Monday, June 1, 2009

What Does "Generally Stabilizing" Look Like, to CEO Fred Hassan?

Last week, I offered a post on the notion that -- in arguable non-compliance with SEC Reg FD -- Schering-Plough stopped disclosing monthly IMS data about Vytorin, Zetia and its global cholesterol franchise joint venture, more broadly. It did not stop receiving the data, it just stopped disclosing it.

More specifically, on January 20, and February 3, 2009, CEO Fred Hassan said that the U.S. prescription volumes were "generally stabilizing" for the franchise. That turned out to be wholly-incorrect. Wildly incorrect, in fact (the above graphic, very generously, gives the CEO credit for increasing international sales -- but very starkly illustrates just how "non-stable" sales have been, and continue to be). Note, importantly, that CEO Hassan did not even attempt to soften his statements by saying that the rate of decline was "generally stabilizing" -- no, he said that the volumes were "stabilizing" -- which can only be understood to mean that quarter-to-quarter numbers ought to be flat, or slighly rising. And they clearly are not.

Then, sometime on Friday (and continuing into today), Kenilworth made all of the externally-visible indices on its corporate website "point away" from the monthly data, earlier disclosed in its "Investor FAQs". Why? Who knows?

Oddly, and as I promptly noted, Schering-Plough had just (about 36 hours before) added documents to the FAQs -- but not on Vytorin/Zetia monthly trends.

Here is what the SEC's adopting release, in 2000, had to say about selective disclosures:

. . . .Regulation FD (Fair Disclosure) is a . . . rule that addresses selective disclosure. The regulation provides that when an issuer . . . discloses material nonpublic information . . . it must make public disclosure of that information. . . . promptly. Under the regulation, the required public disclosure may be made by . . . another method or combination of methods that is reasonably designed to effect broad, non-exclusionary distribution of the information to the public. . . .

. . . .Issuer selective disclosure bears a close resemblance in this regard to ordinary "tipping" and insider trading. In both cases, a privileged few gain an informational edge -- and the ability to use that edge to profit -- from their superior access to corporate insiders, rather than from their skill, acumen, or diligence. Likewise, selective disclosure has an adverse impact on market integrity that is similar to the adverse impact from illegal insider trading: investors lose confidence in the fairness of the markets when they know that other participants may exploit "unerodable informational advantages" derived not from hard work or insights, but from their access to corporate insiders. . . .

Regulation FD is also designed to address another threat to the integrity of our markets: the potential for corporate management to treat material information as a commodity to be used to gain or maintain favor with particular analysts or investors. . . .

While the matter is not free from doubt, it is clear that Friday's moves have made all the Investor FAQ information "harder to find" -- in arguable violation of SEC Reg FD -- given CEO Hassan's earlier penchant for monthly disclosures.

And -- the curious among us would like to know whether Schering-Plough's share of the venture will record less than $400 million in sales, this current second quarter of 2009. The franchise has already fallen so far, that even the Remicade revenue (at a little under $500 million for the current quarter) is likely to outstrip it. Cue-up the continuting questions about that franchise's longer term prospects, as well, given that J&J has filed for arbitration. [And, now, to "play us out", a graphic so nice, we've used it twice! The data for the below graphic is taken from line 4, on page 3 of this Schering-Plough currently-available quarterly document (a PDF file). Click below -- to enlarge:]

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