan Stanley was essentially told by Fred Hassan that "no models" exist for what is happening with the Vyotrin/Zetia Joint Venture.

However, Jami had also asked these questions on the Merck call (Merck transcripts, courtesy seeking alpha), only two days earlier, and heard a very different story -- the truth, apparently -- told to her.

So, why wouldn't she be writing -- and writing furiously -- about not being told the entire truth by Fred Hassan, yesterday? And, mind you now, this is no small matter: this is still over 55 percent of all of Schering-Plough's 2008 profitability, at stake here. Why wouldn't she?

Well, the SEC only requires, via Regulation AC, that all analyst- reports accurately reflect the genuinely-held personal views of the author. The SEC rules do not require that Morgan Stanley analysts certify actual "independence" of any sort.

And so, Morgan Stanley analysts are free, under the applicable rules, to take into account their own firm's interests¹ in deciding what to write -- or not write -- about.

Interestingly, for his part, Merck & Co. CEO Richard T. Clark entered his own "confessional" about the relative-opacity, and self-interestedness [or, if you prefer, the conflicted interests] of the United States pharmaceutical sector (H/T Ed, at pharmalot.com).

"Hey! -- maybe Jami could profile Merck & Co.'s emerging views on this matter."

[Cue the crickets. . . . chirping. . . . chirping into a deafening silence.]


~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~

[Footnote 1: Morgan Stanley clients (purchasers of the Schering-Plough securities offered in August and September of 2007) had, at issuance, at least $626.68 million of exposure to Schering-Plough risks, courtesy of their Morgan-Stanley advised purchases, in August and September of 2007, alone. I'll not bother to calculate the amount of market-decline in those aggregated holdings, with any real precision -- suffice it to say that perhaps only 60 percent of the dollar-converted amounts of those net positions still exist, as of this writing.

In addition, Morgan Stanley affiliates earned a minimum of $14.53 million in commissions from Schering-Plough public stock and bond offerings, in the second half of 2007, alone.

I hope this gives the readership some stimulating food for thought.]

Not Without a Sense of Irony, it would seem. . . .

Filed under: PRICELESS.

BusinessWeek is running a great story, one that features Schering's Van Pool efforts:

. . . ."Every time gas prices rise, I get more and more employees who are taking our car pools or van pools or shuttle buses," says Schering-Plough's (NYSE:SGP - News) transportation chief, Sheila Gist. . . .

This new golden age has Gist in overdrive, scheduling new routes for what has become Schering's own in-house transit system. In the past year alone, Gist says, employee ridership is up by as much as 40%. Companies are big on breaking the car addiction because doing so increases productivity, amps morale, and delivers much lusted-after green cred. . . .

Last night, Schering disclosed that in 2006 and 2007 combined, it covered $333,700 of personal use of corporate jet-time for the executives, principally Mr. Hassan, and Ms. Cox. It also covered $23,305 for personal use of limo-drivers, and corporate-car expenses, for the top six executives:

. . . .Mr. Hassan has been directed by the Board to use the corporate-owned aircraft for all air travel including personal travel. This provides several business benefits to Schering-Plough. First, the policy is intended to ensure the personal safety of Hassan, who maintains a significant public role as the leader of Schering-Plough. Second, the policy is intended to ensure his availability and to maximize the time available for Schering-Plough business. Certain of the other named executives (and other key executives) use the corporate-owned aircraft for business travel, and on occasion for personal travel. Since Hassan joined Schering-Plough in April 2003, 94% of flying hours for senior management were for business use.

In addition, for the same reasons described above, Schering-Plough makes one car and driver available to Hassan. The driver assigned to Hassan is also a trained security professional. The other named executives occasionally use cars and drivers from a pool. All executives use the cars primarily for business purposes, and the cars and drivers (including the car and driver assigned to Hassan) are also used by other Schering-Plough personnel for business purposes. Since Hassan joined Schering-Plough in April 2003, 94% of car and driver usage for senior management has been for business use. . . .

It sure feels good to ride the corporate van, eh?

We have a Winner! -- CEO Hassan made $30.32 million for 2007!

BREAKING: How full is the [2007 Edition] Schering CEO honey-pot?

[Click it to enlarge -- as if you'd need to! Heh!]



Schering just filed its proxy statement with the SEC tonight, and the pollsters who bet [about] "the same as 2006" are the WINNERS! [See poll results -- at lower left.]

More from the proxy, shortly, but above is a summary graphic. His compensation is actually up about 2.3 percent, all in -- note that Mr. Hassan has a little more "guaranteed" to him (that cannot be forfeited) -- about $1.8 million more than last year, at this time. [N.B.: Here is my analysis of the 2006 CEO pay disclosures.]

UPDATED:

Now, consider this [emphasis supplied] from tonight's Schering narrative:

. . . .A Special Note About 2008

In the pharmaceutical industry today, media firestorms about complex drug safety and efficacy concerns are frequent and intense. Often, these events impact stock price. Sometimes these events also impact prescriber and patient preferences, which can impact future sales. These impacts frequently occur whether or not there is medical and scientific support for the concerns publicized in the media.

Schering-Plough’s Board, including the Compensation Committee, believes having a CEO with deep industry experience, together with an experienced team of senior executives, can position Schering-Plough, as well as is possible, in today’s environment. Schering-Plough tries to manage such situations in a manner to best protect long-term shareholder value, and at the same time assist the prescribing physicians who are the only ones qualified to advise their patients about individualized health care needs.

Schering-Plough is currently facing such a challenge, which began in early 2008 relating to a Merck/Schering-Plough cholesterol joint venture clinical trial, called ENHANCE. That clinical trial included the drug VYTORIN and was initiated (and designed earlier) by the Merck/Schering-Plough cholesterol joint venture in 2002, before Hassan and the new management team joined Schering-Plough. Details of the matter are discussed in Schering-Plough’s 2007 10-K which was filed with the SEC on February 29, 2008. This challenge has pressured the stock price, which has dropped since year end.

The pay-for-performance elements of Schering-Plough’s executive compensation program have been designed to closely link the interests of senior management with that of the shareholders and the creation of shareholder value. Even in the current situation, where the Board believes management has handled the challenge well, because the stock price has declined, the named executives have lost significant net worth, and potential future compensation for each of them is at risk.

The named executives, along with the other top 40 Schering-Plough executives, are subject to rigorous stock ownership requirements (eight times salary for the CEO and four times salary for the Executive Vice Presidents and Senior Vice Presidents). See the chart on page 29 for details. Equity compensation also represents a significant portion of each named executive’s total compensation. As a result of their equity holdings, the named executives have each lost value along with shareholders.

Hassan also holds additional shares he purchased with $4.6 million of his personal funds in 2003. In 2008, Hassan committed to making an open market purchase of $2 million of Schering-Plough common shares with personal funds upon receiving legal clearance to do so (anticipated following announcement of first quarter earnings for 2008).

As mentioned earlier, the named executives have a significant amount of future pay at risk, which may be impacted by the challenges described above. For example:

▲ The outstanding five-year transformational incentive (with a performance period ending in 2008) uses total shareholder return (both actual and relative to the Peer Group) as a performance metric. Stock price declines often adversely impact total shareholder return. As a result, named executives Hassan, Bertolini, Cox, Sabatino and Saunders may lose future compensation with respect to the transformational incentive if the stock price does not increase prior to the completion of the performance period. For example, had the performance period ended March 31, 2008 (rather than December 31, 2008 as provided in the plan), the payout would have been zero for each of them based on performance metrics of actual and relative total shareholder return.

▲ The outstanding three-year performance-based share awards (with a performance period ending December 31, 2009) use total shareholder return (both actual and relative to the Peer Group) as a performance-based metric for one-half of the award opportunity (sales and earnings growth metrics apply to the other half of the award opportunity). Stock price declines often adversely impact total shareholder return. As a result, all of the named executives may lose future compensation with respect to the three-year performance-based share awards if the stock price does not increase.

The Compensation Committee, the Board and the management of Schering-Plough (including Hassan and the other named executives) take pride in the performance-based compensation system, and they remain committed to maintaining the integrity of the system in good times and bad. Accordingly, should the current (or future) challenges result in lagging performance in 2008, as measured by the applicable sales, earnings and actual and relative total shareholder return metrics, then compensation to executives in 2008 will be significantly reduced from the compensation reported in this proxy statement, which relates to performance periods where performance — measured by those same metrics of sales, earnings and actual and relative total shareholder return — was strong. . . .

Gee -- that makes me feel better.

Or. not. so. much.

As luck(!) would have it -- lucky for the Schering executives, that is -- the Compensation Committee of the Board measures "Total Shareholder Return" only on one day, each year -- December 31, 2007, in this case. So, all the Schering executives need do, is manage to the window-dressed year end, right?

Does this make the stock price decline any less real in the board's collective mind, for the rest of the Schering shareholders? Odd.

LATER UPDATE: I forgot to mention, in addition, that for every $1 Mr. Hassan can keep Schering common stock from falling, he "saves himself" $4,070,799.30, beginning May 1, 2008 -- and once May 1, 2009 passes, he'll save himself $4,422,799.30, for each $1. This will be true, even if the Board never awards him another single share, or option. Said another way, for every $1 decline in Schering stock, Mr. Hassan loses over $4 million of value -- a very powerful incentive to try to stabilize the recent Schering stock price slide. From a closing price of $27.24 per share, on January 10, 2008 -- to $ 16.55, the close on April 14, 2008, then, Mr. Hassan has seen his equity value drop by over $43.5 million (albeit a not yet realized, or paper, loss -- as he hasn't sold anything to "fix" these declines).

This is why it is so terribly important to find scrupulous CEOs -- and/or retain very tough Compensation Committees -- at the Board of Directors level. Otherwise, the whole exercise simply becomes one long gravy-train for extreme upper management.

That admission -- the "backhanded gravy-train" admission -- at Dot Point 1, above, quoted from the Compensation Report (at page 22) of the just-filed 2007 Schering proxy -- says a lot more about the Schering-Plough Board, and its supposedly-independent, pro-active Compensation Committee, than it does about the Schering executives, actually (after-all, why would they ever push away from the table --"No, really, Uncle Hans -- I'm stuffed! I can't eat even one more gravy-laden biscuit!"). And that is unfortunate for all affected communities -- Schering employees, stockholders, customers, suppliers, the pill-poppin' public, and the doctors prescribing 'em. . . .

One constructive suggestion for "Uncle Hans" Becherer -- the Chair of the Compensation Committee at Schering: Why not measure "Total Shareholder Return" eight times a year? Once at each quarter end, and once at each quarter's mid-point? Then average 'em all out. Why wouldn't that be "more aligned with shareholder interests" than managing to a window-dressed December 31?

But maybe I'm just surprised that the Board has paid this much, for presiding over a flawed study, one that flat-lined the flagship franchise. . . . I dunno.

[UPDATED: It seems that Schering's "designated" Compensation Consultant, Ira Kay, of Watson, Wyatt [and a recent, and repeating, visitor to this blog! Big Wave, here!], on behalf of his patron, Hans Becherer, the Chairman of the Compensation Committee of Schering-Plough's Board of Directors, has decided to remove "Growth in Market Capitalization" as one of the general metrics upon which Executive Compensation levels were judged, in 2007. It was one of the metrics in the 2006 proxy (page 25), rising from $25.5 billion in 2004, to $35.5 billion in 2006. For 2007, by my lights, the analogous number would have been only a little more than $39 billion -- nothing like the rise in prior years. This is due to the fact that the Schering stock price had already begun to decline, due in large part to investigations, by Congress, of the ENHANCE matter, by December 31, 2007. So -- while 2006 showed 38 percent growth from base (2004) levels, there would have been scant growth in this metric for all of 2007. Could this be why it was spiked?]

CEO Fred Hassan's Call Transcript Now Online. See the Dodge.

Here it is, courtesy of seekingalpha:

. . . .Jamie Rubin - Morgan Stanley:

Wait, wait. And what about my other question... my first question, on Merck's more specific VYTORIN, ZETIA guidance?

Fred Hassan - Chairman and Chief Executive Officer:

Bob?

Robert J. Bertolini - Executive Vice President and Chief Financial Officer:

We will [not?] provide numeric guidance Jamie.

Fred Hassan - Chairman and Chief Executive Officer:

Yes, Jamie, I think you did hear the market share delta between March and December and then you also heard that there's another drop that's occurred after the ACC. I think what I said is that there is no model that we can relate to that would... that can give us any prediction. The previous models have been related to side effect issues and we have a very strange situation here where there's a U.S. media driven situation which is quite different from outside the U.S. There are no months to be looking at here. But the reality is that science is strong and we're going to work hard to recapture a lot of the market share that we've lost. It's hard to predict when that recapture will start to occur. Because at this time there is still a lot of confusion out there only in the U.S. market. . . .

[Emphasis supplied.]

This will not go down well, at the SEC, when compared to his Form 8-K, filed only yesterday.

It is always the little stuff. . . .

A Vytorin/Zetia Must-Read over at Pharmalot. . . .

Or, "Wish I didn’t have a Zetia contract. . . ."

I'll just let Ed Silverman do the explaining, here.

It is also true that Carrie Smith-Cox confirmed the essential accuracy of all of the-above-linked trend, on the call, this morning.

Go. Read. Now.

Vytorin Marketing, Sales Practices and Products Liability Cases to have Separate MDL designation/collection point by May 8, 2008

The various categories of suits are starting to sort themselves out (a la first day, for first-years, at Hogwarts Academy). . . . Yesterday, Judge Cavanaugh apparently held a conference on selection of an Interim Lead Counsel for the above-class of cases, and accepted a form of order (but has not, yet, entered it). The Order (purportedly agreed to by the Defendants -- Schering and Merck) sets May 8 6, 2008 as the date by which -- in all probability -- this particular class of the now 115-some cases will be coordinated under one MDL number, and represented by one lead counsel (likely with an underlying governing structure of lawyers, and law firms, beneath that lead firm).

For those of you keeping score at home, you may watch Polk v. Schering-Plough Corp., et al. (Case No. 2:08-cv-00285-DMC-MF US Dist. Ct., NJ 2008), and Case No. 2:08-cv-01506 (same court-room), for the updates, here.

I won't image a copy of the MDL order, until at all, as Judge Cavanaugh has signed and entered it, as of April 29, 2008 -- under MDL Case No. 2:08-cv-00285 -- so, things are starting to roll on this front now. Note that the Securities Fraud cases have an MDL and a Lead Plaintiff, and Lead Counsel, already -- as of April 17, 2008. That leaves the ERISA cases, and the RICO cases -- still to be sorted. So, now "Slytherin? or. . . Gryffindor? Hufflepuff. . . or, Ravenclaw?" We shall see.

Buckle-up.

Does Fred Hassan even read his own company's SEC filings?

[UPDATED:4.24.08: Mr. David P. Hamilton, at bnet.com/pharma has hat-tipped my story, and done a much better job of explaining it -- as did pharmalot.com, earlier. . . . cool!

Call transcript from seeking alpha is up. Also, it seems Mike Huckman reads this blog. See his middle 'graphs -- Eerie.]

This simply deserves its own post, from the very end of this morning's Q1 Earnings Conference Call:

The Morgan Stanley analyst, [I missed her name] Ms. Jami Rubin, just flat-out got stiff-armed, by CEO Fred Hassan, at the very end of the call -- she asked Schering to help "quantify the Vytorin/Zetia equity income declines," now expected for 2008 -- and specifically mentioned Merck's owning up to a $700 million loss of income, here.

Well, Fred essentially hung up on her.

He said "we really have no model for this scenario". That is simply false -- from Schering's own '34 Act filing (read: "carries liability for material misstatements/fraud") with the SEC, of yesterday, Schering effectively swore otherwise. Wow.

Yep, just yesterday, Schering filed a Form 8-K with the SEC indicating that its joint venture entity, an entity "under common control" (in SEC parlance, that is, shared 50/50 with Merck) had made a "range of estimates" for the equity income fall-off, in 2008. Applicable SEC literature requires disclosure of that range.

"No model", indeed. Fred -- what are you thinking? Did you even look at that Form 8-K, yesterday, before your lawyers filed it?

Or, maybe he just needs to "try the decaffeinated brands. . . . they are very tasty!". . . .[and maybe I do, too(!)].

Live-blogging the Schering-Plough Q1 Earnings Release

~~~~~~~~~~~~~~~~~~~~
[UPDATED APRIL 23 @ 8:55 AM EDT]
~~~~~~~~~~~~~~~~~~~~

▲ Schering CEO Fred Hassan just reiterated the line that "unwarranted confusion" is what is challenging the Vytorin/Zetia Joint Venture's results. This flies in the face of his deciding to take an incremental $1 billion charge to resolve the issues -- going out to 2012. How is it possible that he needs four years of charges and restructuring to address an "unwarranted confusion"?

This simply doesn't meet the "straight-face" test.

▲ The claim was just made, on the call, that "a dozen" studies indicate lowering LDL is better for patients. That is true -- but there is no evidence that the WAY Vytorin/Zetia lowers LDL improves any cardiac outcome. Those studies involve liver mechanisms, not gut-mechanisms. We won't know until 2012 (IMPROVE-IT) whether the gut-mechanism improves outcomes.

▲ Without currency "tailwinds", Schering Q1 sales would only be up 5 percent, even after excluding all the Organon items -- a morass of back-and-forth, put-and-take, accounting.

▲ Over 80 percent of Vytorin/Zetia sales occur inside the US for the cholesterol franchise, so the growth of non-US is far less important than CFO Bob Bertonlini just implied.

▲ CFO Bob Bertolini flat-out admitted that the Q1 trends just discussed -- will not persist through the rest of 2008. "Likely to be lower. . . ."

Again, how can it be that "unwarranted confusion" cannot be cleared up? This is simply hard-to-swallow.

▲ The claim is being made that Vytorin/Zetia "efficacy" is identical to lower LDL-levels. There is simply no proof that this is "efficacy" as to outcomes.

To claim the gut-mechanism is identical to LDL "efficacy" is at best ambiguous -- and is, perhaps, misleading.

▲ EVP Carrie Smith-Cox said that most patients who switch are going to the generic Zocor. . . . [that is at about one-tenth the cost of Schering's drugs.]

▲ EVP Carrie Smith-Cox claimed that Pro Cordaptive (Merck's niacin product) is a "niche" only product -- not likely to impact the franchise. We'll see about that -- it will likely be FDA-approved next-week.

▲ EVP Carrie Smith-Cox said the resumption of "direct to consumer" (DTC) advertising for the franchise will resume when the company, and FDA, agree on it. Remember that FDA wants promotional materials changed over by April 24, 2008 -- tomorrow. It must all mean that Schering is still in negotiations with FDA about those advertising-literature, and Television-spot changes.

▲ The Morgan Stanley analyst just flat-out got stiff-armed, by CEO Fred Hassan, at the very end of the call -- she asked Schering to help "quantify the Vytorin/Zetia equity income declines," now expected for 2008 -- and specifically mentioned Merck's owning up to a $700 million loss of income, here.

Well, Fred essentially hung up on her.

He said "we really have no model for this scenario". That is simply false -- from Schering's own '34 Act filing (read: "carries liability for material misstatements/fraud") with the SEC, of yesterday, Schering said otherwise.

Yep, just yesterday, Schering filed a Form 8-K with the SEC indicating that its joint venture entity (shared 50/50 with Merck) had made a "range of estimates" for the equity income fall-off, in 2008. Applicable SEC literature requires disclosure of that range.

"No model", indeed. Fred -- what are you thinking? Did you even look at that Form 8-K, yesterday, before your lawyers filed it?

[End of Call @ 9:05 a.m., EDT.]

[Call transcript from seekingalpha is now up.]

~~~~~~~~~~~~~~~~~~~~
[END, UPDATE.]
~~~~~~~~~~~~~~~~~~~~


Tomorrow morning, before NYSE open, I'll be live-blogging the Schering-Plough first quarter earnings conference call -- we should learn more about Vytorin and Zetia 'script-trends -- and the status of any write-downs to be taken inside the Schering/Merck Joint Venture, as well at Schering-Plough, proper. We will hope for an update on the status of the pending Congressional, and governmental, investigations and all the 115 pieces of litigation.

This link should anchor directly to a log-in for a Windows Media feed of the call on Wednesday.

It will likely go "live" -- at Schering -- around 7:50 a.m., EDT.

~~~~~~~~~~~~~~~~~~~~
[UPDATED APRIL 23 @ 5:55 AM EDT]
~~~~~~~~~~~~~~~~~~~~

First, for the past few months, I've been guessing that Schering-Plough's share-equivalents for 2008, fully-diluted, would rise to about 1.62 billion shares. My estimate was too low -- Schering shows fully diluted Q1 share equivalents at 1.637 billion shares, making all my 2008 EPS guesses (of declines, here) slightly too conservative -- too small. Wow.

Schering will henceforth have quite a few more shares that it needs to "cover" with earnings. This is due to the decline in common stock prices, rendering the 6% Convertible Preferred. . . . dilutive, in share counts, henceforth.

Now, an a GAAP-basis, Schering missed -- $0.15 v. $0.37 expected, at the EPS line, according to FirstCall.

At the revenue line, FirstCall reported an expected range of revenue of between $4.16 and $4.80 billion -- Schering's actual Q1 was $4.7 billion, slightly above the median estimate. Net income is the story, though.

Net income available to common, at Schering, for the first quarter was $243 million (GAAP), and $543 million (Non-GAAP). HOLD ON A SECOND!! -- that means that Joint Venture Equity Income was about 95 percent of all Schering-Plough's Non-GAAP net income in the first quater.

NINETY-FIVE PERCENT!?! YIKES! [I'll go verify that those are apples to apples numbers, now -- Wow!]

Almost as importantly, Equity Income from the Vytorin/Zetia Joint Venture, on a sequential quarterly-basis, is down 9.5 percent.

That is bad. The First Quarter was over (by all but one day), by the time the ACC met, so Q2 simply must be significantly worse -- and yet, the Q1 Equity Income share for Schering was only $517 million. The Fourth Quarter 2007 Equity Income was $566 million. And there are now declines, overall, admitted to by Schering now, not just in the US market.

Remember, Merck has already admitted that its share of this equity income fall-off will be off at least $700 million for the full year.

By my rough estimates, if Schering's equity income line is off more like $900 million for the year 2008, it will cost them $0.55 per share of 2008 EPS. That may be offset, in part, by about $400 million of savings, or $0.25, on a per chare basis, from the 2008 Productivity Transformation Program, to be acheived in 2008 (total $1.5 billion through 2012) -- but that still leaves SGP with about a $0.30 per share "hole" in 2008 EPS.

Next point -- Schering is making the "As Adjusted" figures for the quarter, due almost exclusively to the purchase accounting adjustment/write-off of $688 million in total -- of which $551 million is a write -down of inventory(!) -- from the Organon acquisiton of last fall, pre-tax. Schering then shows an increase of $600 million on an after-tax basis, for having written this off. The plain implication here is that much is being buried in the Organon numbers, both historical, and pro-forma.

More soon.

Forbes is on to my story, of this morning, now. . . .

I posted on it this morning; this afternoon, Forbes is on it:

It seems Merck may have some ulterior motives, here -- Merck gets all of the profits from Cordaptive (due to be approved by FDA as early as next week), which will likely cannibalize some (more) of the Vytorin/Zetia market-share. . . .

In short, "Why share with Schering-Plough (on Vytorin/Zetia), when we have a new drug -- Cordaptive -- one that goes 100 percent to our own bottom line?"

That seems to be what Merck was wondering, softly, yesterday, and now aloud, to Forbes (off the record, of course).

The SEC -- On Disclosure of Known Trends and Uncertainties; Ranges of Material Loss Contingencies. . . .

[UPDATE:Well -- this site just had a very-interesting returning visitor "hit". See the visit image, below. These visits last up to two-hours (a few weeks ago), and over three-minutes, once again, this morning. . . . Cool!]

New Monthly IMS data out of Schering this morning -- but first (and I'll have more on this here, in a few minutes), this new text disclosure will likely not serve Schering very well, with the staff of Corporation Finance, at the SEC:

". . . .Q: What is Schering-Plough’s comment on Merck’s guidance regarding the cholesterol franchise?

A: Schering-Plough does not provide numeric guidance and does not comment on the guidance of other companies.

The Merck/Schering-Plough cholesterol joint venture developed potential scenarios about the 2008 equity income. Merck chose an estimate that is within the ranges established in those scenarios. . . ."
[Emphasis supplied.]

"Hold on a sec., there, pard'. . . ." Didn't Schering announce a $1.5 billion charge, a good chunk of which will likely be booked into its First Quarter 2008 results? Now, doesn't that press release indicate that the charge is, in part due to ". . .to the confusion in the U.S. market around cholesterol management that impacts the products of the Merck/Schering-Plough joint venture, Zetia and Vytorin. . ."?

Well, as a matter of fact, yes sir -- it does. So, Schering, according to well-settled SEC law, needs to provide the range of the fall-off in the Cholesterol Franchise Joint Venture. It is clearly the reason for at least $1 billion of that charge. More on that below. [By the way, when was the last time you saw a Fortune 200 company take a $1 billion bath, and credit the write-down to "confusion"? wouldn't it be cheaper, and easier, if it were simply confusion, to get out there, with factual, forceful, proactive advertising -- and promptly "clear up" the confusion, rather than cut-out 10 percent of your workforce, and spend $1B, grande? So -- is it really "confusion", guys -- or something else? Ah, but I digress.]

The notion that Schering is not going to provide that range -- the fall-off that drove the $1 billion of incremental cuts/charges -- unless it does so on tomorrow's call -- is plainly frowned upon by SEC rules and releases. There can be no dispute that almost no number is more material to the future earnings of Schering, than the range of loss in profits now expected from the Cholesterol Joint Venture.

I'll have a cite to the SEC literature on this in a moment below, but once a range has been established (jointly by agents of Schering and agents of Merck & Co., not some third party/interloper, here!), as to a material loss contingency, the range must be disclosed (unless the loss contingency is deemed "remote" by the auditors, and that is not the case here -- what audit firm is going to take the risk that something Merck said was real, is "remote" as to Schering, a much, much smaller company?!) -- even if the actual amount, with precision, cannot be determined, by tomorrow's call.

The range must be disclosed. This franchise is over 55 percent of Schering's (previously-) expected 2008 profitability.

This is not some goofy "the-Sky-is-falling" pronouncement from a crazy blogger, here (Heh!) -- this is Schering's 50-50 Joint Venture partner, a huge public company whose lawyers decided this was material, estimable and probable -- as to their joint $5 billion business relationship. To persist in denying this, seems not only unwise from a legal point of view, it seems unsound from a public investor relations point of view.

So -- I'd expect Schering to disclose the range tomorrow -- and it will certainly be as high as $900 million (as I predicted yesterday), but may be even higher. . . . $1 or even $1.2 billion.

Other than the above, the SEC Form 8-K filed by Schering just now essentially confirmed what MRK said yesterday, about IMS trends, so I'll not repeat it here.

On to the SEC's rules and releases then -- and Reg. S-K, Item 303(a):

". . . .(3) Results of operations.

(i) Describe any unusual or infrequent events or transactions or any significant economic changes that materially affected the amount of reported income from continuing operations and, in each case, indicate the extent to which income was so affected. In addition, describe any other significant components of revenues or expenses that, in the registrant's judgment, should be described in order to understand the registrant's results of operations.

. . . .(ii) Describe any known trends or uncertainties that have had or that the registrant reasonably expects will have a material favorable or unfavorable impact on net sales or revenues or income from continuing operations. If the registrant knows of events that will cause a material change in the relationship between costs and revenues (such as known future increases in costs of labor or materials or price increases or inventory adjustments), the change in the relationship shall be disclosed.

(iii) To the extent that the financial statements disclose material increases in net sales or revenues, provide a narrative discussion of the extent to which such increases are attributable to increases in prices or to increases in the volume or amount of goods or services being sold or to the introduction of new products or services. . . ."

Indeed.

The SEC's financial statement rules, collected under Reg. S-X (which incorporate FASB releases), provide thus -- via SFAS No. 5:

". . . .Disclosure of the nature of an accrual made pursuant to the provisions of paragraph 8, and in some circumstances the amount accrued, may be necessary for the financial statements not to be misleading. . . . [Editorial Note: Remember here that Schering has indicated it will take a $1.5 billion charge, or accrual, in large part to address the fall-off in the Joint Venture's business.]

If no accrual is made for a loss contingency because one or both of the conditions in paragraph 8 are not met, or if an exposure to loss exists in excess of the amount accrued pursuant to the provisions of paragraph 8, disclosure of the contingency shall be made when there is at least a reasonable possibility that a loss or an additional loss may have been incurred. The disclosure shall indicate the nature of the contingency and shall give an estimate of the possible loss or range of loss or state that such an estimate cannot be made. Disclosure is not required of a loss contingency involving an unasserted claim or assessment when there has been no manifestation by a potential claimant of an awareness of a possible claim or assessment unless it is considered probable that a claim will be asserted and there is a reasonable possibility that the outcome will be unfavorable. . . .

. . . .After the date of an enterprise's financial statements but before those financial statements are issued, information may become available indicating that an asset was impaired or a liability was incurred after the date of the financial statements or that there is at least a reasonable possibility that an asset was impaired or a liability was incurred after that date. . . . [T]he information may relate to a loss contingency that did not exist at the date of the financial statements, e.g., threat of expropriation of assets after the date of the financial statements or the filing for bankruptcy by an enterprise whose debt was guaranteed after the date of the financial statements. In none of the cases cited in this paragraph was an asset impaired or a liability incurred at the date of the financial statements, and the condition for accrual in paragraph 8(a) is, therefore, not met. Disclosure of those kinds of losses or loss contingencies may be necessary, however, to keep the financial statements from being misleading.
If disclosure is deemed necessary, the financial statements shall indicate the nature of the loss or loss contingency and give an estimate of the amount or range of loss or possible loss or state that such an estimate cannot be made. . . .

Occasionally, in the case of a loss arising after the date of the financial statements where the amount of asset impairment or liability incurrence can be reasonably estimated, disclosure may best be made by supplementing the historical financial statements with pro forma financial data giving effect to the loss as if it had occurred at the date of the financial statements. . . .

. . . .The SEC expands the disclosures about the nature of operations whenever a concentration exists that places the well-being of the entity at risk. The SEC believes that readers need to know about operational concentrations which, if the relationship with the concentration is severed or significantly reduced, could cause significant harm to the entity.

Concentrations come in many forms -- so many, in fact, that the SEC felt compelled to list the particular concentrations that concern it the most. Specifically, the following four concentrations require disclosure if they meet the disclosure criteria:

▲ Concentrations in the volume of business transacted with a particular customer, supplier, lender, grantor or contributor;

▲ Concentrations in revenue from particular products, services or fund-raising events. . . .

. . . .When an entity has a concentration that belongs on the above list, the concentration must be disclosed when all three of the following criteria are met:

▲ The concentration exists at the date of the balance sheet;

▲ The concentration makes the enterprise vulnerable to the risk of near-term severe impact; and

▲ It is at least reasonably possible the events that could cause the severe impact will occur in the near term.

The SEC defines a "severe impact" as a ". . .significant financially disruptive effect on the normal functioning of the entity." The term implies a higher threshold than a "material impact." A material impact implies information that would alter decisions about an entity and may, in turn, alter the valuation of an entity's capital stock or outstanding debt. A severe impact implies a more serious effect, one that would seriously upset the central manufacturing or marketing operations of the entity. To judge whether a severe impact is possible, the focus is on the core operating processes of the company. The question is how seriously the operating environment would be affected if the relationship with the concentration were disrupted. . . .

[Editorial Comment, here: This page had some fascinating traffic, today, no?]
. . . .The disclosure of the concentration should contain sufficient information to inform the reader of the nature of the risk caused by the concentration. Normally, this would consist of a narrative statement. The SEC only encourages the use of quantitative measures for the degree of the concentration. In addition, the SEC realizes that information about concentrations may already be presented in efforts to comply with other pronouncements such as SFAS No. 14, Financial Reporting for Segments of a Business Enterprise. . . .

The SEC mandates particular requirements for certain types of concentrations. When an entity has a concentration of customers or contributors or has a concentration of operations located outside the entity's home country, the SEC removes some judgement: The entity should always consider it reasonably possible that the relationship or operations will be disrupted in the near term. . . ."

At the risk of repeating here, then, it seems obvious beyond peradventure, that if Merck & Co., at twice Schering's size, believed this estimated $700 million profit decline is probable (not just "possible"), material, and estimable, then Schering simply must disclose its own view of the range, tomorrow. Up or down -- whether it agrees, disagrees, or has some other path, here. It seems difficult to find any other lawful reading of the SEC's 30-plus years of guidance, here.

Now, consider this, from the SEC's MD&A literature:

". . . .In assessing whether disclosure of a trend, event, etc. is required, management must consider both whether it is reasonably likely to occur and whether a material effect is reasonably likely to occur. As the Commission noted when it adopted the requirement, the "reasonably likely to occur" test is to be used rather than the Basic v. Levinson probability and magnitude test for materiality of contingent events. See Securities Act Release No. 6835 (May 18, 1989) [54 FR 22427] at fns. 27-28 and accompanying text. . . ."

That pretty much seals it.

And, while not directly applicable to these facts, this is illuminating, from the Form 8-K Release, as Schering chose to make this disclosure by way of a Form 8-K, so updates are now required:

". . . .If at the time of filing the company is unable to make a good faith estimate of the amount. . . . it need not disclose an estimate at that time, but must nevertheless file the Form 8-K report describing the company's commitment to a course of action under which it will incur a material charge. Within four business days after the company formulates an estimate, the company must amend its earlier Form 8-K filing to include the estimate. . . ."

As ever, more to come.

Another Interesting Cafepharma Question, here. . . .

A reader at Cafepharma asked another question -- my answer is apparently caught in the moderation que, at the moment, over there, so here it is:

Anonymous wrote:

when will the criminal case start on insider trading -

a) Never
b) 3077
c) Already settled

your answer ??

My answer:

"I doubt it is settled already -- that would require a public SEC filing, a report -- and we haven't seen any.

As to the individual officers/directors, I think proving a criminal (as opposed to civil) insider trading case -- at least, on the facts as we now know/understand them -- would be a tall order. I think to prove that crime, one would need to show far more than just "access" to the ENHANCE data, by those who traded prior to disclosure -- while in a purely civil case, this "access", plus the top-of-market prices, might be enough to convince a court to impose a civil penalty -- or at least, to extract a civil charge settlement in deferred prosecution/negotiations with the SEC, directly, in the weeks leading up to a trial, at some 2009 date.

It is quite difficult to say, as it is all very early in the process of finding out what evidence exists, beyond what is already known by the public.

I think it would be similarly difficult (based on the public documents, thus far) to prove that the "enterprise" conspired to conduct the August 2007 $3.8 billion offerings with specific intent to defraud. That does not mean it did not happen. It just means it would be very difficult to prove. Your mileage may vary. . . ."

We may learn much more in the coming months that will render this polly-anna-ish and out-of-date, but right now, I really can't see the SEC filing [sincere thanks go to Anon. No. 2, in the comments hereto, for the suggested edit!] referring a criminal case, to the DoJ, on these facts. Not on what we know thus far.

Highlights from Merck Q1 Call this Morning. . . .

[This is an update to an earlier, longer post.

It seems Fred Hassan doesn't believe this estimated range/model exists.]

From Merck's First Quarter 2008 Earnings Release:

". . . .The $700 million decrease in equity income guidance [for the full year 2008] is solely attributable to the lower anticipated contribution from the Merck/Schering-Plough joint venture. . . ."."

Editorial -- Wow! So, take at least $700 million out of Schering's 2008 expected profitability!

Schering's share of the Joint Venture downturn may be greater than a 50/50 split, though, as Schering picks up more of the expenses from the venture, and -- if certain levels of profitability are acheived, then Merck & Co. reimburses those expenses, fully. I'll go see if this sized-down-turn will mean Yep -- This means less reimbursement of expenses for Schering, and thus an increase Schering's effective "share" of the downturn may turn out to be to more like $900 million in 2008.

Remember, the new 2008 Schering cost-cutting program will likely bring only $400 million "back into" Schering's 2008 EPS (only 40 percent of the incremental $1 billion will be completed/realized in 2008).

So -- I still see, at a mininum, a $500 million reduction to Schering's profitability.

[Editorial Comment, here: This page had some fascinating traffic, on tuesday, April 22, 2008, no?]
We'll know much more on Wednesday, but on 1.62 billion share-equivalents outstanding, that will drop 2008 EPS, on a net-net basis, by at least $0.30 per share -- which means the new low 2008 EPS estimate ought to be closer to $1.10, for all of 2008. At 14 times $1.10 2008 EPS, Schering is worth $15.40. And, a multiple of 14 is very generous, in a market where Merck can only muster 1 percent sales growth. At a 13 multiple, Schering is worth $14.30 per share, today.

Yikes.

More from the press release:

. . . . .Combined worldwide sales of ZETIA (ezetimibe) and VYTORIN (ezetimibe/simvastatin), as reported by the Merck/Schering-Plough joint venture, were $1.2 billion for the first quarter of 2008, representing a 6 percent increase compared with the first quarter of 2007. Worldwide sales of ZETIA, marketed as EZETROL outside the United States, were $582 million in the first quarter of 2008, an increase of 7 percent compared with the previous year's first quarter. First-quarter 2008 worldwide sales of VYTORIN, marketed outside the United States as INEGY, were $651 million, an increase of 4 percent compared with the first quarter of 2007. The Company records the results from its interest in the Merck/Schering-Plough joint venture, which totaled $393 million in the first quarter of 2008 compared with $347 million in the same quarter a year earlier, in equity income from affiliates. . . ."

Remember three important facts not stated above: (1) ACC didn't happen until the last day of Q1 -- so this is all pre-ACC -- modest growth from Q1 2007 to Q1 2008 -- but, overall, compared to Q4 2007 -- the LAST quarter, sequentially, J/V sales are off 30 percent -- $1.5 billion v. $1.2 billion. (2) And even that "modest growth" is quite a far fall from the "up 30 percent" expected at the end of 2007. And, (3) the Street expected sales of $6.1 billion from Merck for Q1 -- Merck missed on the sales line this morning. It was only able to muster a 1 percent sales gain (even with the benefit of foreign currency "tailwinds"!), overall -- or $5.82 billion, up 1 percent from $5.77 billion in the first three months of 2007.

Now to the truly ugly:

ENHANCE Study Litigation Update

". . . .As previously disclosed, since December 2007, the Company and its joint-venture partner, Schering-Plough, have received several letters addressed to both companies from the House Committee on Energy and Commerce, its Subcommittee on Oversight and Investigations, and the Ranking Minority Member of the Senate Finance Committee, collectively seeking a combination of witness interviews, documents and information on a variety of issues related to the ENHANCE clinical trial, the sales and promotion of VYTORIN, as well as sales of stock by corporate officers. On Jan. 25, 2008, the companies and the Merck/Schering-Plough Partnership (MSP Partnership) each received two subpoenas from the New York State Attorney General's Office seeking similar information and documents. Merck and Schering-Plough have also each received a letter from the Office of the Connecticut Attorney General dated Feb. 1, 2008 requesting documents related to the marketing and sales of VYTORIN and ZETIA and the timing of disclosures of the results of ENHANCE. Merck and Schering-Plough also recently received subpoenas dated April 4, 2008 from the Office of the New Jersey Attorney General seeking documents related to the ENHANCE trial and the sales and marketing of VYTORIN. The Company is cooperating with these investigations and is working with Schering-Plough to respond to the inquiries. In addition, since mid-January 2008, the Company has become aware of or been served with approximately 115 civil class action lawsuits alleging common law and state consumer fraud claims in connection with the MSP Partnership's sales and promotion of VYTORIN and ZETIA. Certain of those lawsuits allege personal injuries and/or seek medical monitoring. Also, on April 3, 2008, a Merck shareholder filed a putative class action lawsuit alleging that Merck and its Chairman, President and Chief Executive Officer, Richard T. Clark, violated the federal securities laws. . . ."

115 Suits. Wow.

Now we wait for the call, and the analysts' questioning of Clark. My sense of all of the conversations is that Merck is very lucky to be twice as large as Schering, at the revenue line, and to have the AstraZeneca partnership distribution to effectively fill the now-admitted "~ $700 million hole" that the ENHANCE results have recently-revealed, at Merck's J/V equity income line.

Schering, plainly, will have no such luck -- it has no other relationship on any remotely comparable scale, to back-fill with. As I type this, more than 55 percent of Schering's 2008 profitability hinges on the Joint Venture with Merck. So, the question becomes, is that newly-announced $1.5 billion cost cutting going to be enough to fill Schering's "~ $900 million hole" in 2008 profits? I -- for one -- strongly doubt it.

Next up, Schering's Q1 call, on Wednesday.

The Effect of Direct-to-Patient Advertising on a Drug's Market Share

This is simply a graphics-driven reproduction of the data (those tiny Canadian Zetia pills are almost entirely invisible, against the jumbo-US Zetia pills -- so, you'll need to look closely, and click the image, to see it in enlarged mode!) on Lines 3, and 10, in Columns 2, 4, 6, 8 and 10, of Table 2 of this study, just-released in the New England Journal of Medicine (for the April 24, 2008 printed edition).

The study was authored by Dr. Harlan Krumholz, of Yale University, using IMS Data-sets for the relevant years/countries. Click the above to enlarge it -- res ipsa, no? "Res ispa loquitur. . . ."

Or, in Judge Friendly's more pedestrian formulation of it -- "Some times, to ask the question, is to answer it. . . ." [Interestingly, apparently Judge Friendly was unwittingly quoting Sir Frederick Douglass (letter dated December 1, 1845, at paragraph 4). The literal, from the Latin, is "The thing speaks for itself."]

New Civil RICO suit -- Alleging Stein e-mail Comments help prove Racketeering "Enterprise-Wide Pattern Activity". . . .

A new lawsuit has been docketed tonight, April 18, 2008, against Schering and Merck, alleging RICO pattern-activity violations, various state Consumer Anti-Fraud violations, Unjust Enrichment and common-law fraud. The most newsworthy innovation of this "Johnny-come-lately" suit, though, is that it picks up, almost word-for-word, much of what has been written surrounding Dr. James Stein's e-mailed comments -- especially those highlighting the inaccuracies in the after-the-fact "Draft Minutes" of that now-pivotal November 16, 2007 ENHANCE science panel meeting.



The above suit then adds these new allegations to the factual allegations already made in other suits -- with the objective being to plead, and prove, civil RICO "enterprise-wide racketeering pattern" activities. This new federal suit is captioned "Plumbers and Pipefitters Local 572 Heatlh and Welfare Fund v. Merck & Co., Inc., Schering-Plough Corporation, and Merck/Schering-Plough Pharmaceuticals, et al." (Case No. 2:08-cv-01894, Complaint filed April 17, 2008, US Dist. Ct. NJ).

I'll likely have more to say about it -- after I digest the rest of it -- in passing, I would note that the plaintiff has also used various of the April 2008 letters and statements by Sen. Grassley in its original complaint. Clever!

As ever, more to come.

Live-Blogged Analysis of Merck's First Quarter Earnings Conference Call

On Monday morning, before NYSE open, I'll take a shot at live-blogging the first quarter earnings conference call of Merck & Co. -- we should learn more about Vytorin and Zetia 'script-trends -- and the status of any write-downs to be taken inside the Schering/Merck Joint Venture, as well as an update on the status of the pending Congressional, and governmental, investigations and all that litigation. I expect that CEO Richard T. Clark will be pretty free-wheeling, much as he was on the 2007 Year-End Conference call.

This link should anchor directly to a log-in for a Windows Media feed of the call on Monday.

It will likely go "live" -- at Merck -- around 8:30 am EDT.

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[UPDATED APRIL 21 @ 5:55 AM EDT]
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From Merck's First Quarter 2008 Earnings Release:

". . . .The $700 million decrease in equity income guidance [for the full year 2008] is solely attributable to the lower anticipated contribution from the Merck/Schering-Plough joint venture. . . ."."

Editorial -- Wow! So, take at least $700 million out of Schering's 2008 expected profitability!

Schering's share of the Joint Venture downturn may be greater than a 50/50 split, though, as Schering picks up more of the expenses from the venture, and -- if certain levels of profitability are acheived, then Merck & Co. reimburses those expenses, fully. I'll go see if this sized-down-turn will mean Yep -- This means less reimbursement of expenses for Schering, and thus an increase Schering's effective "share" of the downturn may turn out to be to more like $900 million in 2008.

Remember, the new 2008 Schering cost-cutting program will likely bring only $400 million "back into" Schering's 2008 EPS (only 40 percent of the incremental $1 billion will be completed/realized in 2008).

So -- I still see, at a mininum, a $500 million reduction to Schering's profitability.

We'll know much more on Wednesday, but on 1.62 billion share-equivalents outstanding, that will drop 2008 EPS, on a net-net basis, by at least $0.30 per share -- which means the new low 2008 EPS estimate ought to be closer to $1.10, for all of 2008. At 14 times $1.10 2008 EPS, Schering is worth $15.40. And, a multiple of 14 is very generous, in a market where Merck can only muster 1 percent sales growth. At a 13 multiple, Schering is worth $14.30 per share, today.

Yikes.

More from the press release:

. . . . .Combined worldwide sales of ZETIA (ezetimibe) and VYTORIN (ezetimibe/simvastatin), as reported by the Merck/Schering-Plough joint venture, were $1.2 billion for the first quarter of 2008, representing a 6 percent increase compared with the first quarter of 2007. Worldwide sales of ZETIA, marketed as EZETROL outside the United States, were $582 million in the first quarter of 2008, an increase of 7 percent compared with the previous year's first quarter. First-quarter 2008 worldwide sales of VYTORIN, marketed outside the United States as INEGY, were $651 million, an increase of 4 percent compared with the first quarter of 2007. The Company records the results from its interest in the Merck/Schering-Plough joint venture, which totaled $393 million in the first quarter of 2008 compared with $347 million in the same quarter a year earlier, in equity income from affiliates. . . ."

Remember three important things not stated above: (1) ACC didn't happen until the last day of Q1 -- so this is all pre-ACC -- modest growth from Q1 2007 to Q1 2008 -- but, overall, compared to Q4 2007 -- the LAST quarter, sequentially, J/V sales are off 30 percent -- $1.5 billion v. $1.2 billion. (2) And even that "modest growth" is quite a far fall from the "up 30 percent" expected at the end of 2007. And, (3) the Street expected sales of $6.1 billion from Merck for Q1 -- Merck missed on the sales line this morning. It was only able to muster a 1 percent sales gain (even with the benefit of foreign currency "tailwinds"!), overall -- or $5.82 billion, up 1 percent from $5.77 billion in the first three months of 2007.

Now to the truly ugly:

ENHANCE Study Litigation Update

". . . .As previously disclosed, since December 2007, the Company and its joint-venture partner, Schering-Plough, have received several letters addressed to both companies from the House Committee on Energy and Commerce, its Subcommittee on Oversight and Investigations, and the Ranking Minority Member of the Senate Finance Committee, collectively seeking a combination of witness interviews, documents and information on a variety of issues related to the ENHANCE clinical trial, the sales and promotion of VYTORIN, as well as sales of stock by corporate officers. On Jan. 25, 2008, the companies and the Merck/Schering-Plough Partnership (MSP Partnership) each received two subpoenas from the New York State Attorney General's Office seeking similar information and documents. Merck and Schering-Plough have also each received a letter from the Office of the Connecticut Attorney General dated Feb. 1, 2008 requesting documents related to the marketing and sales of VYTORIN and ZETIA and the timing of disclosures of the results of ENHANCE. Merck and Schering-Plough also recently received subpoenas dated April 4, 2008 from the Office of the New Jersey Attorney General seeking documents related to the ENHANCE trial and the sales and marketing of VYTORIN. The Company is cooperating with these investigations and is working with Schering-Plough to respond to the inquiries. In addition, since mid-January 2008, the Company has become aware of or been served with approximately 115 civil class action lawsuits alleging common law and state consumer fraud claims in connection with the MSP Partnership's sales and promotion of VYTORIN and ZETIA. Certain of those lawsuits allege personal injuries and/or seek medical monitoring. Also, on April 3, 2008, a Merck shareholder filed a putative class action lawsuit alleging that Merck and its Chairman, President and Chief Executive Officer, Richard T. Clark, violated the federal securities laws. . . ."

115 Suits. Wow.

Now we wait for the call, and the analysts' questioning of Clark. My sense of all of the conversations is that Merck is very lucky to be twice as large as Schering, at the revenue line, and to have the AstraZeneca partnership distribution to effectively fill the now-admitted "~ $700 million hole" that the ENHANCE results have recently-revealed, at Merck's J/V equity income line.

Schering, plainly, will have no such luck -- it has no other relationship on any remotely comparable scale, to back-fill with. As I type this, more than 55 percent of Schering's 2008 profitability hinges on the Joint Venture with Merck. So, the question becomes, is that newly-announced $1.5 billion cost cutting going to be enough to fill Schering's "~ $900 million hole" in 2008 profits? I -- for one -- strongly doubt it.

Next up, a live-blog of Schering's Q1 call, on Wednesday.

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[UPDATED APRIL 21 @ 5:35 AM EDT]
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Now this is a Big Pharma to admire -- and go long on -- the ADRs are a good bet -- Novartis' Q1, per the Wall Street Journal:

". . . .Novartis, based in Basel, said net profit attributable to shareholders rose to $2.32 billion in the three months ended March 31 from $2.17 billion in the year ago period. Net income from continuing operations -- the company had sold its Gerber baby-food brand and its medical-nutrition business to Nestle SA last year -- rose 10% to $2.31 billion, beating analysts' estimates of a decline. . . ."

I do still see a decline for Schering-Plough today -- based on what should be rather downbeat comments by Clark on the Merck & Co. Q1 conference call -- about the Vytorin/Zetia Joint Veture.

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[END, UPDATED PORTION.]
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See here, below the line, on Monday, the 21^st, for insta-analysis:

To get things started, I have to point out how "spotty" some of the published reports get -- with respect to understanding the impact of Vytorin on each company -- Merck & Co., in contrast to Schering Plough. Merck is double the size of Schering, at the revenue line, and only one-third as levered, at the debt to equity line, yet otherwise "learned people" write goofy stuff, like this:

". . . .The Street is looking for Merck to report EPS of 86 cents on $6.1 billion in revenue on Monday before the bell. Oddly, the estimates have hardly budged despite the routing of Vytorin, in which Merck shares revenue and earnings in a joint venture with Schering-Plough. Only a penny has come out of the first quarter's estimate during the last three months, and only 10 cents out of the year. Either the market is greatly overreacting to the Vytorin blowup, or analysts are underestimating the ultimate impact as scripts dry up. . . ."

Or. . . . the market's reaction is appropriate -- for Merck -- and the analysts are about right as to its impact on Schering. Two separate notions -- two separate companies.

Don't get me wrong, we all know Merck enjoys the Cholesterol Joint Venture profitability, but on the 2007 Merck year-end-earnings call, Richard T. Clark indicated that Merck then-expected to be able to fill "almost all" of the Vytorin J/V's 2008 shortfall, at the net-income line, with other collaborative ventures, which are just now coming on-line.

So "the press" about how bad this all has been -- is accurate, insofar as the stories refer to Schering's future results of operations. And yet, at the same time, the relatively muted market-response, lately-seen in Merck's stock price-performance, is appropriate for Merck's much larger size, lower-leverage and higher earnings-quality/diversity -- than Schering-Plough.

Said another way, then, Schering-Plough is likely very-fully-valued at anything over $15, unless Merck unambiguously signals that it has seen only scant fall-off in scripts for Vytorin/Zetia, on Monday morning. And that would seem very-nearly-impossible, given that IMS has consistently reported between 28 percent and 39 percent daily, and weekly, Vytorin/Zetia declines (in year over year comparables), post the March 30, 2008 ACC Panel Discussion of the ENHANCE results.

It will be a very rocky NYSE open, indeed, for Schering -- if Clark indicates that the J/V scripts are off more -- by Merck's internal calculations -- than the third-party IMS data has thus far revealed. Schering would be very lucky to stay above $14.50 territory, should that be what Clark has to say.

I would hope that all of the above becomes more widely-understood, over on Wall, at Broad Sreet, after Monday morning. We shall see.

A Look at the Congressional Investigations. . . .

Other readers asked the following questions, earlier this week:

If the ongoing Congressional probe was to unearth enough evidence, or a clear smoking gun, in relation to the alleged delay in the release of the Enhance trial data what would be the next step? As a non-American, I'm not familiar with the intricacies of your legal/parliamentary system. Would the main protagonists be subpoenaed to testify before a hearing? Could they be found 'guilty' in such a forum, and if so, are there precedents for the punishments that would be forthcoming?

My answers:

Congressional committees may call hearings at any time. They usually ask the witness to appear voluntarily, but the Committees -- both of the House, and the Senate -- are able to issue subpoenas to enforce these "invitations". This is almost never necessary.

The Schering executives may well be asked to testify before Congress, in advance of, and even without any "findings" -- the House, and Senate, Committees act as investigatory bodies.

A bad day of testimony -- or a bad report out of the Committee -- would be a[nother] public relations disaster for Schering-Plough. So, they'll likely cooperate (or, at least, offer the "appearance" of doing so).

The more important legal (as opposed to public relations) wrangling will likely take place in our courts -- there are over 100 lawsuits pending, many of them seeking class action certification (to act on behalf of thousands of parties), and many of them alleging RICO (racketeering) violations, securities fraud, consumer fraud and ERISA (retirement fund) violations. . . .

It is too early to tell how these will all turn out, but do check the left-margin links, of the site, for summaries of each "kind" of lawsuit/complaint, as well as a run-down on where Sen. Grassley's committee stands, and what Chairman Dingell's House Committee has been up to of late, on this score. . . .

One outcome of the Congressional hearings could be new, additional legislation, to restrict or eliminate Medicare or Medicaid reimbursement for classes of drugs not shown -- by scientific evidence -- to be an improvement over existing, lower-cost, proven therapies. Or, the Congress could decide to add to the legislative burden on advertising drugs. . . . Or, it could legislate increased "Sunshine in grant, and gift" laws, related to Pharma-sponsorship of medical associations, or doctors, or teaching hospitals -- for example. . . .

There are, in actuality, very few limits to the longer-term sorts of ways that these Congressional investigations could end badly for Schering-Plough.

And, another question, along these lines:

What will be the fine & disgorgement penalty?

Again, my answers:

Well, it will likely take a while to sort this out -- though I don't believe Schering has -- as yet -- acknowledged officially whether the SEC is investigating these matters, at all. [Personally, I strongly suspect the SEC is, based primarily on the volume, and time-of-dwell visits/hits originating from wthin the DC office of the SEC -- to this website. Wild!] That acknowlegment will likely come in the Form 10-Q for SGP, for the quarter ended March 31, 2008 -- if it comes, at all.

So all of that (fines and disgorgement) -- if it comes, at all -- is several quarters away, yet, at the earliest. . . .

I'll update this, from time to time, as developments warrant.

An Emerging Legal Difficulty -- for ERISA Class Action Suits -- like the Schering ones. . . .

[UPDATED 5.4.08: -- The first ERISA suit has been filed, employing my newly-revamped theory, a theory to avoid Judge Easterbrook's cogent musings, below -- cool! It was just filed against Merck, in relation to many of the subjects covered by this blog.]

A little while ago, I said I'd summarize the ERISA suits filed against Schering-Plough's Plan Fiduciaries, toward the end of this post. In the mean time, a very well-thought-of federal judge, on the Seventh Circuit -- Judge Frank Easterbrook -- has authored, and now published, an opinion that tends to cast doubt on of the viability of most ERISA suits of the kind now being brought against Schering.

Now, to be fair, what Judge Frank Easterbrook recently wrote (in PDF format) was, strictly speaking, obiter dicta (that is, not essential to his disposing of the case before him -- think of it more of an editorial comment, if you will), and yet, because he is so-well-regarded, it may be the way "the path of the law" will ultimately evolve. I'll get to that in a minute; first a summary of the Schering ERISA suits:

Some of Schering's Puerto Rico employees and some of its U.S. employees (as well as current Schering retirees living in each place) have sued (in addition to Schering itself) the so-called "Plan Fiduciaries" that oversee Schering's retirement plans, alleging in essence that the plans should not have permitted employees and retirees to invest in Schering stock during the period of time from April 1, 2006, through March 31, 2008. The central notion here is that Schering executives -- including, presumably, the Plan Fiduciaries (as it is not uncommon to have current financial officers of Schering -- the public company -- serve also as ERISA "plan fiduciaries", and that would seem to have been true in Schering's case, based on the ERISA suits I've reviewed, thus far) should have prevented the employees and retirees from investing in Schering stock during the period that the ENHANCE study results remained undisclosed to the investing public. It is doubtless true that these pension-plan investors have suffered much the same losses as the general In Re Schering-Plough/ENHANCE Securities Litigation class action plaintiffs have alleged.

". . . .Plaintiffs are participants in the retirement plan for [Schering-Plough's] employees. Each participant exercises some control over the investments in an individual account in this defined-contribution plan, though the plan and its trustees may limit what assets an account may contain and when trading may occur. In this suit under the Employee Retirement Income Security Act, plaintiffs contend that [Schering-Plough] and some of the plan’s trustees have violated §409(a), 29 U.S.C. §1109(a), in their capacity as fiduciaries. The defendants’ failing, according to the complaint, is that they allowed participants to invest in [Schering’s] stock, despite knowing that it was overpriced in the market and hence a bad deal. . . .

In order to pursue a claim under §409(a) of ERISA, the participants first need a private right of action. They invoke §502(a)(2) of ERISA, 29 U.S.C. §1132(a)(2), which says that suit may be brought “by the Secretary [of Labor], or by a participant, beneficiary or fiduciary for appropriate relief under section 1109 of this title”. . . .

LaRue v. DeWolff, Boberg & Associates, Inc., 128 S. Ct. 1020 (2008), holds that §502(a)(2), and thus §409(a), may be used by the beneficiary of a defined-contribution account that suffers a loss, even though other participants are uninjured by the acts said to constitute a breach of fiduciary duty. . . ."

"What was Judge Easterbrook's boggle?", then, you might ask. . . . Well, he has quite-cogently pointed out, I think, that expecting an ERISA Plan Fiduciary who is also a corporate "insider" at the Plan's public-parent company (Schering-Plough), in the meaning of the federal securities laws and regulations, to use his or her "inside information" (the ENHANCE study difficulties, pre-disclosure, before January 14, 2008) to benefit only the ERISA Plan participants, over all other investors (by warning them to "get out" of Schering stock, or keeping them from buying it, in the first place) would -- itself, plainly be a violation of the SEC's insider trading rules:

. . . .Corporate insiders cannot trade on their own behalf using material private information, good or bad. See generally United States v. O’Hagan, 521 U.S. 642 (1997); Dirks v. SEC, 463 U.S. 646 (1983). In Harzewski we raised the question whether they may act on such information in their role as fiduciaries for pension plans. 489 F.3d at 808. That question remains unanswered but must be resolved in plaintiffs’ favor if they are to prevail.. . . .

So, Judge Easterbrook reasons, it would be a "steep hill" for ERISA plaintiffs to climb, to be able to prove that the federal ERISA scheme expects that corporate executives will knowingly violate federal SEC regulations, in order to fully-discharge their federal fiduciary duties to ERISA plan participants. That, he reasons, cannot be a result the law expects. And, he is right, I think.

What remains unwritten in this recent obiter dicta -- from Easterbrook's opinion -- is that, perhaps, for exactly this reason, corporate "insiders" should not serve as ERISA Plan fiduciaries, in the first place -- where -- as here -- the Plan allows an investment in the securities of the public-parent company.

So, it seems (to me, at least!), that the Schering ERISA suits should be recast, then, to allege that (to the extent a future court finds Judge Easterbrook's obiter dicta persuasive, and so holds, in a case that presents this issue, squarely) the design of the Plan was "fatally-flawed by inherent conflicts of interest" -- and that the public-parent ought to answer in damages for not having fully-disclosed and explained this inherent conflict of interest -- a conflict created by the structure, itself -- when the parent named insiders as ERISA Plan Fiduciaries.

That may well turn out to be the ERISA plaintiffs' class-action bar's counter-punch to Judge Easterbrook's otherwise very well-reasoned editorial comment.

As ever, we shall see. And so, if you came here looking for a Schering Plough ERISA class action suit summary, you left with an added bonus -- a "path of the law" musing, gratis -- to boot!

Lead Plaintiffs; Counsel Appointed Today in Securities Actions

U.S. District Court Judge Dennis Cavanaugh just entered an order appointing the so called "Public Pension Funds" as Lead Plaintiffs in the securities actions, which will be henceforth known as "In Re Schering Plough Corporation/ENHANCE Litigation (Case No. 2:08-397, Lead Case in the Securities Class Action)".

This means that very significantly-interested, sophisticated senior executives of a series of institutional investors will make the decisions that guide this litigation, on behalf of all the various investor-plaintiffs in this putative federal securities law class-action. That is not particularly good news for Schering-Plough, and its counsel. As ever, click the images, above and below, to enlarge them:

Organon's Raplon Qui Tam/False Claims Act matter -- "Why so long under seal?"

All of this was from an era when Organon was in pre-acquisition-by-Schering mode, but it still belongs here, because it is likely to have continuing ramifications for Schering-Plough, on a "going-forward" basis -- settlements, damages, possible consent-decrees, and the rather pedestrian distraction of having to defend it.

So, earlier I had said I would look into why this case was under seal for so long. It seems that the Claimant/Relator [or his counsel], put himself a bit of a bind, back in 2004. It seems that a state-court-wrongful-discharge claim filed by the Claimant, on very-similar facts, was on the verge of settling when -- in the midst of making written assurances that no other proceedings alleging the same facts were pending, before any other court -- it all broke down.

There was this "Star Chamer" Qui Tam proceeding, you see. . . . and, at least insofar as the record reflects, the Relator/Claimant believed he was prohibited from even disclosing the existence of the Qui Tam matter, to Organon, prior to that settlement.

Several courts have ruled against the Claimant, since then, on this notion, leaving him with effectively only a False Claims Act claim against Organon, it would seem.

So, if it is true that all criminal investigations into this matter have been closed, it would make logical sense to "unseal" the proceedings, and allow the Claimant to move forward with serving his complaint, and discovering his case.

That is pretty much the way it looks now. . . . I'll report back, if I see something contrary, here, over time.

In answer to a reader, over at CafePharma. . . .

These questions deserve more-complete answers -- and so, I'll return later today, to provide 'em, but this is the thumbnail version I gave, just now, on CafePharma's boards:

From: Anonymous -- Today, 08:39 AM

"....thank you for your fine work...I'm a big fan of yours from the Yahoo! board.

What I can't figure is how you know so much about SP...did you work there? Or are you a journalist?

What do you make of Bots' report dated Jan 2007 which said that the data were 'fine'? Why did it take 10 months to convene the infamous end-point changing advisory board after that? Does that sound like a delay to you? But what is the problem, since delaying the data isn't illegal?

Thanks"

My answers, for now, are below, in green -- other duties call me, at the moment -- but, I will return to more fully flesh these answers out, with links (and some editorial asides):

Smile -- I've NEVER worked for Schering-Plough; I am NO journalist. Did you ever see "Three Days of the Condor"?



I am a. . . . reader, I guess. I just read. . . everything. I've spent some time really "reading up" on SGP, over the past three months.

Now, your questions do deserve answers, and I do have my opinions(!), but I want to be careful not to libel/defame any private person. I do think Dr. Bots was right. I think the data were "fine." I think it likely that Schering and Merck just didn't "like" what the data pretty-plainly implied. Note that I've echoed, and amplified, Sen. Grassley's publicly-aired concerns that the very-likely outcomes from even the "blinded" data, were discernible to a medically-trained eye, long-before the data were actually, formally, unblinded.

So, I think -- emphasis on "think", here -- Schering and Merck asked to have the data "refined" -- to try and tease some statistically-significant outcome, from it. But even the expert panelists then later agreed, on November 16, 2007, that it was likely that any variance in the "blinded data" could be the result of pure chance, not treatment/control arm outcomes. In a word -- the study had utterly failed to show any benefit -- in my humble opinion, of course(!).

I'vell likely posted answers to your specific questions on my blog, where I can links to each piece of authority, for each statement, above.

Now, I will say that -- as a matter of law -- even innocently delaying such data, and then selling stock to the public at $27.50 (near the high-price for the year!), is generally-frowned upon, over at the SEC.

Note that Schering sold $3.8 billion of equity, and another ~$4 billion of debt -- right in the middle of this "entirely innocent delay" on a project that impacted (or should I say sustained) 60-plus percent of Schering's 2007 profitability. That much is entirely undisputed -- and fascinating, no?. . . .

Hopefully, I'll be back soon, to add to this.

Raplon -- Not Discoverable on Diligence, by Schering-Plough(?). . . .

One note, though -- because the Organon Qui Tam/False Claims Act matter was so tightly-sealed, it is not likely that Schering, or its bankers -- even with pointed inquiries -- could have uncovered that this mess had become civil litigation, and a criminal inquiry, prior to acquiring the Organon businesses. Remember, now, the case was not ordered unsealed until February 2008.

Just for what it's worth. . . .

However. . . . it remains an entirely open question as to whether the 1999 to 2002 Raplon documents -- the FDA submissions, and the related back-up files, for example -- still remained in the permanent file archives at Organon. It would have been customary to have a junior associate (for Schering) walk through each material FDA approval file-jacket, inside Organon's HQ, prior to paying $14.4 billion for it.

The interesting question will be "How much of what Dr. Feldstein alleges was there. . . is still there?"

We will learn, in the coming months, I suspect.

It seems the Pre-Acquisition Organon matter WAS Criminal. . . .

From a review of the Boston case file, it is clear that a criminal investigation of the predicate facts was underway at various points between 2002 and 2005, at least.

Once the case was transferred to New Jersey, and eventually unsealed, what was a Qui Tam Act suit, was amended to simply assert False Claims Act violations. Here are some of the salient details from the as amended, and unsealed, complaint. [I am still working up a narrative that explores the balancing of interests previously at-play in this case -- on the one hand, the fundamental right of each litigant to be present -- and at least witness -- proceedings on his case, versus the preventing of a leak, or other form of compromise, of a then-pending criminal investigation, on the other -- back later with that.]

. . . .4. Dr. Feldstein, individually and on behalf of the United States of America, seeks relief pursuant to 31 U.S.C. § 3729, et seq., commonly known as the False Claims Act. Pursuant to 28 U.S.C. § 1331, this Court possesses subject matter jurisdiction over this claim because it presents a question of federal law. . . .

6. For many years, Organon expended enormous time, money and resources developing and ultimately obtaining regulatory approval for a neuromuscular blocking agent known as Raplon. Raplon was designed to paralyze a patient’s throat area to allow the painless insertion of an endotracheal tube into a patient’s trachea. An endotracheal tube is designed to facilitate the administration of oxygen and anesthetic agents to patients during surgical or obstetric procedures.

7. On August 18, 1999, Raplon received regulatory approval from the United States Food and Drug Administration (the “FDA”). Organon subsequently engaged in extensive efforts to market Raplon to physicians in the United States and abroad.

8. Organon hoped that Raplon would be superior to its competitor drugs because it induced paralysis so rapidly. For example, Raplon would paralyze a patient’s throat area more quickly than the drug most often used, succinylcholine, an older generic drug that competed with Raplon.

9. Raplon, however, sometimes produced an unexpected serious, and sometimes fatal, side effect which met the definition of a serious adverse event (“SAE”) as set forth in the FDA regulations. Certain individuals would suffer severe respiratory problems and, at times, even, “chest rigidity” after receiving Raplon, nothing like a brief bronchospasm (a condition that occurs when a patient’s bronchial tubes close and prevent breathing.)

10. The SAEs generated by Raplon were unique in their severity when compared with similar drugs of its class. The seriousness of these episodes was described as “like having a clamp over the airway” or “the chest felt like concrete”. These SAEs would cause a patient’s entire thoracic region to contract so completely that it became extremely difficult or impossible for physicians to ventilate patients. In certain instances, physicians were unable to reverse the condition before the patient succumbed from a lack of oxygen.

11. On May 31, 2000, Organon hired Dr. Feldstein to serve as Associate Director of Medical Services for Antithrombotics. During his employment, Dr. Feldstein acquired nonpublic information concerning the clinical problems associated with Raplon. This included evidence that Organon had knowingly concealed information and made misrepresentations to the FDA during and after the regulatory approval process concerning SAEs caused by Raplon. . . .

12. In early 2001, Organon’s Associate Director of Anesthesiology, Dr. Daniel Sack, informed Dr. Feldstein that Raplon had caused numerous SAEs and multiple deaths since its approval. Dr. Sack also disclosed to Dr. Feldstein that he was in possession of a private e-mail suggesting that personnel at Organon knew prior to Raplon’s approval by the FDA that Raplon caused SAEs.

13. The e-mail was prepared by Organon’s Director of Hospital Products, Dr. Jonathan Deutsch, and sent to Organon’s Vice President of Medical Services, Dr. Deborah Shapse, prior to the FDA’s approval of Raplon. Dr. Sack discovered the e-mail on Dr. Shapse’s laptop computer after Organon had reassigned the laptop to Dr. Sack for his use. . . .

16. The e-mail also indicates that “Michael may be correct in not wanting to draw attention to bronchospasm.” (emphasis added). Upon information and belief, Michael is a reference to Michael Novinsky, Organon’s Head of Marketing.

17. Dr. Feldstein also discovered that the reference in the e-mail to the Dallas meeting was related to a meeting of the investigators involved in Raplon’s US Phase III Pivotal trial at which Organon disbursed topline data. . . . The investigators understood that these SAEs were caused by Raplon, even though they had used a double blinded trial, because the investigators never experienced this type of SAE during the many years they had worked with the comparator drug succinylcholine. . . .

19. After reviewing other internal, non-public documents and Organon’s various submissions to the FDA, Dr. Feldstein concluded that Organon had failed to disclose to the FDA instances and the severity of the SAEs associated with Raplon both before and after obtaining FDA approval. Upon information and belief, Organon’s submissions to the FDA contained numerous quantitative and qualitative misrepresentations concerning Raplon’s propensity to cause SAEs, which were purposely labeled only as expected and non-life threatening adverse events (“AEs”), such as coughing or wheezing, bronchospasm and other airway symptoms, contrary to the FDA and CFR definitions.

20. Moreover, after receiving FDA approval, Organon never advised doctors or patients of the potential for SAEs in any labeling or package insert and never had a treatment protocol in place prior to or even after launch. . . .

21. The extent of the danger posed by Raplon came to light following its approval by the FDA. In or about August 1999, physicians began reporting instances of SAEs related to Raplon to Organon’s safety department. Organon disingenuously suggested that the cause of these SAEs might have been related to the incorrect insertion of endotracheal tubes by physicians when it knew that Raplon was the true cause.

22. Many individuals died from Raplon. Additionally, reports from physicians indicate that Raplon also caused a significant number of non-fatal cases of SAEs in patients which, in turn, led to innumerable surgical delays, cancellations and/or other unnecessary medical expenses associated with treating same.

23. Organon’s actions have caused false claims to be submitted to and paid by Medicare and Medicaid, which are agencies of the United States government. Raplon’s approval by the FDA was invalid because it was obtained by Organon as a result of a willful failure to disclose and/or through the use of fraudulent and/or deceptive information. Organon, therefore, caused many hospitals, physicians and/or patients to submit false reimbursement claims to Medicare and Medicaid associated with Raplon they otherwise would not have been able to submit. Moreover, Medicare and Medicaid would not have reimbursed hospitals, physicians and/or patients for the use of Raplon had those agencies known that the FDA approved Raplon without the benefit of adequate disclosures regarding the potential for SAEs. Organon’s actions also have caused Medicare and Medicaid to pay for medical costs associated with treating SAEs that never would have been incurred had adequate disclosures been made. . . .

As ever, there will be is now more to come, on this.

A Pre-Acquisition Organon Mess has been Unsealed by Judge Cavanaugh. . . .

As many other capable bloggers have indicated, it appears that Organon was involved in some highly irregular efforts to keep one of its drugs, used in the operating suite, on the market, long before Organon was acquired by Schering (1999 through 2002). Ultimately, these marketing efforts failed, and Organon withdrew the product -- allegedly, in part, due to increased incidence of mortality -- while the drug was employed in the OR.

What interested me about this particular lawsuit -- as I read through the docket -- was (1) that the same predicate events did result in a criminal investigation, out of the Boston US Attorney's office (which has since apparently been closed), and (2) that it was, for the vast length of its prior existence, held under a very strict -- nay, all-but-air-tight -- seal. Click it to enlarge, here:



This sealing -- and the February 2008 unsealing -- seem unusual, and are thus what I'll focus on, here, tonight. At one point, there were in camera proceedings held, and orders entered, by the federal District Court in Boston -- that the nominal claimant/plaintiff was entirely prevented from learning about -- even after the fact.

That is rather extraordinary, even in the otherwise cloak-and-dagger world of federal Qui Tam Act (QTA) suits, brought by individuals (but in the name of the United States of America). Some times, when a criminal indictment is contemplated, but not yet unsealed, the civil QTA matter will be stayed (or "put on hold") until the indictment issues, or the investigation otherwise closes, without any indictment issuing.

But to hold hearings, and to enter orders, on a claimant's case -- without letting his lawyer be present -- or even notifying his own lawyer, after the fact, is in my experience, all but jaw-slacking. That this case stayed sealed for almost seven years, is likewise astonishing. It was transferred down to New Jersey (when the claimant moved there), and into the federal district courts there, about a year and a half ago. More on that in a second.

I am still reviewing all the formerly-sealed documents I downloaded last night, out of Boston, and New Jersey, to try to ultimately sort out what happened -- and why, procedurally, this remained in a "Star Chamber" for so long. I'll update prominently, here, if anything really interesting turns up, in that regard.

But, now -- and my punchline, here -- the case was unsealed in February 2008 by none other than Judge Cavanaugh's own Magistrate Falk -- the very same Judge Cavanaugh who will now oversee all 33-plus of the consolidated Schering consumer fraud suits in MDL 1938. At first blush, that makes a lot of sense, as he will no doubt, become an expert in the intricacies of Schering's inner workings -- as part of his review of the consumer fraud multi-district litigation.

I have set, in running-text, the entire the order, below, though, to point out that Judge Cavanaugh's court unsealed the case "sua sponte" -- which means "on his own intiative" -- or, without anyone moving to ask him unseal it. The Court felt it important to unseal this case. Why? I hope to sort the answer to that question out in the next few days. Until then, take a look at this truly extraordinary order:

~~~~~~~~~~~~~~~
UNITED STATES DISTRICT COURT
DISTRICT OF NEW JERSEY
~~~~~~~~~~~~~~

UNITED STATES OF AMERICA,
Plaintiff,

v.

ORGANON, INC., et al.,
Defendants.

Hon. Dennis M. Cavanaugh
Civil Action No. 07-2690 (DMC)

~~~~~~~~~
ORDER
~~~~~~~~~

THIS MATTER having come before the Court sua sponte; and it appearing that this case has been proceeding under seal pursuant to 31 U.S.C. § 3730(b)(2); and it further appearing that the Government has filed a notice of election not to intervene in this matter; and for good cause shown;

IT IS on this 11th day of February, 2008 ORDERED that the complaint in this matter be and hereby is unsealed; and it is further ORDERED that plaintiff serve the complaint in accordance with Rule 4 of the Federal Rules of Civil Procedure.

/s/Mark Falk

MARK FALK

United States Magistrate Judge


Orig.: Clerk of the Court
cc: Hon. Dennis M. Cavanaugh, U.S.D.J.

All Parties

File

Wild. What was up with all of that, I wonder. But, fret not, gentle readers -- I'll go find out. Heh.

Some More Details, here -- the Schering Consumer Fraud Complaints. . . .

I have been quite dilatory in getting this post put together, but I had promised, as part of the MDL transfer order news (re these 33 cases), on Friday last, that I would summarize the more salient allegations of those complaints -- so, here we go:

The Marketing of Zetia and Vytorin

. . . .16. Defendants have consistently marketed Zetia to consumers and physicians as a drug that lowers LDL in a “different” manner, stressing that lowering LDL allegedly reduces or slows the buildup of plaque in arteries. For example, the Zetia website stresses that LDL cholesterol is bad because it allegedly builds up in the walls of arteries and forms plaque:

Cholesterol is a type of fat found in your blood. Your total cholesterol is made up of LDL and HDL cholesterol. LDL cholesterol is called “Bad” Cholesterol because it can build up in the wall of your arteries and form plaque. Over time, plaque buildup can cause a narrowing of the arteries. This narrowing can slow or block blood flow to your heart, brain, and other organs. High LDL cholesterol is a major cause of heart disease and stroke.



HDL cholesterol is called “Good” Cholesterol because it keeps the bad cholesterol from building up in the arteries.

17. The Zetia website also stresses that Zetia reduces “bad” cholesterol, i.e., LDL. For example, a video on the Zetia website states in part that “when added to a healthy diet, [Zetia] is proven to lower Bad Cholesterol. In a clinical study of people with high cholesterol, ZETIA lowered Bad Cholesterol by an average of 30 points—that’s 18%.* These are average results. Individual results may vary.”

18. Similarly, the Vytorin website asserts that LDL is “bad” cholesterol because it allegedly builds up in artery walls to form plaque. The website states, “LDL (low-d ensity lipoprotein) cholesterol is known as ‘bad cholesterol’ because it can build up in the walls of your arteries and form a thick, hard plaque that clogs your arteries and blocks the flow of blood to your heart and brain.” The Vytorin website also states: “Having high LDL (bad) cholesterol can put you at risk for heart disease, heart attack, or stroke—especially if you have any of these additional risk factors. . . .”

19. The Vytorin website then asserts that Vytorin lowers “bad” cholesterol, creating the plain impression that taking Vytorin will decrease the buildup of plaque by lowering LDL.

The website states, “VYTORIN is proven to lower bad cholesterol 45%–60% (average effect depending on dose; 52% at the usual starting dose) when diet and exercise aren’t enough. It’s the only product to help block the absorption of cholesterol and reduce the cholesterol your body makes naturally. You should still exercise and watch your diet while taking VYTORIN.”

20. Before and throughout the Class Period, Defendants marketed Zetia as lowering “bad” cholesterol, while also claiming that the reduction of “bad” cholesterol decreases the buildup of plaque in arteries.

. . . .23. The ENHANCE trial was completed in April 2006, but Defendants did not release any results in either 2006 or 2007.

24. After several news reports about the delay of the results, Merck/Schering announced in December 2007 that it would be releasing the results shortly. Instead, in November 2007, Defendants announced that they had changed the ENHANCE trial’s “primary endpoint,” i.e., the main medical result being measured. Specifically, Defendants stated that they would focus on the common carotid artery.

Previously, Defendants had stated that the primary objective of the ENHANCE trial was to measure changes at three points of the carotid artery –- the internal carotid, the carotid bulb and the common carotid –- at the beginning of the study and after two years. After an outpouring of criticism, Defendants announced that they would not change the primary endpoints. But Defendants still did not release any results of the trial.

25. Finally, on January 14, 2008, Defendants issued a press release to announce results of the ENHANCE trial. . . .

VIOLATION OF NEW JERSEY
CONSUMER FRAUD ACT

. . . .40. Under the New Jersey Consumer Fraud Act, N.J. Rev. Stat. §§ 56:8-1, et seq., Defendants have a duty to refrain from unfair acts or practices in the promotion and sale of Vytorin and Zetia to Plaintiff and the Class Members.

41. By means of the conduct alleged in this Complaint, Defendants violated the New Jersey Consumer Fraud Act in the promotion and sale of Vytorin and Zetia. By failing to timely release the results of the ENHANCE trial, which demonstrates that Zetia does not reduce or slow the buildup of arterial plaque, Defendants reaped billions of dollars in profits that they otherwise would not have obtained and caused Plaintiff and the Class Members to suffer an ascertainable loss by expending monies on the expensive drugs Zetia and Vytorin when they would have obtained the same results by paying for the generic form of Zocor, known as simvastatin.

42. Defendants engaged in that unlawful conduct for the purpose of obtaining billions of dollars in sales of Vytorin and Zetia during the Class Period.

43. Under N.J. Rev. Stat. §§ 56:8-2.11 and 56:8-2.12, Plaintiff and Class Members are entitled to a refund of all moneys acquired by Defendants by means of the unlawful practices alleged in this Complaint, in an amount to be determined at trial. . . .

. . . .47. Plaintiff believes that New Jersey law should apply nationwide. However, if New Jersey law does not apply nationwide, Defendants’ deceptive, unconscionable and/or fraudulent representations and material omissions to consumers and the public, including Plaintiff and the Class Members, constituted unfair and deceptive acts and practices in violation of the following state consumer protection statutes:

a. Defendants have engaged in unfair competition or unfair or deceptive acts or practices in violation of Ariz. Rev. Stat. § 44-1522, et seq.;

b. Defendants have engaged in unfair competition or unfair or deceptive acts
or practices in violation of Ark. Code § 4-88-101, et. seq.;

c. Defendants have engaged in unfair competition or unfair or deceptive acts
or practices in violation of Cal Bus. & Prof. Code § 17200, et seq.;

d. Defendants have engaged in unfair competition or unfair or deceptive acts
or practices in violation of Colo. Rev. Stat. § 6-1-105, et. seq.;

e. Defendants have engaged in unfair competition or unfair or deceptive acts
or practices in violation of Conn. Gen. Stat. § 2-1 10a, et seq.;

f. Defendants have engaged in unfair competition or unfair or deceptive acts
or practices in violation of 6 Del. Code §§ 2511, et seq. and 2531, et. seq.;

g. Defendants have engaged in unfair competition or unfair or deceptive acts
or practices in violation of D.C. Code § 28-3901, et. seq.;

h. Defendants have engaged in unfair competition or unfair or deceptive acts
or practices in violation of Fla. Stat. § 501.201 et seq.;

i. Defendants have engaged in unfair competition or unfair or deceptive acts
or practices in violation of Haw. Rev. Stat. § 480-1, et seq.;

j. Defendants have engaged in unfair competition or unfair or deceptive acts
or practices in violation of Idaho Code § 48-601, et seq.;

k. Defendants have engaged in unfair competition or unfair or deceptive acts
or practices in violation of 815 ILCS §505/1, et seq.;

l. Defendants have engaged in unfair competition or unfair or deceptive acts
or practices in violation of Iowa Code § 714.16, et seq.;

m. Defendants have engaged in unfair competition or unfair or deceptive acts
or practices in violation of Kan. Stat. § 50-623, et seq.;

n. Defendants have engaged in unfair competition or unfair or deceptive acts
or practices in violation of Ky. Rev. Stat. § 367.170, et seq.;

o. Defendants have engaged in unfair competition or unfair or deceptive acts
or practices in violation of La. Rev. Stat. § 51:1401, et seq.;

p. Defendants have engaged in unfair competition or unfair or deceptive acts
or practices in violation of Md. Com. Law Code § 13-101, et seq.;

q. Defendants have engaged in unfair competition or unfair or deceptive acts
or practices in violation of Mich. Comp. Laws Ann. § 445.90 1, et seq.;

r. Defendants have engaged in unfair competition or unfair or deceptive acts
or practices in violation of Minn. Stat. §§ 325D.43, et seq.; 325 F.67, et seq.; and
325F.68 et seq.;

s. Defendants have engaged in unfair competition or unfair or deceptive acts
or practices in violation of Vernon’s Ann. Missouri Stat. § 407.010, et seq.;

t. Defendants have engaged in unfair competition or unfair or deceptive acts
or practices in violation of Mont. Code Ann. § 30-14-101, et. seq;

u. Defendants have engaged in unfair competition or unfair or deceptive acts
or practices in violation of Neb. Rev. Stat. § 59-1601, et seq.;

v. Defendants have engaged in unfair competition or unfair or deceptive acts
or practices in violation of Nev. Rev. Stat. Ann. § 598.0903, et seq.;

w. Defendants have engaged in unfair competition or unfair or deceptive acts
or practices in violation of N.H. Rev. Stat. § 358-A:1, et seq.;

x. Defendants have engaged in unfair competition or unfair or deceptive acts
or practices in violation of N.J. Rev. Stat. § 56:8-1, et seq.;

y. Defendants have engaged in unfair competition or unfair or deceptive acts
or practices in violation of N.M. Stat. § 57-12-1, et seq.;

z. Defendants have engaged in unfair competition or unfair or deceptive acts
or practices in violation of N.Y. Gen. Bus. Law §§ 349 et seq. and 350-e, et seq.;

aa. Defendants have engaged in unfair competition or unfair or deceptive acts
or practices in violation of N.C. Gen. Stat. § 75-1.1, et seq.;

bb. Defendants have engaged in unfair competition or unfair or deceptive acts
or practices in violation of N.D. Cent. Code §§ 51-12-01, et seq., and 51-15-01, et
seq.;

cc. Defendants have engaged in unfair competition or unfair or deceptive acts
or practices in violation of Ohio Rev. Stat. § 1345.01, et seq.;

dd. Defendants have engaged in unfair competition or unfair or deceptive acts
or practices in violation of Okla. Stat. § 15 751, et seq.;

ee. Defendants have engaged in unfair competition or unfair or deceptive acts
or practices in violation of Or. Rev. Stat. § 6464.605, et seq.;

ff. Defendants have engaged in unfair competition or unfair or deceptive acts
or practices in violation of 73 Pa. Stat. § 201-1, et seq.;

gg. Defendants have engaged in unfair competition or unfair or deceptive acts
or practices in violation of R.I. Gen. Laws. § 6-13.1-1, et seq.;

hh. Defendants have engaged in unfair competition or unfair or deceptive acts
or practices in violation of S.C. Code Laws § 39-5-10, et seq.;

ii. Defendants have engaged in unfair competition or unfair or deceptive acts
or practices in violation of S.D. Codified Laws § 37-24-1, et seq.;

jj. Defendants have engaged in unfair competition or unfair or deceptive acts
or practices in violation of Tenn. Code § 47-18-101, et seq.;

kk. Defendants have engaged in unfair competition or unfair or deceptive acts
or practices in violation of Utah Code § 13-11-1, et seq.;

ll. Defendants have engaged in unfair competition or unfair or deceptive acts
or practices in violation of 9 Vt. § 2451, et seq.;

mm. Defendants have engaged in unfair competition or unfair or deceptive acts
or practices in violation of Va. Code § 59.1-196, et seq.;

nn. Defendants have engaged in unfair competition or unfair or deceptive acts
or practices in violation of Wash. Rev. Code. § 19.86.010, et seq.; and

oo. Defendants have engaged in unfair competition or unfair or deceptive acts
or practices in violation of Wis. Stat. § 100.20, et seq.

48. Either directly or indirectly (through their physicians), Plaintiff and the Class Members relied upon Defendants’ misrepresentations and/or omissions (as described herein) in purchasing Vytorin and Zetia.

49. As a direct and proximate result of Defendants’ wrongful conduct, Plaintiff and the Class Members have been damaged by purchasing Vytorin and Zetia during the Class Period.

50. As a direct and proximate result of Defendants’ wrongful conduct, Plaintiff and the Class Members are entitled to compensatory damages, including treble damages and attorneys’ fees where permitted by law, and cost of this suit. . . .

. . . .52. Defendants have received benefits from Plaintiff and the Class Members in the form of the prices Plaintiff and the Class Members paid for Vytorin and Zetia during the Class Period. By failing to timely release the results of the ENHANCE trial, which demonstrates that Zetia does not reduce or slow the buildup of arterial plaque, Defendants reaped billions of dollars in profits that they otherwise would not have obtained and caused Plaintiff and the Class Members to expend money on the expensive drugs Zetia and Vytorin when they would have obtained the same results by paying for the generic form of Zocor, known as simvastatin.

53. Defendants are aware of their receipt of those benefits.

54. Defendants received those benefits to the detriment of Plaintiff and each of the
other Class Members.

55. Defendants continue to retain those benefits to the detriment of Plaintiff and the Class Members.

56. Under the circumstances, it would be inequitable for Defendants to retain those
benefits.

57. As a result of Defendants’ unjust enrichment, Plaintiff and the Class Members have sustained damages in an amount to be determined at trial and seek full disgorgement and restitution of Defendants’ ill-gotten gains acquired as a result of the unlawful or wrongful conduct alleged above. . . .

. . . .59. As a result of Defendants’ wrongful conduct, Plaintiff and the other individual Class Members were prescribed Vytorin or Zetia when they did not know, but would have known if Defendants had acted lawfully, that the ENHANCE trial reveals that patients who took Vytorin in the trial experienced more plaque growth than patients in the trial who took simvastatin.

60. Even though Defendants knew that patients who took Vytorin experienced more plaque growth than patients who took simvastatin, Defendants withheld that knowledge from the public until January 14, 2008. Defendants have thus placed members of the class at an increased risk of heart disease.

61. Plaintiff and the individual Class Members are entitled to recover the costs of visiting their physicians to determine which course of action to take in light of the fact that patients who took Vytorin in the ENHANCE trial experienced more plaque growth than patients who took simvastatin as well as the costs incurred for necessary testing. . . .

Now, I haven't forgotten -- I still haven't finally found time had a chance to summarize my thoughts on the Schering ERISA claims yet. That post will be out by week's end. Done.

A Quick Update -- Courtesy of PharmaKing, here.

He'll keep posting updates, so do go look, from time to time, here:

. . . .Here are the weekly IMS figures.

. . . .for the Week Ending April 4, 2008:

Vytorin -- year over year:

New: -29%
Total: -20%
Market share (of New): 8.2%

Zetia -- year over year:

New -26%
Total -19%
Market share (of New) 4.8%

Crestor -- year over year
[this is an AstraZeneca product]:

New +10%
Total +6%
Market share (of New) 9.5%

Wow. Each figure is a new record, both up and down.

H/T: PharmaKing

While we wait for the current (2007) Schering-Plough SEC Proxy -- Executive Compensation data. . . .

I (once again) had an interesting discussion, elsewhere, that led me to start thinking about this question:

What sorts of financial pressures -- carrots and sticks -- presently exist at Schering-Plough, relative to motivating CEO Fred Hassan, and correlatively, the top six or so executives of the company?

Let me be more precise -- at the outset, of course, (almost) all CEOs have stock. And that is appropriate. Executives should hold enough stock (acquired from personal funds -- not simply granted, gratis, by the Compensation Committee of the Schering Board) to be keenly focused on shareholder interests (and returns). What is hard to explain -- in this environment -- is continued, and large, outright grants of stock, SARs or options. In a very real sense, many CEOs don't really feel they have "surrendered" anything much to receive them -- so they are often viewed as a pure upside. [N.B., as more fully described below, once the CEO gets used to thinking of the vested portion of these equity-related grants as "owned", s/he will also feel as though every drop in the stock price is "money out of his/her pocket".]

So, with that backdrop, we'll need to start by looking at 2006 -- the last full-year for which we have data (since Schering-Plough hasn't filed this data for 2007, with the Securities and Exchange Commission, yet):

Mr. Hassan's "All-In" 2006 compensation was $29.6 million. Wow.

However, about $14.6 million of that amount (mostly in the form of Stock Options and SARs -- "equity" compensation) is subject to forfeiture, if Mr. Hassan loses his seat (doesn't stay employed by Schering), or if Schering misses its performance objectives, by very large margins, in future years. And, at first blush, that seems quite reasonable. See page 37 of this link (last year's Schering SEC-filed proxy statement); then add-up all the blue and green figures (those subject to forfeiture, on time, or performance measures) -- then subtract them from the $29.6 million "all in" figure.

I am not so sure that the about 50-50 percent split (between cash/kept, and yet-to-be-earned compensation) makes all that much sense, here -- when things have already turned so-significantly south for Schering, that it has been forced to announce a massive restructuring.

Consider -- if things are really dire at Schering, and the CEO comes right out and says so, he likely loses his seat. And then, he forfeits most of the $14.6 million (and that is just 2006 money, not 2007, beyond). Now, though, I must point out -- to be fair -- he gets to keep about $15 million (just for 2006). If he says things are "okay, but we'll struggle a bit", he likely keeps his seat -- and the $14.6 million, and more, in future years. If it turns out he was/is "shading the truth", he almost certainly gets dumped -- but he probably avoids criminal prosecution -- and keeps the bulk of the (other) $15 million (for 2006 alone, more in 2007, and beyond).

So -- Do you think it is possible that Mr. Hassan (with the rest of the Schering top-six) has an incentive to say "things are tough, but more or less on track"? Said another way, do you think he wants to "give-back" (from his perspective, at least) half of his 2006 compensation, or surrender the CEO seat, and forfeit all those future gains? Which do you think he will choose?

[LATER UPDATE: I forgot to mention, in addition, that for every $1 Mr. Hassan can keep Schering common stock from falling, he "saves himself" $4,070,799.30, beginning May 1, 2008 -- and once May 1, 2009 passes, he'll save himself $4,422,799.30, for each $1. This will be true, even if the Board never awards him another single share, or option. Said another way, for every $1 decline in SGP stock, Mr. Hassan loses over $4 million of value -- a very powerful incentive to try to stabilize the recent Schering stock price slide. From a closing price of $27.24 per share, on January 10, 2008 -- to $ 16.55, the close on April 14, 2008, then, Mr. Hassan has seen his equity value drop by over $43.5 million (albeit a not yet realized, or paper, loss -- as he hasn't sold anything to "fix" these declines).]

This is why it is so terribly important to find scrupulous CEOs -- and/or retain very tough Compensation Committees -- at the Board of Directors level. Otherwise, the whole exercise simply becomes one long gravy-train for extreme upper management -- with no incentives to make really tough decisions, for the longer-term health of the company. Think here of Mr. Hassan's statement, upon entry in 2003, that he would see to it that Schering would not be dependent on one drug product in the future. Yet, here we are -- in 2008 -- with at least 55 percent of Schering's profitablity tied to the Schering/Merck so-called "cholesterol franchise" -- the Vytorin and Zetia joint venture.

We will see -- when the new 2007 proxy is out -- whether the Schering Board is setting stringent perfomance objectives, to focus management on the tough decisions it will have to make this year, and beyond. But we haven't seen that data, yet. So, it remains an open question.

I will say that the payment of $29.6 million relative to 2006 performance. . . . doesn't exactly instill confidence that this Board will "rachet down" in tough times -- and "pay well", only for strong turn-around numbers, from here. But we shall see.

Do you think Schering is going to meet its performance objectives (they haven't even been announced yet!), in 2008?

Who knows? But in the mean-time, please take the poll, above-left, to enter your guess, as to CEO Fred Hassan's 2007 "All-In" compensation!

The full-text of Schering's letter, refusing Sen. Grassley's "Financial Sunshine" Request

In the interest of transparency -- offering a more fullsome disclosure of the underlying newsworthy documents -- and thus, it is hoped, allowing readers to make their own assessments of Schering's widely-reported recent refusal to provide financial grant-and-contribution information, relative to medical organizations and "medical opinion leaders" (in the manner which Eli Lilly & Co., among others, have already voluntarily agreed to disclose), I thought it would be useful to make the entire-text of Schering's letter to Senator Charles Grassley, (R-Iowa), available in an easy-view format.

Note that Sen. Grassley was not asking about PAC (political) contributions; similarly, the Senator was not asking about money to treating physicians, so much as he was asking about payments and grants to "opinion leaders" -- cardiologists at major teaching hospitals, and the like. So, to my eye, much of this letter, while salutory, and presumptively-accurate, is entirely non-responsive to the Senator's request. In any event, here it is -- click it -- to view full-sized image:



Make your own assesments, here: Is this letter responsive? Do you think most Americans really worry about whether their own local general practicioner (GP) doctor is "on the take" in some fashion? Or, do they worry more, that the so-called "leading experts in the field" have some undisclosed-reason to favor one course or treatment, over another? I think the latter; but you decide for yourself.

Interweaving the Schering Public Offerings Timeline, with the ENHANCE Email exchanges

Some other discussions have set me to pondering a bit about the following question:

Would a "duly diligent" review of SGP's affairs, by these firms, have uncovered all of this, in August and September of 2007?

That is what will need to be decided in court, but it seems clear that ENHANCE was already very much overdue at that point, and Dr. Kastelein had complained pretty bitterly, and openly, as early as July 2007 (apparently, right in the middle of the preparations for the Schering $3.8 billion common stock, and 6% convertible share offerings). Those tandem-offerings were priced on August 10, 2007 -- and typically, it would take a few weeks of advance work, to get all of the "ducks in a row" for offerings of that size. On Aug. 20, 2007, ten days after pricing the equity offerings, and presumably during the preparations for the US and Euro-debt offerings (see the next paragraph, below), Dr. Kastelein and Schering-Plough/Merck executives agreed to convene an expert panel to decide what to do about the ENHANCE study, according to a Forbes report. Wow. But wait! -- these timelines just got even more entangled:

On Friday night, April 11, 2008, we learned that during the pendency of Schering's €2 billion Euro-Note offering (September 19 to 28, 2007), and shortly after the pricing of the $2 billion US Schering Senior Note offering (on September 13, 2007), Merck executives were trying to help Dr. Kastelein get an ENHANCE meeting scheduled (from September 14-17, 2007), because it appeared to the Merck people, that the Schering-Plough Research Institute executives were dragging their feet. So some e-mails were exchanged, and then, vulgar profanities flew.

Would a duly-diligent underwriter have found out about all of this, by asking pointed questions -- and demanding to see all ENHANCE study deliberation documents -- relative to the ENHANCE delays? This would have represented over 60 percent of all of Schering's profitability, at that time -- so it could hardly have gone unnoticed, as an "immaterial matter". Moreover, there would have been at least four eight separate final due-diligence bring-down calls, on which this could have come up: on August 2, 2007, August 10, 2007, September 13, 2007, September 28, 2007, and then again, at the closings of each of the offerings, three days after these dates. The very same "no material developments" statements had to be made per the relevant underwriting agreement (for example) -- when Schering received the wired next-day funds (of $3.8 billion, $2 billion, and €2 billion, respectively) for the offering proceeds, from these underwriters.

But, did any of those calls cover any of this? Could Schering have volunteered the information? Did it? Should it have? The courts will have to decide.

Those will be among the more important issues in the securities lawsuits.

The vast majority of Schering employees are decent, honest, hard-working people. . . .

. . . .which is why this sort of e-mail traffic is so unfortunate -- here, the Lead Medical Investigator of the ENHANCE study (Dr. Kastelein) is trying to get a meeting scheduled with Schering-Plough and Merck executives, to go through ENHANCE issues, and apparently, the ball has been dropped on scheduling the meeting -- things aren't progressing. So, one of the Merck (Schering's partner) executives asks about the "level of priority" on the project, at the Schering-Plough Research Institute (or "SPRI", below) -- remember, this is about a year and a half after the study was completed. Profanity ensues. As ever, click to enlarge:



This sort of traffic might lead one to wonder whether SPRI executives had some "additional motivation" in not promptly following-up on these presumably-proper requests -- from the study's lead medical investigator, no less -- to schedule an important meeting.

Independent ENHANCE Panel MD: "This really overstates. . . We did not vote this."

~~~~~~~~~~~
UPDATED 4.18.08
~~~~~~~~~~~

A new lawsuit has been filed tonight, April 18, 2008, against Schering and Merck, alleging RICO pattern-activity violations, various state Consumer Anti-Fraud violations, Unjust Enrichment and common-law fraud. The most note-worthy feature of this suit, though, is that it picks up, almost word for word, much of what is written below, and adds it to the factual allegations already made in other suits -- to establish civil RICO enterprise racketeering pattern activities. This new federal suit is captioned "Plumbers and Pipefitters Local 572 Heatlh and Welfare Fund v. Merck & Co., Inc., Schering-Plough Corporation, and Merck/Schering-Plough Pharmaceuticals, et al." (Case No. 2:08-cv-01894, Complaint filed April 17, 2008, US Dist. Ct. NJ).

~~~~~~~~~~~
END, UPDATED PORTION
~~~~~~~~~~~


The more I look through the 70-plus pages of the document dump from Chairman Dingell, and Subcommittee-Chairman Stupak, tonight, the more convinced I become that several of the medical professionals associated with the ENHANCE study were wondering (aloud, at times) whether much of the "re-reading", "querying of outlier data" and "potentially choosing new primary endpoints" was simply a delay tactic, given that it looked very likely, even in the "blinded" data (see this prior post), that there would be no statistically significant "non-inferiority" of the treatment arm, over the control arm.

But we start with an alleged attempt to document (and/or overstate) the few scientific conclusions reached by the independent ENHANCE science panel, at a meeting held in November 2007. The "draft minutes" were circulated not long after Schering Plough and Merck learned that a congressional inquiry was afoot. In one document, company executives assure a science panel member that the minutes will not be a public document, but will be used solely internally, and/or with the FDA. Oops. And with Committees of Congress. And with anyone who has an internet connection. Or buys a newspaper. Or watches television. But I digress -- first, the "really overstates" snippet; then the overall e-mailed summary of this independent cardiologist's problems with the "minutes" as drafted (some of which remained, apparently, in the final document used by Schering with the FDA, and others). In each case, click to enlarge:





Before too terribly long, I'll've posted images of the e-mail exchange in which one Schering Plough executive called another Schering Plough executive a "prick", and told him to "go f' off" -- all because the "prick" had the temerity, on September 17, 2007, to suggest that not enough attention was being paid to getting the ENHANCE study results finalized, and ready for publication -- Wow. Tremendous corporate culture, that. Anyway, that is all for another day. Cheers!

FDA Letter re Vytorin: "Please revise. . . misleading promotional materials"

It is hard to overstate the importance of a letter like the one below, to a drug like Vytorin's market prospects. In essence, the FDA is requiring Schering to say that the drug is less effective than alternative drugs. Now, by FDA rule, that copy change must be made within 90 days of the letter (or earlier, if Schering stocks-out of an item) -- so, ALL the ad copy must be changed over, by April 24, 2008 -- just about two weeks from tonight. This is an image of the actual letter -- it was signed, digitally, by an FDA lawyer, Joan Hankin, on January 23, 2008 -- at 3:39:39 PM -- precisely. This is the actual letter Reps. Dingell and Stupak referred to, this evening.

What have Schering-Plough, and Merck been doing since then, to comply with this FDA letter? And, for how long had the Joint Veture partners been discussing this concept with FDA, prior to the actual issuance of the below letter? [There is an e-mailed summary, reflecting a meeting in which Joan Hankin participated, several days prior to her letter, where the action itmes included changing Vytorin ad copy. Wow.]

This is likely to get uglier before it gets prettier. As ever, click each to enlarge:

Friday Docu-Dump! -- Reps. Dingell & Stupak Drop Bombshell Documents!

UPDATED -- FDA's letter re Vytorin is now online!

I'll have much more on all of this in the coming days, but the after-the-fact creation of highly-defensive, lawyerly, written minutes -- for a meeting (a meeting at which, at least one doctor was told, there would be "no recorded minutes" -- ostensibly to improve the freedom of debate) of the lately-appointed, but finally-independent science panel on the ENHANCE study -- just looks pretty bad, pretty-desperate, on its face.

Adding to the embarrassment for Schering and Merck, is the fact that the U.S. House Committee has ALSO released, to the public, the various doctors' specifically-marked proposed revisions (in bubble-commented Word-versions) of those draft minutes.

Many of the comments made by the doctors disagree vehemently with some of the re-characterizations of the tenor of the meeting. . . . They use phrases like "overstates", "misleads", "is contradicted by" and "mischaracterizes" -- and, well -- NOW, I just have to say it -- you've got a brand new public relations crisis on your hands, at Schering-Plough. I'll have some of those other snippets up, later. [But even that doesn't seem to be the worst of it.]

No, I've chosen to first put up the portion of the comments that suggest it was highly likely that -- as Senator Grassley suggested -- even the "blinded data" would have revealed the study's failure, at least to a sophisticated set of medical eyes. Click to enlarge -- I will have more; this is but one page from the Stupak-Dingell document dump (of more than 60 pages!), tonight:



The highlighting on the above is original [not so, on the below]. As if all of this were not tough-enough sledding for Schering, Chairman Dingell also released a letter from the FDA, dated January 23, 2008, that called Vytorin advertising "misleading", in view of the ENHANCE results. Ouch -- that will leave a mark. Now the Committee wants a bevy of answers, and additional documents, from both Schering-Plough and Merck & Co., all within two weeks' time -- that's April 25, 2008. Take a look -- again, click to enlarge -- but I highlighted it, to make it easier to read:



The most important question for the moment is to figure out when Schering knew about the FDA's concerns -- as Dingell and Stupak specifically ask, above. But it may turn out, that these Congressional committees are, day-by-day, proving the cases of the 33 consumer fraud complaints, consolidated and transferred, earlier this week, to Judge Cavanaugh in New Jersey.

Wow -- just when I think I won't be terribly-surprised to learn anything more about this whole mess -- I see new, and difficult, issues surface. It just keeps on churning, here. It is hard to imagine how Schering put itself this awkwardly behind the Eight-ball.

The 33 Consumer-Fraud Actions have been Consolidated in New Jersey. . . .

UPDATED: The Congressional committees are making huge gifts to the plaintiffs' causes here -- releasing loads of pretty significant evidence to the public internet.

This morning, Regan H. Crotty, of Dechert LLP (Schering's counsel in these matters) filed a notice that the Multi-District Panel (or "MDL") has decided to consolidate some 33 separate cases, and have them handled by Judge Cavanaugh, in the United States District Court for the District of New Jersey. The consolidated consumer-fraud cases will be henceforth found under a single docket number, there -- MDL No. 1938.

In a footnote, the MDL Panel's order indicates there are now at least 100 separate lawsuits pending, some alleging securities fraud, some alleging RICO violations, and some alleging ERISA violations, as well as these consumer fraud claims. Eventually, I'll have summaries of each of the sorts of allegations up here, by links. Click it to enlarge:



I'll be back later, to I've just summarized some of these consumer fraud suits' allegations.

Why won't Schering-Plough follow Eli Lilly & Co.'s Lead?

Eli Lilly has agreed to disclose its grant practices, and payments. Merck & Co. is presently preparing to do so, according to published reports.

But Schering-Plough Corporation? "No way!", they say. Wouldn't such a disclosure put to bed the claims that SGP buys its recommendations from doctors?

". . . .Schering-Plough Corp., however, told the senator what he didn't want to hear: "We do not publish or have plans at the moment to publish a list of charitable contributions or educational grants that medical organizations have received from us. . . ."

". . . .A dozen of the nation's leading drug and device makers have told Sen. Charles Grassley, R-Iowa, that they have plans or are working on plans to publicly disclose grants to outside groups. The details will be provided on each company's Web sites.

Watchdog groups say the companies are trying to head off legislation that would require public disclosure of their giving. . . ."

[Emphasis supplied.]

It is interesting that Schering's spokespeople are taking a hard line, here, when they MUST know that Sen. Grassley's March 31, 2008 letter requires even more-detailed disclosures -- about influencing doctors to use Vytorin/Zetia, pre- and post-ENHANCE -- and all that data is due to the Senator this Monday -- in three days' time. Else, his Committee will simply issue a subpoena, compelling the delivery of the documents about the so-called "49 Plan" -- some $3.5 million worth. . . . That approach -- stalling -- will earn Schering nothing, except more lawsuits and headaches, in my opinion.

Moreover, Merck & Co., Schering's partner in the Vytorin/Zetia Joint Venture, has indicated it will make many of these payments public, now. That means Merck will likely disclose grants/payments made to the Vytorin/Zetia "Medical Opinion Leaders".

How venial and small will Schering appear, if the only way the world finds out about those payments is through Merck & Co.'s voluntary disclosures -- while Schering-Plough in essense stone-walls, and forces Sen. Grassley to authorize the issuance of a Congressional Suboena Duces Tecum, from the Senate Finance Committee? Odd Public Relations strategy, that.

Such an approach makes absolutely no sense -- for a company in the middle of a publicity fire-storm -- especially one that purports to have nothing to hide.


We'll see.

More of Sen. Grassley's later letters to CEO Fred Hassan. . . .

As I proimised here, I now provide the balance of Senator Chuck Grassley's public letters, to date, to Fred Hassan, relative to the ENHANCE study failure. All of the answers to these NEW questions are due back to Senator Grassley's Staff by Monday. Yep -- this coming Monday. So, we should learn a lot more about Schering-Plough's so-called "49 Plan" by mid-next week.

March 31, 2008

Fred Hassan
Chairman and Chief Executive Officer
Schering-Plough Corporation
2000 Galloping Hill Road
Kenilworth, NJ 07033

Richard T. Clark
Chairman, President, and
Chief Executive Officer
Merck & Co. Inc.
1 Merck Drive
Whitehouse Station, NJ 08889

Dear Messrs. Clark and Hassan:

As Ranking Member of the United States Senate Committee on Finance (Committee), I have an obligation to the more than 80 million Americans who receive health care coverage under Medicare and Medicaid to ensure that taxpayer and beneficiary dollars are spent in a fiscally sound manner. This includes the responsibility to conduct oversight of the medical and pharmaceutical industries to ensure that Medicare and Medicaid dollars are spent appropriately on safe and effective drugs and devices.

I continue to be troubled by reports that Merck and Schering Plough (M/SP) were delaying results of the ENHANCE trial. This study examined whether Vytorin provides better health benefits than generic simvastatin -- a drug that is far less expensive than Vytorin. The ENHANCE trial was completed in April 2006, but the results were not released for almost two years.

I am pleased to see that M/SP finally released the long awaited results of the ENHANCE trial at this weekend's American College of Cardiology (ACC) meeting. However, I am troubled to learn that after careful analysis of the ENHANCE results, medical experts are now calling Vytorin the cholesterol fighter of last resort.

According to reports today on CNBC, at least one prominent cardiologist is now referring to Vytorin as an "expensive placebo." Medical professionals should have had the facts about Vytorin much earlier so they could make informed decisions about the care that they provide to patients.

Delaying the release of the results from the ENHANCE trial not only affected medical decisions, but also imposed financial burdens on patients as well as the federal government. Since the ENHANCE trial was completed in 2006, the federal government has paid M/SP hundreds of millions of dollars for Vytorin.

Additionally, I am not the only one troubled by the delay in the release of ENHANCE.

During their review of documents submitted by M/SP, my Committee staff found emails between Schering Plough employees and Dr. John Kastelein, the primary investigator of the ENHANCE trial. Those emails are seminal in documenting Dr. Kastelein's concerns about M/SP's delay in releasing the results of ENHANCE. Last July, Dr. Kastelein wrote to a Schering Plough executive:

". . . .Is it correct that SP has decided not to present at AHA, but to await the two other, completely unvalidated, endpoints, which analysis is going to take us straight into 2008??!!??

If this is true, SP must have taken this decision without even the semblance of decency to consult me as PI of the study. I can tell you that if this is the case, our collaboration is over. . . This starts smelling like extending the publication for no other [than] political reasons and I cannot live with that. . . ."

That next day, Dr. Kastelein wrote again to a Schering Plough executive:

". . . .I have been travelling half the globe in the last 6 months to a number of large and important meetings at the strong wish of Merck to chair them or to present ezetimibe data. At every single one of them I was cleared to say that ENHANCE would be presented at AHA. There is no reason whatsoever to include femorals; you will be seen as a company that tries to hide something and I will be perceived as being in bed with you!. . . ."

I am also troubled that M/SP may be placing marketing interests above science. For instance, in an M/SP marketing review done just last December, it appears that advancing sales, not science, was the priority. Page 8 of the document details messaging adjustments for 2008 such as "Incorporate 'lower is better' into message flow" and "incorporate switch message -- SNAG (simvastatin not at goal). Another slide show created by your respective companies last year noted that, "History has shown that ZETIA is extremely sensitive to promotion, with consistent share growth demonstrated when fully promoted."

Further, it was reported in the media that M/SP launched an ongoing Public Relations blitz called the "49 plan," designed to wine and dine doctors and convince them to prescribe Vytorin. In recent days, I have learned that M/SP budgeted at least $3.5 million for the "49 plan." This seems like a great deal of money for free lunches and dinners.

In addition, while the health benefits of Vytorin appear similar to a cheaper generic, the difference in cost to the patient and to the Medicare and Medicaid programs is significant. For instance, at a Wal-Mart pharmacy in Iowa City, generic simvastatin costs $54.54 for a month's supply. On the other hand, Vytorin costs $112.46 -- more than twice as much. Thus, I remain troubled that M/SP failed to report any results from the ENHANCE trial until January 2008 while trying over the last year or two to get doctors to switch their patients to Vytorin from other, less expensive statin drugs.

Accordingly, I request that M/SP respond to the following questions and requests for documents. In answering, please repeat the question and follow each question with the appropriate response and documentation as requested.

1. Please provide the names and titles of all Key Opinion Leaders (KOL) for ENHANCE, Vytorin, and/or Zetia.

2. Please provide a list of all payments, if any, made to these KOLs during the period of November 2007 to the present. For each payment to a KOL provide the following:

a) Name of physician

b) Date of payment

c) Payment description (CME, honorarium, research support, etc.)

d) Amount of payment

3. In addition to the $3.5 million budgeted for the "49 plan," how much was budgeted for the marketing and advertising of Vytorin since the ENHANCE trial was completed in April 2006, including direct-to-consumer advertising?

In cooperating with the Committee's review, no documents, records, data, or other information related to these matters, either directly or indirectly, shall be destroyed, modified, removed, or otherwise made inaccessible to the Committee.

I look forward to hearing from you by no later than April 14, 2008.

Sincerely,

United States Senator
Ranking Member,
Committee on Finance

[Emphasis supplied.]

Next week should provide an interesting ride.

Unlikely Potential Winner Emerges from Vytorin Collapse. . . .

And, it may very well turn out to be all generic makers of statins, or perhaps, Astra Zeneca PLC, and its Crestor. Could it be?



We'll see. Cheers!

Some Details from In re Schering-Plough Enhance Securities Litigation

As of this afternoon, April 9, 2008, it looks as though oral argument will be heard on the issue of whether the so-called public pension funds will be the best class-action lead plaintiffs for all of the likely-to-be-consolidated cases alleging securities law violations in connection with the various ENHANCE study delays and non-disclosures, and/or the August and September 2007 public offerings, and/or the statements made by Schering-Plough executives prior to, and after, the ENHANCE study release.

So, I'll take a moment here to highlight what some of those complaints assert -- I'll likely not mention most of the actions by name, as it is likely that they will all be consolidated in the coming MDL, under the case number referenced on the cover of the brief (inset image, at right -- click to enlarge). [This will be an evolving work, as I read through each complaint, in the coming days.]

Many individuals lost very-significant parts of their retirement savings here; and various public pension funds, including the Arkansas Teacher Retirement System, the Public Employees’ Retirement System of Mississippi, the Louisiana Municipal Police Employees’ Retirement System, and the Massachusetts Pension Reserves Investment Management Board, collectively allege over $18.8 million in losses (on a FiFo basis), or $12.3 million (on a LiFo basis) -- since January 14, 2008. In addition, the Southeast And Southwest Areas Pension Fund, and the Policemen’s Annuity and Benefit Fund of Chicago alleges a LiFo basis losses of $9.3 million, and the New York Teamsters & City of Pontiac, Michigan Retirement funds allege losses of $2.4 million. That is merely the tip of the litigation iceberg, here.

Some of the complaints seek to hold the CEO, the directors, and several other Schering-Plough executives personally-liable for the above-losses. Some of the complaints also seek recovery from the numerous Wall Street underwriters of Schering-Plough's securities.

In its complaint docketed April 9, 2008, the Arkansas Teacher Retirement System alleges that these registration statements were materially false and misleading in that the defendants failed to disclose the results of the ENHANCE study, which had shown that the Company’s flagship anti-cholesterol drugs, Zetia and Vytorin, had no greater health benefit than their far cheaper generic counterparts, and, in fact, are potentially harmful to patients. This action alleges that defendants, including Schering, certain of its officers and directors, and underwriters of the offerings violated Sections 11, 12 and 15 of the Securities Act of 1933. The other actions allege claims pursuant to the Exchange Act of 1934. See, Kamel v. Schering-Plough Corp. et al., 2:08-cv-01000-DMC-MF (D.N.J. filed Feb. 22, 2008) and Manson v. Schering-Plough Corp. et al., 2:08-cv-0397-DMCMF (D.N.J. filed Jan. 18, 2008).

From Manson, then:

. . . .52. The statements contained in Schering-Plough’s July 23, 2007 release and those statements contained in the Company’s 2Q:07 Form 10-Q, referenced above, were each materially false and misleading when made and were known by defendants to be false at that time. . . .

53. Unbeknownst to shareholders, however, defendants next took advantage of the artificial inflation in the price of Company stock caused as a result of the publication of their false and materially misleading statements, and on September 12, 2007, defendants announced the registration and sale of over 57.5 million shares of common stock priced at $ 27.50 per share. This registration and sale allowed Schering-Plough to reap illicit gross proceeds of over $1.581 billion.

54. Less than one week later, on September 19, 2007, Schering-Plough presented at the Merrill Lynch Global Pharmaceutical, Biotech & Medtech Conference held in London, England. At this conference, defendants reiterated many of the same or similar materially false and misleading statements as had been published by defendants previously. This conference was also broadcast live on the Internet in a widely disseminated webcast. Similarly, on November 13, 2007, defendant Bertolini also presented at the 2007 Credit Suisse Health Care Conference in Phoenix, Arizona, where he too reiterated many of the same or similar materially false and misleading statements. . . .

58. On January 3, 2008, defendant Hassan and Schering-Plough presented at the Morgan Stanley Pharmaceutical CEOs Unplugged Conference, that was also broadcast live. . . . when announcing Hassan and the Company’s participation, defendants also published a release that stated, in part, the following:

". . . .Schering-Plough to Webcast
Presentation at Morgan Stanley
Pharmaceutical CEOs Unplugged Conference

KENILWORTH, N.J., Dec. 27 /PRNewswire-FirstCall/ -- Schering-Plough Corporation (NYSE: SGP) will provide a live audio webcast of an informal presentation by Fred Hassan, chairman and chief executive officer, followed by a question-and-answer session, at the Morgan Stanley Pharmaceutical CEOs Unplugged Conference on Jan. 3, 2008, at approximately 8:45 a.m. (ET). Morgan Stanley hosts will moderate the informal “unplugged” presentation.

Included in Mr. Hassan’s comments will be Schering-Plough’s strategic evolution and the acquisition of Organon BioSciences N.V. (OBS). During the conference he may confirm that the company is still targeting the same accretion and synergy targets mentioned when the OBS acquisition was announced March 12, 2007, specifically that the transaction is anticipated to be accretive to Schering-Plough’s earnings per share by about 10 cents in the first full year, excluding purchase accounting adjustments and acquisition-related costs; and Schering-Plough expects to achieve annual synergies of $500 million. It is expected to take three years from the closing to reach this level of synergies.

Hassan may also reaffirm the following items as disclosed in previous Securities and Exchange Commission filings:

o Schering-Plough anticipates that sales from VYTORIN and ZETIA will continue to grow in the fourth quarter of 2007 and in 2008;

o Schering-Plough is confident in its key products; however, these products face growing competition.

o Schering-Plough will invest in its key brands to sustain their leadership position. . . .";

59. The statements made by defendants at the Merrill Lynch conference, at the Credit Suisse conference and at the Morgan Stanley conference as well as those statements contained in Schering-Plough’s October 22, 2007 release and and/or contained in the 3Q:07 Form 10-Q, referenced above, were each materially false and misleading when made and were known by defendants to be false at that time. . . .

63. . . .[O]n January 17, 2008, shares of the Company traded to just above $20.50 per share, as investors digested the news that defendants had purposefully delayed publishing the report that demonstrated that VYTORIN was neither safe nor effective. That day, the MotleyFool.com further reported, in part, the following:

2 Sources of Trouble for Vytorin

You know that a drug study has gone very, very bad when you can’t find out its results without a congressional inquiry. Last month the House Committee on Energy and Commerce demanded information about the Enhance clinical trial. Some data was released on Jan. 14, and it’s been a popular topic on television news since then.
Merck (NYSE: MRK) and Schering-Plough (NYSE: SGP) jointly market and share the profits of Zetia and Vytorin. Zetia blocks the uptake of food-borne cholesterol from the digestive tract and thus lowers LDL (the lousy or lethal) cholesterol. Vytorin is a combination of Zetia and Zocor. Zocor is now available as a generic, simvastatin. . . .

65. During the Class Period, as detailed herein, defendants engaged in a scheme to deceive the market, and a course of conduct that artificially inflated Schering-Plough’s stock price and operated as a fraud or deceit on Class Period purchasers of Schering-Plough’s stock by misrepresenting the status and results of the ENHANCE Study as well as the safety and efficacy of the Company’s leading drug products and, therefore, the Company’s financial results. Over a period of approximately eighteen months, defendants improperly inflated the Company’s financial results. Ultimately, however, when defendants’ prior misrepresentations and fraudulent conduct came to be revealed and was apparent to investors, shares of Schering-Plough declined precipitously -- evidence that the prior artificial inflation in the price of Schering-Plough’s shares was eradicated. As a result of their purchases of Schering-Plough stock during the Class Period, plaintiff and other members of the Class suffered economic losses, i.e. damages under the federal securities laws.

66. By improperly characterizing the status and results of the ENHANCE Study as well as the safety and efficacy of the Company’s leading drug products and, therefore, the Company’s financial results, costs and expenses, and misrepresenting its prospects, the defendants presented a misleading image of Schering-Plough’s business and future growth prospects. During the Class Period, defendants repeatedly emphasized the safety and efficacy of VYTORIN and ZETIA, and consistently reported costs and expenses within expectations and within the range for which the Company was adequately reserved. These claims caused and maintained the artificial inflation in Schering-Plough’s stock price throughout the Class Period and until the truth about the Company was ultimately revealed to investors.

67. Defendants’ false and materially misleading statements had the intended effect of causing Schering-Plough’s shares to trade at artificially inflated levels throughout the Class Period -- reaching a Class Period high of over $34.00 per share in late-May 2007.

68. On January 14 - 17, 2008, however, as investors learned the truth about the Company, and learned that defendants had failed to report the results of the ENHANCE Study or the impaired safety and efficacy of ZYTORIN, and once investors learned that Schering-Plough was now being investigated by the Congress for its false advertising of its cholesterol drugs, shares of the Company declined precipitously. Defendants’ belated disclosures had an immediate, adverse impact on the price of Schering-Plough shares.

69. These belated revelations also evidenced defendants’ prior falsification of Schering-Plough’s business prospects due to defendants’ false statements. As investors and the market ultimately learned, the Company’s prior business prospects had been overstated as were the Company’s results of operations. As this adverse information became known to investors, the prior artificial inflation began to be eliminated from Schering-Plough’s share price and were damaged as a result of the related share price decline.

70. As a direct result of investors learning the truth about the Company between January 14 and 17, 2008, Schering-Plough’s stock price declined precipitously from just below $28.00 per share, to a low of just over $22.50 per share - - representing a loss of market capitalization of over decline of almost $8 billion, on very heavy trading volume. This dramatic share price decline, eradicated much of the artificial inflation from Schering-Plough’s share price, causing real economic loss to investors who purchased this stock during the Class Period.

71. The decline in Schering-Plough’s stock price at the end of the Class Period was a direct result of the nature and extent of defendants’ fraud being revealed to investors and to the market. The timing and magnitude of Schering-Plough’s stock price decline negates any inference that the losses suffered by plaintiff and the other members of the Class was caused by changed market conditions, macroeconomic or industry factors or even Company-specific facts unrelated to defendants’ fraudulent conduct. . . .

And, quoting now from the Arkansas Teacher Retirement System complaint:

. . . .Material Misstatements in the Registration Statements

56. As noted, the Registration statement incorporates by reference Schering’s 2006 10-K (“2006 10-K”) filed with the SEC on February 28, 2007, Schering’s April 27, 2007 10-Q (“April 2007 10-Q”), and Schering’s July 27, 2007 10-Q (“July 2007 10-Q”). ZETIA, VYTORIN, and the “cholesterol franchise” are repeatedly discussed in these filings, which address the drugs’ sales, market share, and risk factors. The statements discussed below were materially misstated because they omit any mention of the ENHANCE study results, or the fact that the study had no independent committee, both material omissions.

57. The 2006 10-K states that Schering’s “Cholesterol Franchise” is: “ZETIA, a novel cholesterol-absorption inhibitor discovered by Schering-Plough scientists, for use as monotherapy or in combination with either statins or fenofibrate to lower cholesterol;” and “VYTORIN, a cholesterol-lowering tablet combining the dual action of ZETIA and Merck & Co., Inc.’s statin, Zocor.” Schering’s disclosures relating to ZETIA and VYTORIN detail the importance of these drugs to Schering’s financial health and provide a long list of risks relating to these revenue streams, but fail to disclose the internally known but not yet publicly disclosed impairment to the “Cholesterol Franchise” caused by the results of the ENHANCE study. . . .

63. Under the heading “2007 OUTLOOK” the 2006 10-K states:

Currently, the U.S. cholesterol lowering market is adjusting to the entry into the market of multiple generic forms of competing cholesterol products. Despite the introduction of new innovative competing treatments and generic versions of competing products, Schering-Plough continues to anticipate that sales from VYTORIN and ZETIA will grow in 2007. The decisions of government entities, managed care groups and other groups concerning formularies and reimbursement policies could negatively impact the dollar size and/or growth of the cholesterol management market, including VYTORIN and ZETIA.

64. These statements were materially misstated and omitted material facts because the results of the ENHANCE study posed a direct and existing threat to sales of ZETIA and VYTORIN, Schering’s most profitable products. Yet no information about the study results was disclosed to the public at the time of the Offering. And once the study results were finally and belatedly disclosed—first incompletely in January 2008, and then in their entirety on March 30, 2008 — Schering’s stock price dropped as did prescriptions for ZETIA and VYTORIN. . . .

70. The Underwriter Defendants collectively received more than $102,000,000 in underwriting fees and commissions for the Offering. The Offering Documents disclosed that each Underwriter Defendant was serving as an underwriter for the Offering. As part of their duties as underwriters, the Underwriter Defendants, collectively and individually, were required to conduct, prior to the Offering, a reasonable investigation of the Company to ensure that the statements contained in the Offering Documents contained no material misstatements or omissions of material fact. The Underwriter Defendants failed to fulfill their duty to the investing public in this regard.

71. Defendants Hassan, Bertolini, Koehler, Becherer, Colligan, Kidder, Leder, McGrath, Mundy, Perez, Russo, Stahl, Turner, van Oordt, Wolf and Weinbach signed the Registration Statement. . . .

So -- as ever, more to come.

The Case for Scrutinizing Analyst Opinions on Schering-Plough. . . .

I'll be back later, to explain why I think the following three pages, from Schering-Plough's most recent securities offerings, in August and September of 2007, are important, but suffice it to say, for the moment, that any unduly positive commentary, from any firm named on any of these three pages, relative to Schering-Plough, ought to be taken with a truckload of salt.

Okay, at the outset, and to be fair, an SEC rule called Regulation AC requires that brokers, dealers, and certain persons associated with a broker or dealer certify that any research analyst writing a report or analysis on any pubic company has accurately reflected his or her personal views, and he or she must disclose whether the analyst (or his or her firm) received compensation or other payments in connection with his or her specific recommendations or views. So, all of the below firms disclose, by footnote, that each has "done business" with Schering-Plough, and that each "expects to do business with" it, in the future.

However, nothing in SEC Regulation AC (or any other SEC rule) prohibits an analyst from also taking the interest of the banking firm that employs her or him into account, when she or he writes. Additionally, every analyst is keenly aware of the names on the lead tables set forth below -- as they appear inside the very same public documents the analysts use to formulate their opinions.

So, while I am certain that almost all analysts express their genuinely-held personal views in their research reports, I am equally certain that almost all of them factor their firm's interests into those genuinely-held personal views. Ever since the repeal of Glass-Stegal, this has been a problem of varying magnitude, dependent -- in large measure -- on the relative turbulence of the markets. Increased trubulence tends to lead to more superlative opinions, in my experience -- especially the opinions about companies for which that firm has recently put a good-sized chunk of its reputation (and client-base) on the line.

Somehow, saying a firm "does business" with Schering-Plough doesn't quite cover the idea that the firm may have close to $800 million (of its clients' money, and therefore, its own reputation) on the line, and may have each earned over $50 million in commissions, selling the same securites. "Doing business" seems a tad pale for those sorts of stakes (over $100 million, just in the original-issue commissions, to the group). But you take a look for yourself -- and then decide: Are these analysts really "independent"? That question is not, to my eye, resolved by simply answering that the analyst is offering his or her "genuinely-held" opinions.

In each case, click to enlarge the page:







One of the suits now under judicial review for consolidation with the rest of the MDL federal docket -- related to the putative Schering-Plough securities class actions -- names all of the above Wall Street firms as defendants in its Sections 11, and 12(a)(2) claims. See Akansas Teacher Retirement System, et al. v. SCHERING-PLOUGH CORPORATION, FRED HASSAN, ROBERT J. BERTOLINI, STEVEN H. KOEHLER, SUSAN ELLEN WOLF, HANS W. BECHERER, THOMAS J. COLLIGAN, C. ROBERT KIDDER, PHILIP LEDER, M.D., EUGENE R. MCGRATH, CARL E. MUNDY, JR., ANTONIO M. PEREZ, PATRICIA F. RUSSO, JACK L. STAHL, KATHRYN C. TURNER, ROBERT F.W. VAN OORDT, ARTHUR F. WEINBACH, GOLDMAN, SACHS & CO., BANC OF AMERICA SECURITIES LLC, BEAR, STEARNS & CO. INC., CITIGROUP GLOBAL MARKETS INC., MORGAN STANLEY & CO. INCORPORATED, BNP PARIBAS SECURITIES CORP., J.P. MORGAN SECURITIES INC., CREDIT SUISSE SECURITIES (USA) LLC, DAIWA SECURITIES AMERICA INC., SANTANDER INVESTMENT SECURITIES INC., UTENDAHL CAPITAL PARTNERS, L.P., THE WILLIAMS CAPITAL GROUP, L.P., BANCA IMI SPA, BBVA SECURITIES INC., ABN AMRO ROTHSCHILD LLC, BNY CAPITAL MARKETS, INC., ING FINANCIAL MARKETS LLC, AND MIZUHO SECURITIES USA INC., Case 2:08-cv-01720-DMC-MF (US Dist. Ct., NJ Dist. Filed April 9, 2008); Complaint also filed as Exhibit D, to Document 27, in Case No. 2:08-cv-00397-DMC-MF (US Dist. Ct., NJ Dist. Filed April 7, 2008). More on that case, shortly linked above.

Until then, be careful out there!

To More Clearly Explain Sen. Grassley's Concerns. . . .

Upon reflection, and with the aid of other discussions of this very point, I have come to the conclusion that I'll need to amplify Senator Grassley's Febrary 11, 2008 concerns, in order to make them plain -- to a wider-audience.

So, to amplify the Senator's point:

If one is looking for NON-inferiority, one should expect to see statistically-significant higher values in some of the blinded data, and statistically-significant lower values in some of the blinded data. Said another way, there should be some set of STATISTICALLY-SIGNIFICANT differences -- in at least some groupings -- of the "blinded" data.

Now, if the "blinded" data ALL comes back (for the sake of a simple, clear example) with wall-thickness values between, say, .682 and .690, and there were about 640 patients in the study, all of them between .682 and .690 (on whatever thickness scale we are measuring), one may readily, and confidently, deduce that there are NO STATISTICALLY-SIGNIFICANT differences in ANY possible COMBINATION of groupings -- it's a sort of regression analysis, built into all Excel spreadsheet software (and/or science-based, off-the-shelf, data analysis programs) -- which would allow anyone, anyone with access to NOTHING BUT THE "BLINDED" DATA-SET, and a computer, to know that ENHANCE had failed.

As irony would have it, the above-made-up example is, in actuality, fairly close to what happened with Schering-Plough's ENHANCE study -- now, straight from the New England Journal of Medicine's just-published-chart on the outcome [Click image to view full-size.]:



One could have deduced that NO set of roughly-equally populated groupings (of about 320 patients each) WOULD EVER YIELD a statistically-significant difference. That is Senator Grassley's -- and, now, my -- point.

All one with the "blinded" data-set need do, is enter the values into an Excel spreadsheet, then choose the "auto-sort column data" sub-menu, select "lowest to highest", and then, start splitting the values -- take the top of the column (lowest -- assume that is a Vytorin/Zetia patient), and match it to the bottom of the column (highest -- assume that is a statin-only patient). Now take the second-lowest data point, and match it against the second highest. . . . and so on, and so on, until one has reached the middle of the 642 patients. This simulation/permutation would assume that all the thinnest-walled patients were given Vytorin/Zetia, and all the thickest-walled patients were given statins only. In other words, this artificial sorting would ASSUME the best possible universe of outcomes for Vytorin/Zetia from the ENHANCE study. Looking at the above-chart, I think it almost a mathematical certainty that any variances between the two "best-case" groups would be well-within the margin of error for the sample size.

Anyone with the "blinded" data could have done this, at Schering-Plough, in about one hour's time -- that's all they'd have needed. And that would have been in January of 2007 -- a full year earlier than SGP presently admits it "knew anything".

Might this explain the hurried effort in January 2007 to query the ENHANCE "outlier data" -- per the time-line SGP submitted to the SEC on January 25, 2008?

~~~~~~~~~~~~~~~

[Much Later -- it seems Melissa Davis (of "The Street") reads this blog.]

Relationship Between CEO Statements, and SGP Stock Price

As I started to flesh out toward the end of this earlier post, I was very surprised that the CEO of Schering-Plough asserted, at least twice on public web-casts, that the decline in Schering-Plough's stock price was due -- at least in part -- to "press" or "media" over-reactions. That seemed (to me, to be) plainly false, even at the moment he made those statements.

On the other hand, when the independent market-forces, or expert-medical voices, had their say, the stock price reflected the severity of the ENHANCE-driven fall-off in Vytorin and Zetia profits. So, I thought it might be worthwhile to depict, in a graphical time-line fashion, the effect of these various statements, on the Adjusted NYSE Closing Prices of Schering-Plough stock. In each case, the price below reflects the first closing price after the relevant statement. Click the below to enlarge it. Note, in each case, that the rather steady stock price declines are stemmed by the CEO statement that falls in the middle of it. Note also that the decline resumes (or continues), and in fact, accelerates, once more independent voices are at the fore.



This is going to be an increasingly-troublesome set of facts for the CEO, and his Executive-Team, should Schering-Plough's stock price not shortly return to something like $27.50, after today. And, in my opinion, the chances of that happening are now -- at best -- remote.

It is rather hard to fathom what kind of advice holds that the CEO should have taken this course, here -- especially now, that his Executive-Team has come forward with a drastic, newly-sized-up $1 billion cost-cutting program -- largely to stem the very real tide of the ENHANCE fall-out. It was, and is, real. Blaming the press for the early stages of it may have caused many more investors additional losses. That much is unfortunate, in the extreme.

Something Apparently-Overlooked in Sen. Grassley's February 2008 Letter. . . .

~~~~~~~~~~~~~~~
U P D A T E D
04.08.08 @ 10 AM
See this Link.
~~~~~~~~~~~~~~~


I have reproduced the full-text of one of Sen. Chuck Grassley's letters on this subject below, but for the moment, I want to focus on something that drew very little attention back in February 2008, when it was originally released.

I think this may turn out to be important. When one couples the paragraph quoted below (from Sen. Grassley's February letter), with this Schering-Plough SEC-Filed Timeline on the ENHANCE study. . . . one learns that more than a few people at Schering may have known ENHANCE was in deep trouble by January 2007 -- a full-year before when, it is generally-believed that important Schering executives knew the specifics of the ENHANCE study's failure to meet the end-goal.

The salient quote, then:

. . . .It has come to my attention that Schering Plough and Merck would not need to unblind the data to understand that Vytorin performed no better than generic simvastatin. The ENHANCE trial is a non-inferiority study. These studies try to detect a statistically significant difference between treatment groups on the primary endpoint. Once the results are recorded, the study is then unblinded to determine which drug is the better performer. However, if the drugs performed the same, meaning there is no statistically significant difference in the treatments, then this information is apparent before the study has been unblinded. . . .

. . . .My concern is that anyone who had access to the blinded data could have run simulations and learned that Vytorin performed just the same as simvastatin. . . .

[Emphasis supplied.]

Here is the full-text of the above letter. More to come:

February 11, 2008
Via Electronic Transmission

Mr. Fred Hassan
Chairman of the Board, Chief Executive Officer
Schering-Plough Corporation
2000 Galloping Hill Road
Kenilworth, NJ 07033

Dear Mr. Hassan:

As the Ranking Member of the United States Senate Committee on Finance (Committee), I have an obligation to the more than 80 million Americans who receive health care coverage under Medicare and Medicaid to ensure that taxpayer and beneficiary dollars are spent in a fiscally sound manner. This also includes the responsibility to conduct oversight of the medical and pharmaceutical industries to ensure that Medicare and Medicaid dollars are spent appropriately on safe and effective drugs and devices.

I am following up on my prior letter to you regarding the delayed release of the ENHANCE trial by Schering-Plough and Merck.[1] This study examines whether Vytorin provides better health benefits than generic simvastatin. Vytorin is a pill that combines the statin, simvastatin, with a drug called ezetimibe that decreases absorption of cholesterol by the digestive tract.

It has come to my attention that Schering Plough and Merck would not need to unblind the data to understand that Vytorin performed no better than generic simvastatin. The ENHANCE trial is a non-inferiority study. These studies try to detect a statistically significant difference between treatment groups on the primary endpoint. Once the results are recorded, the study is then unblinded to determine which drug is the better performer. However, if the drugs performed the same, meaning there is no statistically significant difference in the treatments, then this information is apparent before the study has been unblinded.

According to your own press release on the ENHANCE results, "There was no statistically significant difference between treatment groups on the primary endpoint." My concern is that anyone who had access to the blinded data could have run simulations and learned that Vytorin performed just the same as simvastatin.

My Committee investigators have learned that the ENHANCE trial data were routed from all of the trial centers to Dr. John J.P. Kastelein of the University of the Netherlands. Dr. Kastelein then transmitted the data to the Schering-Plough Research Institute in Kenilworth, New Jersey.

Accordingly, please respond to the following questions and request for documents. For each response, first repeat the enumerated question followed by the appropriate answer.

1. Please explain how the ENHANCE carotid ultrasound data was transferred from the core laboratory to the Schering-Plough Research Institute.

2. Please name all Schering-Plough employees who had access to the ENHANCE data during or after completion of the trial. For each individual, please provide

a. Name;

b. Title;

c. Technical expertise (lawyer, statistician, medical doctor, etc.)

3. Please provide the names of all statisticians at the Schering-Plough Institute. Please indicate which of these employees were involved in any analysis of the ENHANCE trial analysis.

4. Please provide all emails, documents and communications discussing the results of the ENHANCE trial, including any simulations regarding the results. The scope of this request covers employees at the Schering-Plough Institute or elsewhere within the company, from the period of July 2005 to the present.

5. Please provide any and all e-mails and communications between Dr. John Kastelein and Schering-Plough employees from July 2005 until the present.

In cooperating with the Committee's review, no documents, records, data, or other information related to these matters, either directly or indirectly, shall be destroyed, modified, removed, or otherwise made inaccessible to the Committee.

I look forward to hearing from you by no later than February 22, 2008.

Sincerely,

United States Senator
Ranking Member,
Committee on Finance

[More to Come.]

Isn't it at least possible, then, that Schering's own time-line, sworn-to before the SEC, will establish that management knew ENHANCE was "dead in the water" by late January 2007? And didn't the President of the operating subsidiary, and EVP of Schering-Plough, among other other executives, sell stock (or, in the case of the chief lawyer, surrender SARs) shortly thereafter, at prices near, or above, $30 per share?

We'll see -- but here is the company's version of this last bit (PDF-file).

Why this Blog Carries the Goofy Name it Does. . . .

This blog is both a play on the name of the company, as well as a comment on what happened on, and after January 14, 2008, to the "Shearlings". Many long-suffering investors believed CEO Fred Hassan when he said that post-January 14, 2008 Schering-Plough stock price declines were simply an "over-reaction by the press" to the ENHANCE results [Via Web-cast March 18, 2008]. So, they simply took that "haircut" in stride.

Those "Shearlings" (who then proceeded to lose some 20 percent of their value, pre-January 14, 2008), believed Mr. Hassan. They believed it was all simply the crazy media's over-reaction to a "sensationalized" study outcome.

Then, on March 31, 2008, the remaining Shearlings were completely "Plowed Under" by the ACC Panel discussion results, from the day before. On that single trading-day, Schering-Plough investors saw a stock that closed on Friday at $19.47 (and had traded as high as $19.87 that day), fall to an intra-day low on Monday of $14.00, and only saw a recovery to $14.41, at the close on Monday. On Wednesday, April 2, 2008, SGP closed at $13.86. From Friday's high to Wednesday's low, then, these "Scherlings" were plowed under by ANOTHER 30 percent.

Overall, for believeing Mr. Hassan, they lost up to $13.14 per share (on January 14, 2008, SGP opened at $27.00; on April 2, 2008, it closed at $13.86). That is a 50 percent decline, in just under three months.

Then, after the market closed on that Wednesday, April 2, CEO Hassan annouced a drastic $1.5 billion cost-cutting program ($1 billion of that was new, incremental "shearing"!). . . .

That seems tantamount to an admission that this was no frenzied media over-reaction -- no, these cuts -- going out through 2012 -- look a lot like Mr. Hassan expects this downturn in sales of (and profits on) Vytorin and Zetia to be. . . substantially-permanent.

So, this blog bears the mantle of those poor little "S[c]he[a]r[l]ings" that got completely "plo[ugh]wed" under, last week.

2008 Schering-Plough 2008 EPS -- and Share Price -- Guess, here.

Okay, according to SGP, $1.25 billion of cost savings are to be acheived by the end of 2010 -- and let's GENEROUSLY assume that 40 percent of them are finished -- and thus in the stock price, by the end of 2008:

$1.25 billion times .40 equals $500 million of savings, falling to the bottom line in 2008. There are about 1.62 billion SGP shares outstanding, so. . . .

$500 million, divided by 1.62 billion shares outstanding equals $0.3125 of NEW EPS power for 2008.

Now retain only 3/5th of the Vytorin profits for 2008 -- figuring that the first quarter 2008 will have been the best; expect a cliff fall-off thereafter:

$1.1 billion times 2/5ths equals $440 million -- the amount of lost profit in 2008, from fall-off in the J/V.

Divide $440 million over 1.62 billion shares. . . .

and SGP loses $0.2716 of 2008 EPS power from Vytorin crisis.

So -- 27.16 cents "down", netted against 31.25 cents "up" leaves us with net "increase" in 2008 SGP EPS of. . . .

about four pennies. 4 cents per share.

The low EPS estimate, before this announcement was $1.22 for 2008. Add $0.04, and you get to an EPS of $1.26.

A GENEROUS 12 times multiple of that 2008 SGP EPS leads to $15.12 of value ($1.26 times 12).

Yep -- $15 looks about right for SGP.

Query: What if it is at a 8, or 10, times multiple?
[Is SGP really all that much better than PFE, ABT or MRK?]

Cheers!

Posted at 3-Apr-08 11:44 am

~~~~~~~~~~~~

Additonal thoughts in that thread:

After last Sunday's ACC, the Medical Malpractice Insurance Co.s are going to shortly tell (or have already told) doctors to keep up with "best-evolving practices" -- after Sunday, and the ACC, any doctor who continues to use Vytorin as anything other than a drug of "last resort" -- will do so at his or her peril. S/he will have little protection from medical malpractice lawsuits.

That is, if a patient dies of a heart attack, or has a cardiac event, on the doctor's watch, the patient's family will be able to truthfully say "my doctor did NOT comply with the latest, best practices for me". . . . that alone -- fear of malpractice -- will drive a quick change-over.

Read what one Doctor said, right here:

". . . .When the Enhance trial was released in 1/08 the drugs appear to offer no cardiovascular protection in the only trial that has been completed to date. I therefore stopped using the drug and because I was one of the biggest prescribers of these meds in my state I have been contacted by several of the regional managers of SGP and Merck and I have told them that I will no longer prescribe these meds util there is outcomes data to support their use. . . ."

Full LINK:

http://messages.finance.yahoo.com/Stocks...

I am not saying it is a GOOD way to deliver medicine, but I am saying that it is the way it will go -- and soon.

Finally, recognize that even if I am wrong by over 20 percent, it still only adds another nickel to EPS in 2008.

Said another way, Fred Hassan needs to DOUBLE the size of the cuts, to be sure he turns it around, at SGP -- and we know he can't -- there is no way SGP could continue to conduct its business advantageously, if it cut $3 billion.

So $15 is about it, for now.

Cheers!

4-Apr-08 11:08 am

Detail from the RICO complaint against Schering-Plough

Here are some more selected portions of the above-RICO-complaint -- I found this very educational:

. . . .High Cholesterol – Medical Complications

20. A high LDL cholesterol level is one of the leading risk factors for heart disease. The higher the blood cholesterol level, the greater the risk for developing coronary heart disease (CHD) or having a heart attack. CHD afflicts over 60 million Americans and is the number one killer of women and men in the United States, responsible for about 38% of the nation’s overall mortality. Each year, more than one million Americans suffer heart attacks and about a half-million more die from heart disease. Other risk factors for heart disease include family history, diabetes, high blood pressure, smoking and excess weight.

21. Heart disease is an umbrella term for a number of disorders that adversely affect the functioning of the human heart. “Arteriosclerosis” and “atherosclerosis” are two types of heart disease. Atherosclerosis is a specific type of arteriosclerosis, but the terms are often used interchangeably. Atherosclerosis occurs when cholesterol and other substances build up in the walls of arteries and form hard substances called plaque. Arteries are blood vessels that carry oxygen and nutrients from the heart to the rest of the body.



22. Healthy arteries are flexible, strong and elastic. However, plaque deposits can make the artery narrow, hard and less flexible. Over time, this process, called arteriosclerosis or “hardening of the arteries,” makes it more difficult for blood to flow through the affected artery. Organs and tissues served by hardened or narrowed arteries do not receive an adequate supply of blood.



23. Special arteries, called coronary arteries, bring blood to the heart. Atherosclerosis due to plaque can slow the flow of blood to the heart, causing chest pain (stable angina,) shortness of breath and other symptoms. If the blood supply to a portion of the heart is completely stopped by a blockage, the result is a heart attack. Further, a general decrease in the amount of oxygen-rich blood caused by narrowing of the arteries may lead to coronary artery disease (CAD).



24. Although atherosclerosis is often considered a heart problem, it can affect arteries anywhere in the body. For example, persons with atherosclerosis in arteries leading to the limbs may develop circulation problems in the arms and legs called peripheral arterial disease. Persons with atherosclerosis in arteries supplying blood to the head are at risk for transient ischemic attack (TIA) or stroke. Atherosclerosis can also lead to a bulge in the wall of your artery (aneurysm).

25. Animal and human studies have established the role of LDL cholesterol in the development and progression of atherosclerosis. Animal studies suggest a protective effect of low LDL cholesterol against atherosclerosis.

26. Epidemiological studies have directly implicated LDL cholesterol to the development of atherosclerosis and CHD. Multiple human trials examining the relationship of LDL cholesterol lowering in primary and secondary prevention of CHD have demonstrated the impact of reducing LDL-C levels on decreasing CHD and CHD-related mortality.

27. Apart from atherosclerosis, plaque caused by high levels of LDL cholesterol is highly dangerous. Pieces of plaque built up in the arteries can break apart and move through the bloodstream. This is a common cause of heart attack and stroke. Blood clots can form around the plaque deposits and block blood flow. If a clot moves into the heart, lungs, or brain, it can cause a stroke, heart attack, or pulmonary embolism.

Treating High Cholesterol to Reduce Related Medical Complications

28. Treatment for high cholesterol is typically undertaken to attempt to bring a high overall level down into a range as close to normal as possible. Reducing one’s cholesterol levels is not done simply for that sake alone; the point of reducing LDL is to reduce plaque accumulation and the related dangers, which in turn reduces ones risk for heart disease, heart attack, and stroke. In other words, the aim of treating high cholesterol is to reduce the risk of serious health problems caused by the adverse effects high cholesterol levels over time.

29. Treatment for high cholesterol includes both simple lifestyle changes and drug therapy. For example, if a person has high cholesterol levels but does not have non-controllable risk factors such as family history, then a doctor may suggest lifestyle changes such as modifications to diet and exercise habits.

30. If lifestyle changes do not bring cholesterol levels to an acceptable level or if other risks become apparent, cholesterol-reducing medication may be started.

31. Drugs called “statins” have for years dominated drug therapy for high cholesterol.

32. Statins are defined as “any drugs in a class of lipid-lowering drugs that reduce serum cholesterol levels by inhibiting a key enzyme involved in the synthesis of cholesterol”. Specifically, statins inhibit HMG- CoA reductase, the enzyme which controls cholesterol production. By inhibiting this enzyme, statins slow down cholesterol production and increase the ability of the liver to remove LDL-cholesterol from the blood.

33. There are several different statin drugs on the market, including simvastatin, which is produced and marketed by Defendants by its brand name, Zocor. Simvastatin is one of the most effective drugs for lowering cholesterol levels. Simvastatin has also been shown to increase HDL cholesterol (good cholesterol) more than other statins.

34. The cost of different statin drug therapy depends on the specific drug prescribed. Some of the statins have generic versions available, including lovastatin (brand name Mevacor), pravastatin (Pravachol) and simvastatin (Zocor). There are also non-generic statins such as fluvastatin (Lescol), rosuvastatin (Crestor), and atorvastatin (Lipitor), which is one of the most expensive types of statin drugs. Generic drugs are cheaper than branded drugs. For example, generic versions of Zocor sell for 75 cents to $1 a day at most retail pharmacies, and as little as 10 cents a day at discount pharmacies like Costco’s. Generic versions of at least two other statins—lovastatin and pravastatin—are only $4 per month’s supply at Wal-Mart and Target. Prescriptions for Vytorin and Zetia, on the other hand, each cost roughly $3 per day.

35. Most of the landmark heart disease prevention trials have involved the use of statin medications. The beneficial effects of statins include lower LDL, increased HDL, and decreased C-reactive protein (inflammation). High-doses of Lipitor have been associated with a slowing of plaque progression in several randomized trials.

36. More recently, new cholesterol drugs called cholesterol absorption inhibitors have emerged with a different mechanism of action than statins. These drugs primarily focus on preventing the body from absorbing cholesterol introduced through digested food as opposed to statins, which primarily impact the amount of cholesterol naturally occurring in the body. Cholesterol absorption inhibitors are designed and intended to reduce LDL cholesterol levels, decrease triglycerides and increase HDL cholesterol levels by impairing the intestinal reabsorption of both dietary and hepatically excreted biliary cholesterol.

37. The United States Food and Drug Administration (FDA) approved this new drug class of cholesterol absorption inhibitors in late 2002.

38. Merck and Schering-Plough have developed and marketed their own cholesterol absorption inhibitor, Zetia, through their joint venture MSP. Another MSP product, Vytorin, combines the two types of cholesterol drugs, Merck and Schering-Plough’s new cholesterol absorption inhibitor Zetia, and Merck’s previously existing statin, Zocor. . . .

68. Before and throughout the Class Period, Defendants’ express, implied and unmistakable message relative to Vytorin and Zetia was that high cholesterol was bad for one’s health because it caused increased plaque formation, which in turn has been associated with an increased risk for heart disease, heart attack, and stroke.

69. The equally unmistakable corollary message in Defendants’ ads was that Vytorin, by combining Zetia and Zocor, was a superior medication to statins in the treatment of high cholesterol, increased plaque formation, and the associated risk for heart disease, heart attack, and stroke. In one advertisement, Defendants compared Vytorin to “regular” statins and claimed to be superior at reducing LDL cholesterol and the “[r]isk for heart disease, heart attack or stroke”. . . .

70. Defendants’ marketing advertisements also purported to help patients taking Vytorin to “stay on track”. One advertisement was called “Staying on Track” and repeated the message that “[h]igh LDL (bad) cholesterol can lead to heart disease, heart attack, or stroke” and that “Cholesterol builds up in your bloodstream silently.” The ad contained information and terms chosen by Defendants. . . .

71. Finally, Defendants made sure each and every prescription filled contained its message regarding LDL cholesterol and the impact of LDL cholesterol on arterial plaque. Specifically, Vytorin’s Patient Insert, included with each original and refill prescription of Vytorin, instructs and educates patients to: “Read this information carefully before you start taking VYTORIN. Review this information each time you refill your prescription for VYTORIN as there may be new information.” The Patient Information goes on to state plainly that “VYTORIN is a medicine used to lower levels of total cholesterol, LDL (bad) cholesterol, and fatty substances called triglycerides in the blood.” The Patient Information goes on to clarify and states, “LDL cholesterol is called ‘bad’ cholesterol because it can build up in the wall of your arteries and form plaque. Over time, plaque build-up can cause a narrowing of the arteries. This narrowing can slow or block blood flow to your heart, brain or other organs. High LDL cholesterol is a major cause of heart disease and stroke.”

72. In addition to marketing Vytorin directly to consumers and payors, Defendants indirectly marketed them to consumers and payors via direct marketing to physicians, which encouraged physicians to prescribe Vytorin or Zetia instead of other drugs.

73. Defendants used several methods to market Vytorin to physicians including having sales representatives visit physicians and provide them with free samples of these drugs and purchasing lunches and dinners for physicians and their staffs.

74. An article published in the New York Times on July 24, 2004, reported that “Merck said it planned to persuade doctors to switch patients to Vytorin before 2006, when generic competition starts in the United States for Zocor, the company’s biggest drug.”

75. Defendants also disseminated their fraudulent representations regarding Vytorin to physicians and the medical community via the Physicians Desk Reference (“PDR”). The 2005, 2006 and 2007 volumes of the PDR each include a Vytorin entry containing the Patient Information disclosure. Similar to Defendants’ other advertisements and promotional representations, this Patient Information states plainly that “VYTORIN is a medicine used to lower levels of total cholesterol, LDL (bad) cholesterol, and fatty substances called triglycerides in the blood.” Defendants’ PDR entry regarding Vytorin further clarifies and states that “LDL cholesterol is called ‘bad’ cholesterol because it can build up in the wall of your arteries and form plaque. Over time, plaque build-up can cause a narrowing of the arteries. This narrowing can slow or block blood flow to your heart, brain or other organs. High LDL cholesterol is a major cause of heart disease and stroke.”

76. In 2005, just after the FDA approved Vytorin, the Associated Press issued a story after speaking with Adam Schechter, vice president and general manager of MSP, Merck and Schering-Plough’s joint venture, stating that defendant MSP “is planning extensive marketing, through ads aimed at consumers, sales representatives visiting and giving free samples to doctors and efforts to get Vytorin listed on managed care companies' formularies of preferred drugs.”

The ENHANCE Trial

77. In 2002, Defendants began a trial known as the ENHANCE trial, which is an acronym for “Effect of Combination Ezetimibe and High-Dose Simvastatin v. Simvastatin Alone on the Atherosclerotic Process in Patients with Heterozygous Familial Hypercholesterolemia.” As the Wall Street Journal reported in an article on January 17, 2008, “At the time, cardiologists were asking Schering and Merck to show that Zetia—which works differently from highly popular statins—didn’t just lower cholesterol but also helped patients live longer and prevented heart attacks. Large studies looking at such outcomes take a long time and the Enhance study offered an interim look that focused on how much plaque formed in the arteries of Vytorin users.”

78. The ENHANCE trial was designed to prove that Vytorin could slow the growth of plaque in carotid arteries, which supply blood to the brain, more than simvastatin alone. The trial studied 720 people with heterozygous familial hypercholesterolemia, an inherited form of high cholesterol that affects about 0.2% of the population. The study pitted Vytorin against simvastatin (whose branded name is Zocor.)

Results of the ENHANCE Trial

79. According to Defendants’ January 14, 2008 press release, the ENHANCE researchers found that while Vytorin lowered LDL more than simvastatin alone, it did not slow the growth of carotid-artery plaques more than simvastatin, a statin now available as a much less expensive generic. In fact, the patients who took Vytorin had slightly more plaque growth than the patients who took simvastatin alone.

80. The results of the ENHANCE study shocked the medical community as it directly contradicted Defendants’ claim that by lowering LDL, Zetia also contributed to slowing or reducing the buildup of arterial plaque.

81. Moreover, there is no evidence of any kind to support a claim that Zetia contributes to slowing or reducing the buildup of arterial plaque. In an article dated November 21, 2007, the New York Times quoted Dr. Eric J. Topol, a cardiologist and director of the Scripps Translational Science Institute in La Jolla, California, as saying, “Statins have diverse effects beyond simple LDL cholesterol lowering, such as potent anti-inflammatory actions. There has yet to be a clinical trial to show that ezetimibe improves clinical outcomes”. . . .

[Much more to come, shortly.]

Cheers!

RICO Suit Filed against Schering-Plough.

First RICO Suit filed -- seeking class action certification -- 02.07.08

Well, it was only a matter of time. A rather comprehensive, RICO Act, 65 page complaint has been filed on behalf of the Iron Workers Health Fund of Eastern Michigan. The case citation:

IRON WORKERS HEALTH FUND OF EASTERN MICHIGAN, v. MERCK & CO., INC., SCHERING-PLOUGH CORPORATION, MERCK/SCHERING-PLOUGH PHARMACEUTICALS, and MSP SINGAPORE COMPANY LLC, No. 08-cv-695 (D.N.J., Complaint Filed February 7, 2008).

Here are the central RICO allegations:

. . . .Violation of § 1962(c) of the Racketeer Influenced and Corrupt Organizations (“RICO”) Act 18 U.S.C. §§ 1961-1968

. . . .Section 1962(c) of the RICO Act makes it “unlawful for any person employed by or associated with any enterprise engaged in, or the activities of which affect, interstate or foreign commerce, to conduct or participate, directly or indirectly, in the conduct of such enterprise’s affairs through a pattern of racketeering activity or collection of unlawful debt.”

. . . .Defendant Schering-Plough is a legal entity capable of holding a legal or beneficial interest in property and is a proper defendant “person” within the definition of the RICO Act, § 1961(4).

As described throughout this Complaint, both Defendant Merck and Defendant Schering-Plough beginning in April 2006 engaged in a pattern of fraudulent, racketeering activity through their joint ventures, Merck/Schering-Plough Pharmaceuticals (“MSP”) and MSP Singapore Company, LLC (“MSPSC”). . . .

[The complaint alleges they did so, by, among other devices:]

Before and throughout the Class Period, Defendants’ express, implied and unmistakable message relative to Vytorin and Zetia was that high cholesterol was bad for one’s health because it caused increased plaque formation, which in turn has been associated with an increased risk for heart disease, heart attack, and stroke.

The equally unmistakable corollary message in Defendants’ ads was that Vytorin, by combining Zetia and Zocor, was a superior medication to statins in the treatment of high cholesterol, increased plaque formation, and the associated risk for heart disease, heart attack, and stroke. In one advertisement, Defendants compared Vytorin to “regular” statins and claimed to be superior at reducing LDL cholesterol and the “[r]isk for heart disease, heart attack or stroke”. . . .

The results of the ENHANCE study shocked the medical community as it directly contradicted Defendants’ claim that by lowering LDL, Zetia also contributed to slowing or reducing the buildup of arterial plaque.

Moreover, there is no evidence of any kind to support a claim that Zetia contributes to slowing or reducing the buildup of arterial plaque. In an article dated November 21, 2007, the New York Times quoted Dr. Eric J. Topol, a cardiologist and director of the Scripps Translational Science Institute in La Jolla, California, as saying, “Statins have diverse effects beyond simple LDL cholesterol lowering, such as potent anti-inflammatory actions. There has yet to be a clinical trial to show that ezetimibe improves clinical outcomes.” . . .

RICO provides for trebling of damages -- that is, damages may be TRIPLED, if a RICO pattern activity has occurred, and is proved at trial. This is very serious stuff -- now, SGP and MRK will have their day in court -- but this takes the dispute to a new level.

First there were consumer fraud claims, then securitites fraud claims, then FDA violations alleged. . . now, racketeering/criminal enterprise allegations.

Here's an updated, but only partial, listing of the suits now pending, in federal courthouses, around the country -- All as of February 7, 2008 -- over 85 at SGP's last published-count:

Rita Polk v. Schering-Plough Corp. and Merck & Co., Inc., No. 08-cv-285 (D.N.J.);

Jay Klitzner v. Schering-Plough Corp. and Merck & Co., Inc., No. 08-cv-316 (D.N.J.):

Sandra Weiss v. Schering-Plough Corp. and Merck & Co., Inc., No. 08-cv-320 (D.N.J.);

Lionel Galperin v. Merck & Co., Inc., Schering-Plough Corp., and Merck/Schering-Plough Pharmaceuticals, No. 08-cv-349 (D.N.J.);

Robert J. McGarry v. Merck & Co., Inc., Schering-Plough Corp., and Merck/Schering-Plough

Pharmaceuticals, No. 08-cv-350 (D.N.J.);

Charles D. Maurer and Sidney Cooper v. Schering-Plough Corp. and Merck & Co., Inc., No. 08-cv-393 (D.N.J.);

Daniel A. Brown v. Merck & Co., Inc., Schering-Plough Corp., and Merck/Schering-Plough Pharmaceuticals, No. 08-cv-395 (D.N.J.);

Steven Knight v. Merck & Co., Inc., Schering-Plough Corp., and Merck/Schering-Plough
Pharmaceuticals, No. 08-cv-396 (D.N.J.);

Michael P. Maina v. Merck & Co., Inc., Schering-Plough Corp., and Merck/Schering-Plough Pharmaceuticals, No. 08-cv-409 (D.N.J.);

Ken W. Bever v. Schering-Plough Corp. and Merck & Co., Inc., No. 08-cv-430 (D.N.J.);

David DeAngelis v. Schering-Plough Corp. and Merck & Co., Inc., No. 08-cv-431 (D.N.J.);

Ciro Verdi and Eileen Verdi v. Schering-Plough Corp. and Merck & Co., Inc., No. 08-cv-432 (D.N.J.);

Marilyn Woodman v. Schering-Plough Corp. and Merck & Co., Inc., No. 08-cv-437 (D.N.J.);

Scott Smoler v. Merck & Co., Inc., Schering-Plough Corp., and Merck/Schering-Plough
Pharmaceuticals, No. 08-cv-482 (D.N.J.);

Danette Agovino, Richard Axenty, Bambi Chapman, Maia Erlikhman, Semen Erlikhman, Peter V. Grant, Roxanne Hitt, Donald Kerin, Gail Kerin, Charles Miller, Debbie Nielsen, Cheryl A. Olszewski, Jeffrey J. Panek, and Howard Weber v. Merck & Co., Inc., Schering-Plough Corp, and Merck/Schering-Plough Pharmaceuticals, No. 08-cv-500 (D.N.J.)

Marc Crawford, Florence DiBenedetto, Phyllis Reiff, Cynthia White and Gilbert L. White v. Merck & Co., Inc., Schering-Plough Corp., and Merck/Schering-Plough Pharmaceuticals, No. 08-cv-582 (D.N.J.);

Thomas E. Brandon, Jaret E. Brown, Paul J. Farinelli, Sr., Andrew Knall, Glenda Parker, Kurt W. Seestrom, Thomas J. Searls, Steven Weston, and Harold J. Versprille v. Merck & Co., Inc., Schering-Plough Corp., and Merck/Schering-Plough Pharmaceuticals, (D.N.J.);

Roseanne S. Flores v. Merck & Co., Inc., and Schering-Plough Corp., No. 08-674 (E.D. La.);

Dennis Kean v. Merck & Co., Inc. and Schering-Plough Corp., No. 08-cv-061 (S.D. Ohio);

Panayiotis Balaouras v. Merck & Co., Inc., Schering-Plough Corp., and Merck/Schering-Plough Pharmaceuticals,, No. 08-cv-198 (N.D. Ohio);

Theodore Sahley v. Merck & Co., Inc., and Schering-Plough Corp., No. 08-cv-153 (N.D. Ohio);

Sigmond Tomaszewski v. Merck & Co., Inc., and Scherling[sic]-Plough Corp., No. 08-cv-258 (E.D.N.Y.);

Joyce B. Rheingold v. Merck & Co., Inc., Schering Corp. d/b/a Schering-Plough Corp., and Merck/Schering-Plough Pharmaceuticals, No. 08-cv-438 (S.D.N.Y.);

Andrew Schwaeber v. Merck & Co., Inc., Schering-Plough Corp., and Merck/Schering Plough Pharmaceuticals, No. 08-cv-344 (E.D.N.Y.);

Marion J. Greene v. Merck & Co., Inc., and Schering-Plough Corp., No. 08-cv-69 (M.D. Fla.);

Sam A. Ciotti v. Merck & Co., Inc., Scherling[sic]-Plough Corp., No. 08-cv-60077 (S.D. Fla.);

Ronna Dee Kitsmiller v. Merck & Co., Inc., and Schering-Plough Corp., No. 08-cv-120 (D. Colo.);

Jody Fischer v. Merck & Co., Inc., Schering-Corp. d/b/a Schering-Plough Corp., and
Merck/Schering-Plough Pharmaceuticals, No. 08-cv-203 (D. Minn.);

Daniel L. Tollefson, Sr. v. Merck & Co., Inc., Schering-Corp. d/b/a Schering-Plough Corp., and Merck/Schering-Plough Pharmaceuticals, No. 08-cv-220 (D. Minn.);

Fred Singer v. Merck & Co., Inc., and Schering-Plough Corp., No. 08-cv-331 (E.D. Pa.);

John P. Dudley v. Merck & Co., Inc., Schering-Plough Corp., and MSP Singapore Co., LLC, No. 08-cv-1027 (D. Kan.);

Charles Swanson and Michael Jurich v. Merck & Co., Inc., Schering-Plough Inc. d/b/a
Schering Plough Pharmaceuticals, No. 08-cv-2040 (D. Kan.);

Alexis Alicea Figueroa, his spouse Carmen Ruiz Pagan, and the Conjugal Partnership formed by them, Miguel Robledo Gomez, his spouse Ileana Vega, and the Conjugal Partnership formed by them v. Merck & Co., Inc., and Schering-Plough Corp., No. 08-cv-1099 (D.P.R.);

Lisa Mims v. Merck & Co., Inc., Schering-Plough Corp., and Merck/Schering-Plough Pharmaceuticals, No. 08-10 (N.D. Miss.);

Susan McCulley v. Merck & Co., Inc., Schering-Plough Corp., and Merck/Schering-Plough Pharmaceuticals, No. 08-16 (N.D. Miss.);

George Artenstein v. Merck & Co., Inc., Schering-Plough Corp., Schering Corp., Schering Plough Healthcare Products, Inc., Schering-Plough Biopharma Corp., and Schering Plough Healthcare Products Sales Corp., No. 08-cv-152 (E.D. Cal.);

Helen Aronis v. Merck & Co., Inc., Schering-Plough Corp., Schering Corp., Schering Plough Healthcare Products, Inc., Schering-Plough Biopharma Corp., and Schering Plough Healthcare Products Sales Corp., No. 08-cv-152 (E.D. Cal.);

ASEA/AFSCME Local 52 Health Benefits Trust and Claudia Edwards v. Merck & Co., Inc.,

Schering-Plough Corp., and Merck/Schering Plough Pharmaceuticals, No. 08-cv-531 (N.D. Cal.);

Roberto DeLeon v. Merck & Co., Inc., and Schering-Plough Corp., No. 08-cv-34 (S.D. Tex.);

Robert S. Love v. Merck & Co., Inc., and Schering-Plough Corp., No. 08-cv-19 (E.D. Tex.);

John Carl Adams v. Merck & Co., Inc., and Schering-Plough Corp., No. 08-cv-69 D.N.M.);

Chong Badgley v. Merck & Co., Inc., and Schering-Plough Corp., No. 08-cv-123 (E.D. Mo.); and

Steve Dillon, John Weathers, and Ruth Weathers v. Merck & Co., Inc., and Schering-Plough Corp., No. 08-cv-4021 (W.D. Mo.).

The above complaint also alleges consumer fraud, and common law fraud counts, and does a great job of running down the scientific data that DOES NOT support Vytorin's ad and web-claims -- with lots of graphics, which will appear in a new post, here shortly.

This will be difficult to step around, as the gist of it is that one cannot market an FDA regulated, and licensed, drug substance without scientific evidence for the claimed benefits -- and, to do so, repeatedly, would make out a RICO pattern, where, as here, billions were made when far cheaper substitutes would have done the same job.


Cheers!

Originally Posted March 3, 2008 -- "What is SGP's margin on all other products?"

Okay -- I spent some time last night [March 2, 2008], thinking about where SGP's profitability really comes from, and here's what I was able to deduce. But, first these are all simply my estimates, taken directly from the SGP Form 10-K figures, just filed (on pages 61, and 124 to 127).

LINK:

http://www.sec.gov/Archives/edgar/data/3...

So, what would SGP's average 2007 gross margin be, if the Vytorin J/V profits were NOT included?

That is the question I have set out to answer, below. And, please, one and all, correct me if you see errors in my approach.

A few observations, as we start: per SGP's Form 10-K, J/V sales are NOT included in the $12.69 billion 2007 SGP net sales total (and that turns out to be very useful, as will be explained in a moment). But the "equity income" from the J/V IS included in SGP's net results -- that was $2.049 billion in 2007. However, for the year, SGP reported a loss of $1.473 billion (due to Organon deal). So, we need to know what income would be, in a year with no Organon "one-time" write-offs.

Okay, SGP took a $3.754 billion write-off in 2007 related to Organon in-process R&D (plus $51 million in acquisition costs), so we will need to add those amounts back to the 2007 results, to figure out what post-Organon, "ongoing operating income" will look like.

So, ($1.473) plus $3.754 plus $0.051 equals $2.332 billion in "would be" total income, post-Organon for 2007.

Next, we know that the J/V accounted for $2.049 billion in 2007 income. So, let's take that out (to find "all other" income), and we see that $2.281 minus $2.049 leaves SGP with only $232 million in income, on over $12.69 billion in 2007 sales. [This is where the fact that the $12 billion in sales does NOT include the J/V sales becomes very useful!]

Okay, but we know SGP would save on some expenses, if it didn't have the SG&A, and other costs, it picks up from the J/V -- so let's give SGP credit for those (detailed on page 124) -- those costs were $1.523 billion in 2007. Let's assume that SGP would be able to avoid paying 20 percent of those amounts (SGP's own half of the partnership, plus another one-fifth of its expenses -- seems reasonable): We can add back another 609 million to 2007 "all other" SGP
income. [$1.523 billion divided by 2, times .8 = $0.609]

So, $232 plus $609 million equals $841 million in "all other" SGP income, on $12.69 billion in 2007 sales. Thus, SGP's average margin on all other products is likely to be 6.6 percent [I had previously guessed it to be about 10 percent.] $0.841 / $12.69 = 6.6 percent.

That means the average margin on all the "other" SGP products (post Organon, but WITHOUT the J/V's 70 percent margins!) is about 6.6 percent. So, SGP makes, on average, six and six-tenths cents on every dollar of all of its non-Vytorin J/V product sales.

That means, in order for SGP to replace $1 of lost J/V sales (which correspondingly, results in $0.70 of lost profits, for each dollar!), SGP needs the REST of its businesses
to generate, on average, $10.60 of NEW sales, for every $1 of lost Vytorin script sales. [$0.70 / $0.066 = $10.60].

That will never happen. No way, no how. So, is the low-estimate of $1.35 per share of 2008 EPS really so unbelievable, now? I'd say $1.35 looks positively optimistic.

Finally, remember that $510 million of SGP's "operating" income in 2007 came from a one-time speculation on currencies during the pendency of the Organon transaction. It will not, and cannot, be repeated. If we back out the one-time $510 million gain on currencies, the rest of SGP, ex the J/V, actually has far worse margins. [$841 -$510 = $331 on all other products -- leads us to $331/$1269 = 2.6 percent margins -- or, $27 of NEW sales needed, for every lost dollar of Vytorin J/V sales!]

So, either $10.60 to one, or perhaps, $27 to one, wow -- I wouldn't like to be on the wrong side of those odds.

Cheers!

A look at Credit Suisse's "independence" re SGP

Another View, here.

3-Apr-08 11:22 am

Most of the people from the old CS First Boston (now known as "Credit Suisse") are generally honest and capable -- it is a very good firm. I do think the firm, though, has a little more "skin in this game" -- the SGP future common stock pricing game -- than a completely independent Wall Street analyst-firm might have (about $800 million worth!).

Credit Suisse, you see, was a second tier member of the lead underwriting-group of the August 2007 common and convert public offering by SGP -- that offering was priced at $27.50 per SGP common share (now around $15); $250 per SGP convert (the convert now trades around $158):

SGP common stock:

Credit Suisse Securities (USA) LLC 2,233,125 shares

LINK (On Page S-22):

http://www.sec.gov/Archives/edgar/data/3...

SGP 6% converts:

Credit Suisse Securities (USA) LLC 444,375 shares

LINK:

http://www.sec.gov/Archives/edgar/data/3...

Credit Suisse ALSO co-led the SGP 2 Billion euro debt offering in September 2007 (See page S-38):

Underwriter Name 2010 Notes 2014 Notes

Goldman Sachs € 100,000,000 € 300,000,000
BNP Paribas € 100,000,000 € 300,000,000
Credit Suisse € 100,000,000 € 300,000,000

LINK (At Page S-38):

http://www.sec.gov/Archives/edgar/data/3...

To recap -- common stock: $61.4 million sold; converts: $111.09 million, and € 400 million euros of SGP debt is about $626 million at today's spot rate -- All-in, just under $800 million of "skin in the game". How many clients of Credit Suisse are hopping mad at the firm, as I write this?

So -- the firm has egg all over its face (about $800 million worth). Could that explain the higher SGP price targets it espouses?

Next post, I'll offer some guesses at a SGP REALISTIC EPS for 2008. . . .

Cheers!

~~~~~~~~~~~~~~~~~~~~~

Original comment:

Credit Suisse Upgrade - Target $32!!

3-Apr-08 08:58 am

Productivity Transformation Program (PTP) Augments Future

After having dealt with so much negative surprise over the last 2 days, it is good news to have some hard numbers on SGP’s future cost and integration savings. The $1.5Bn in PTP is 3x the $500MM in Organon savings by 2010 that is factored into Street estimates based upon prior SGP guidance.

The majority of the $1.5Bn in savings probably relates to Organon integration plans, which were intended to incorporate concurrent reductions in SGP base costs. The negative surprise from ACC and the market reaction that ensued no doubt motivated management to implement the most aggressive of these plans and to share the details earlier than planned.

Previous guidance for $500MM in 2010 Organon synergies seemed low to us as this implied only 4.7% of proforma expenses, while we would have expected 8% or more based upon benchmark deals. Before today we had assumed some upside to guidance at $650MM by 2010.

SGP was grossly undervalued before additional cost-savings were added. Our DCF analysis using a 9x EBITDA multiple suggested intrinsic value of $15 with ZERO cholesterol income, which we see as an unimaginable scenario.

With the new savings added to our model, new DCF analysis suggests $17 and $22 with cholesterol revenues at zero and 50% of 2007 revenue levels, respectively.

Our EPS estimate for ’08 remains at $1.66. Our EPS estimates for ’09 and ’10 change from $1.88 and $2.15 to $2.01 and $2.50, respectively. Our target price remains $32.

Posted by: kjragan

A reply to "JP Morgan says. . . ."

Another opinion, here.

JP Morgan has about $798 million of "skin in the SGP game". It was a co-lead underwriter of the September 2007 Euro note offering for SGP.

Underwriter 2010 Notes 2014 Notes

J.P. Morgan € 100,000,000 € 300,000,000

Page S-38 of this link:

http://www.sec.gov/Archives/edgar/data/3...

At yesterday's spot rate, the 400 million euros are about $626 million. It also was an underwriter for $61 million of the SGP stock, and $111 million of the SGP converts, in August 2008:

SGP common stock:

J.P. Morgan Securities Inc. 2,233,125 shares

LINK (On Page S-22):

http://www.sec.gov/Archives/edgar/data/3...

SGP 6% converts:

J.P. Morgan Securities Inc. 444,375 shares

LINK:

http://www.sec.gov/Archives/edgar/data/3...

I'd think twice about J.P. Morgan's independence -- people here are quick to criticize Dr. Harlan Krumholz for perceived conflicts of interest, as an expert witness (re Vioxx, against Merck). I doubt he has $800 million "at stake" on SGP -- but perhpas Credit Suisse, and J.P. Morgan each do. Their clients have a combined $1.6 billion of SGP's "egg on their faces". That bears repeating.

Also, consider this article, as independent:

Schering's Plowing

". . . .Schering, if you missed it, was all but sat on and misshapen by recent events. If nothing else, reasonable minds can agree on this: Its future is not under its control. The drugmaker pulls in more than half its profit from drugs it markets with another company -- Merck(MRK - Cramer's Take - Stockpickr) -- and all other things being equal, this puts a portion of its fate out of its control.

The partnership means everything to Schering and, proportionally, not nearly as much to the larger Merck. Now add to the mix all the troubling implications a panel of cardiologists created when it said generics were just as good as the Schering-Merck name brands, which should only be used as a last resort, and you have an out-of-control near disaster on your hands. . . ."

Full Article Link:

http://www.thestreet.com/_yahoo/newsanal...

Cheers!

~~~~~~~~~~~~

Original Post:

3-Apr-08 07:39 pm

JP Morgan says the stock is trading at a value that discounts Vytorin at a 100% clip. Did set there price target to $20 from $28.They stated the base company is worth between 13 and $14.

eom

Posted by: jontdavis

~~~~~~~~~~~~

A Reply to "How does Dr know Vytorin/Zetia doesn't work?"

Proving a Negative

You ask ". . . .How does Dr know it doesn't work?"

That is a very ODD way to approach choosing a drug that costs three to four times a statin.

It seems the medical community, insurers, the FDA, the SEC and Congress are increasing asking "How do we know it WORKS?"
I'd want to know, for my relatives.

Moreover -- it seems possible -- likely, even, given ENHANCE -- that "blocking cholestorol absorption through the intestines" (Vytorin/Zetia) has a differing OUTCOMES effect than blocking it through the liver (statin-therapy).

That is, Vytorin may lower LDL in some not-yet-understood-way, without being able to help reduce heart-attacks.

But it is, in fact, an open question, from a scientific point of view. I just wonder about anyone who'd say "how do we know it doesn't work?" when the ENHANCE data suggested just that. On top of it all,Vytorin costs so much more -- that is what an INVESTOR ought to focus on.

Cheers!

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Original Comment:

Zetia does help to lower cholesteral..has worked when only Crestor did not...How does Dr know it doesn't work...Doesn't say if his patients were worse after taking it...did their Cholesterol go down..If he was a big user he should have alot of his own data compiled from his patients..what did that determine.???Many questions if he is legit.

4-Apr-08 12:06 pm

Posted by cb3216@sbcg

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