Friday, February 27, 2009

Schering-Plough's 2008 SEC Form 10-K: Just Filed With SEC

I'll have several other observations, in the coming days and weeks, on the main body here, but two new legal/investigatory developments appear deep, deep deep in the Merck Schering-Plough Cholesterol Joint Venture's Supplemental Audited Financial Statement Footnotes (past page 128, at Footnote 9, on page 128).

First, the Congressional Committee investigation has generated three new letters since August 2008 -- focusing on the SEAS trial. Only one of these letters was publcily disclosed previously -- that being the February 19, 2009 letter, released by the staff of the Sub-committee itself.

More ominous, though, is the second new development -- as of September 2008, Merch/Schering-Plough was informed of a new facet of the civil DoJ investigation (per page 128 of the filing).

There is apparently a new (and separate, more formal) Department of Justice investigation underway -- specifically into whether the sales and promotion practices Schering-Plough employed to market Vytorin constituted civil violations of the federal False Claims Act (in causing sales to government payers or reimbursement authorities) -- the False Claims Act prohibits defrauding the government in the sale of products to it.

That is all new. The DoJ was known to be looking into the matter generally, presumably for civil false advertising, and perhaps, securities law violations. The Second Quarter 2008 Form 10-Q confirmed this -- referring ratherly blithely to a letter from DoJ (at the bottom of page 40: ". . . .requests for information from U.S. Attorneys seeking similar information and documents. . . .").

Tonight's language is far more formal, less breezy -- and implies an escalation in either (1) the seriousness of the DoJ's attention to the matter; or, (2) perhaps, in the seriousness with which Schering-Plough is approaching its disclosure obligations to the SEC, and responsiveness to the DoJ. Take a look:

. . . .As previously disclosed, since December 2007, Merck and Schering-Plough have received several letters addressed to both companies from the House Committee on Energy and Commerce, its Subcommittee on Oversight and Investigations (“O&I”), 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 sale and promotion of VYTORIN, as well as sales of stock by corporate officers of Merck and Schering-Plough. In addition, since August 2008 the Partners have received three additional letters from O&I, including one dated February 19, 2009, seeking certain information and documents related to the SEAS clinical trial. . . .

. . . .Finally, in September 2008, Merck and Schering-Plough received a letter from the Civil Division of the U.S. Department of Justice (“DOJ”) informing them that the DOJ is investigating whether the companies’ conduct relating to the promotion of VYTORIN caused false claims to be submitted to federal health care programs. The Partners and the Partnership are cooperating with these investigations and responding to the inquiries. . . .

In addition, the Partners and the Partnership have become aware of or been served with approximately 145 civil class action lawsuits alleging common law and state consumer fraud claims in connection with the Partnership’s sale and promotion of VYTORIN and ZETIA. Certain of those lawsuits allege personal injuries and/or seek medical monitoring. These actions, which have been filed in or transferred to federal court, are coordinated in a multidistrict litigation in the U.S. District Court for the District Court of New Jersey before District Judge Dennis M. Cavanaugh. The parties are presently engaged in motions practice and briefing. . . .

Wow -- 'tis difficult to imagine why Schering's stock would rise on the NYSE, and on heavy volume, on a down US pharma-market-sector-day, immediately in advance of these disclosures.


Anonymous said...

maybe it was the dividend. Right now, I figure anytime some money changes hands the market will think it is a good least for the short term.

condor said...

True -- and unlike others, Schering-Plough is not (yet) talking about cutting the dividend.

Good point.


Anonymous said...

"Ranking Minority Member of the Senate Finance Committee"

AKA Senator Grassley.