Monday, August 3, 2009

The Difference Between Full, Fair Disclosure -- and "What the Law Will (Barely) Allow"

This has been a nearly two-year theme of mine: Merck, despite all its other shortcomings, tends to tell the whole truth (that links to a Q1 2008 example I long-ago highlighted) -- at least in its SEC filings.

Schering-Plough? Not. So. Much. And this shortcoming will become even clearer, should asenapine win FDA approval, and the proposed reverse-merger's closing be delayed for any significant period of time (allowing for continued SEC reporting by "Old" Schering-Plough -- into 2010).

Recall that CEO Fred Hassan twice said -- during January and February 2009 -- that US sales of Vytorin/Zetia were "generally stabilizing". That turned out to be untrue. Most recently, in its Form 10-Q, Schering-Plough wrote

". . . .Current or future investigations, analysis of the ENHANCE, SEAS, or other clinical trials, data by various agencies, litigation concerning the sale and promotion of these products, or the securities and other class action litigation relating to such matters could, if resolved unfavorably to Schering-Plough or the joint venture, have a material adverse effect on Schering-Plough’s results of operations, cash flow and financial position. . . ."

Stultifyin', no? [Note that everything -- everything! -- is someone else's fault, in his version. No mention that any study result, all by itself (as opposed to someone's impliedly "goofy" analysis of any such result) might cause a decline.]

Now, contrast that last statement with Merck's just filed Form 10-Q, on the same topic (at page 48):
. . . .The Merck/Schering-Plough partnership (the “MSP Partnership”) reported combined global sales of Zetia and Vytorin of $1.03 billion for the second quarter of 2009, representing a decline of 10% over the second quarter of 2008. Sales for the first six months of 2009 were $1.98 billion, a decline of 17% compared with the first six months of 2008. Global sales of Zetia, the cholesterol-absorption inhibitor also marketed as Ezetrol outside the United States, were $513.5 million in the second quarter of 2009 and $992.8 million for the first six months of 2009, representing declines of 8% and 13%, respectively, compared with the same periods of 2008. Global sales of Vytorin, marketed outside the United States as Inegy, were $519.9 million in the second quarter of 2009 and $985.9 million for first six months of 2009, representing declines of 12% and 21%, respectively, compared with the same periods of 2008. Sales of Zetia and Vytorin have declined following the previously disclosed announcement of the ENHANCE and SEAS clinical trial results in 2008. In the United States, the rate of prescription market share decline for Zetia and Vytorin is slowing. . . .

Direct, accurate and solid. No attempt to blame the real sales decline on "press overreactions" -- to "minor studies, misunderstood". That's more like it. Net, net -- it may very-well turn out to be a good thing that Merck is essentially wiping out the Schering-Plough sychophant (Kenilworth) SEC reporting and disclosure staff. . . .


Anonymous said...

They used to call themselves Ethical Pharmaceutical Companies.


Condor said...

It would be hilarious -- if it weren't so positively Orwellian -- in its intentionally-deceptive use of nomenclature. . . .


Anonymous said...

Emphasis on USED TO.

This began in the 1800's when the founders of many of these companies were producing plant extracts etc. where the content and potency could vary and in some cases intentionally it was also the age of patent medicines. They actually called themselves ethical to differentiate themselves from the unethical manufacturers.

They began to drop the term Ethical Pharmacuetical Companies or Industry in the 1960's and by the late 1970's I don't recall hearing it much.

I don't view it as Orwellian so much as truth in advertising and I find it a sad commentary on the industry.


Condor said...

In the situations with which I am most-personally familiar, the term was meant in this way.

That particular usage was in vogue in the early days of the new Millennium -- but in most cases, just turned out to me another version of getting higher-margins from "nearly-generic" compounds.

Almost none of the product-run was actually shipped to developing nations -- at low cost. No, most of it was resold in the developed world, but used to undercut more expensive rivals' drugs. That was my experience -- and thus, for me, the term carried an Orwellian aftertaste.


Anonymous said...

Just a note; while I do hold the CEO and Board accountable for ethical behavior, it really was the US consumers and investors that drove this 'Orwellian' behavior. The push for 'me too' drugs, grey-line use and line extensions along with modestly effective drugs was to fill the coffers to pay a better return on your (investors) investment.

All during the 90s the companies were under tremendous pressure to give back to investors at the same rate the rest of the tech industries were....on the order of double digit returns. In the past, the Pharmas were considered solid investments giving ~5% return on your investment. That was no longer fashionable or enough.

condor said...

Two observations, here: I am unaware of any data suggesting that consumers were demanding "me too" drugs.

Secondly, while everyone shares responsibility for excessive demands, in a capitalist system, it is the role of the board and CEO -- to "govern" those demands.

In this regard, I see the expectations of Wall Street (and, to a lesser degree, Main Street) much as a child who has stayed up, way past bed time, and eaten way too much sugar.

The ETHICAL CEO (I've known, and worked closely with, at least one of 'em!), and the functional board, will gently refuse the third request for "MORE jelly-beans", and put the toddler to bed, with an entirely true bed-time book (acheivable results -- free of shenanigans).

That CEO may not walk away with over $300 million -- as the company he was charged with taking care of, is busted up (and entirely vanishes from the face of the Earth!) -- but that CEO will retire knowing he did the right thing, leaving a somewhat smaller (but fully-employed) company intact, and in an excellent position to thrive, in any set of market contitions.

That CEO may make less than $10 million for his efforts. But -- he will be able to sleep well, and look rather kindly upon the guy he greets, in the mirror, when shaving each morning.


Anonymous said...

Condor, it seems you might have been a bit 'tiffed' at my last post. I don't mean to be offensive.

And to add more to the conversation:

On your second point. As I said, I agree, CEO and Boards need to be held accountable or should be more 'responsible.'

But, as the investing main street wants a large return on their investments, the pressure to 'short change' will continue. These patterns of 'boom and bust' have gone on throughout history. Pick up the book "Salt" and see with the history with just that commodity.

We pick up the pieces, shake our heads over how dumb it all was, how it could have been avoided but....we do it all again.

Also, the point about 'too much sugar' has been debunked, there really isn't a 'sugar high.' I will try and find the most recent analysis for that.

Re: your final point on the Ethical CEO 'looking in the mirror.' Nice thought but, reality is; people view themselves how they view themselves. I am sure the crew at S/P see themselves as perfectly ethical. And they seem to be able to continue in their patterns-including sleeping at night and looking their own staff in the eyes, without a hitch. Narcissism takes care of all that.

As to your first point; Take Claritin as an example. A me too drug when first filed. Third to the market-barely making it. At the time, there was pressure on 'any company' to break into the non-sedating market (yes, financial; driven by consumbers). The market was originally owned by Seldene (~75%) and Hismanal (~20%). If it all stayed the same, no real incentive to develop additional me toos.

But, then 'Torsades' shows up-complex drug-drug interaction. Bingo, Claritin goes from 3rd to 1st because it doesn't do have it. As it was only a 'me-too' drug its success leads to more market pressure to get a 'me-too' drug out. The market pressure is the consumer, both as a real consumer and an investor.

Anonymous said...

As promised:

where did the sugar-hyperactivity theory come from?

The notion that food can have an effect on behavior grew popular in 1973 when allergist Benjamin Feingold, M.D., published the Feingold Diet. He advocated a diet free of salicylates, food colorings and artificial flavoring for treating hyperactivity. Although Feingold's diet didn't call for eliminating sugar specifically, it did suggest to many parents that food additives might be better avoided.


There is elegant research demonstrating that sugar is not at all related to inattention or hyperactivity," says Mina Dulcan, MD, head of child and adolescent psychiatry at Children's Memorial Hospital in Chicago.

Here's the link for the original paper:

All of the sugar thoughts are a bit like the 'full moon' theory of abnormal human behavior. You see it only when you want to.

condor said...

Thanks so much -- great dialogue!

No, I am not miffed, at all. . . .

Intrigued, perhaps:

I have raised three wonderful, healthy, happy kids -- into young adults -- and watched their [admittedly sporatic] sugar-highs.

Now, there is a history of adult onset diabetes in my collateral family, so it is possible my children were/are an atypical subset of the research -- pre-diabetic genetic tendencies/markers(?)

Who knows? It was for the purpose of an allegorical illustration, in any event. . . .

The larger point -- one I think we both may agree upon -- is that many many people convince themselves of many things, every day. When viewed through the longer lens -- of a telescoped history, for example -- what one thought was a good thing (or even the "right thing"), in the short term, turns out to be not so, in the longer term. Thus, in my view, an ethical/moral compass is simply essential to good management of public company assets. One I believe Mr. Hassan lacks. His view is always "Fred, first."

Do stop back. I am always up for a solid counterpoint/"differing take on it all", as compared to mine -- and yours are just that.


Anonymous said...

Lot of posts and a few points.

First regarding your familiarity the recent reinvention of the term Ethical Pharmaceutical.

Simply modifying the structure of an existing compound is nothing new. This is standard practice in medicinal chemistry and drug development going back as far as I can think of (i.e. at least 1950's to 60's and probably much earlier).

Companies are well aware of it do it themselves to try to get the best compound to bring forward and write their patents to try to limit it for anything they may have missed.

I believe you are correct that the person using it differently was only looking for me toos but in some instances you do get a more efficacious or more effective drug. As Merck used to preach to their employees, ‘First to market or best to market’.

As for the 8:05 AM Anonymous post I largely agree and don’t believe that he was referring to consumers demanding me toos but consumers switching to generics. While I used to think this. I have found quotes I believe from Senator Kefauver (From the 1961 Kefauver-Harris Amendment to the Food Drug and Cosmetics Act) from the mid-1960’s indicating that drug companies were price gouging due to near infinite product exclusivity and he wanted to do something about it even then, and that he may have wanted to do something in 1961. I also believe that I read somewhere that Harris signed on to the negotiations in order to limit generics and other potential profit losses to Pharmaceutical companies. (I may be wrong about this or even which senator did which as I read it one time and I don’t have the reference.)

As for Claritan and torsades, someone who was involved with it prior to marketing and who I trust as a reliable source told me there were some shenanigans with the development and approval.

Anonymous said...

Last comment by Salmon.

Anonymous said...

Correction. Seldane.