Saturday, October 10, 2009

Amended Gradone ERISA Case Relies On ENHANCE Securities Case Discoveries

This will be fascinating. As amended, the ERISA complaint raises the interesting question of whether, and to what extent, confidential witnesses' evidence -- discovered in another would-be class action (but based on many of the same predicate facts), one sounding in alleged federal securities law violations -- as opposed to alleged federal ERISA violations -- may be relied upon in pleadings in the latter case, to survive motions to dismiss. We shall see.

In the coming days, I'll likely put together several posts on this amended complaint, as it is probably the most comprehensive retelling of the ENHANCE saga yet filed in the various would-be class actions. This one, alleging violations of ERISA fiduciary duties, and conflicts of interest (via CEO Hassan's, and then-Compensation Committee Chairman Hans Becherer's allowing, and keeping Schering savings plans invested in Schering-Plough common stock, during the period of non-disclosure of the disappointing results of ENHANCE), would seek to recover all losses the plan-participants suffered during the non-disclosure period. The plaintiffs do not make an estimate of those damages, but from the stock price graphic (above, right), and the fact that perhaps 1.3 million shares were held by the plans during 2006 to 2007, it is plain that the damages could exceed $160 million.

In this first post, I wanted to note how cleverly the ERISA plaintiffs have leveraged the discoveries made by the federal ENHANCE securities would-be class action plaintiffs -- especially those from the so-called Confidential Witnesses No. 1 through No. 6 -- insiders (or former insiders) from Schering-Plough, all (from page 32 of the amended Gradone ERISA complaint):

. . . .97. Plaintiffs believe that after a reasonable opportunity for further investigation and discovery, the evidence will show that Defendants were aware in. . . late 2005/early 2006 that the ENHANCE trial would not yield positive results. In this regard. . . a confidential informant who was one of Schering-Plough’s senior medical personnel2, provided information to counsel in the companion securities action against the Company, according to which, a quality control assessment of the ENHANCE data was conducted at Schering-Plough in late 2005 to early 2006 that showed that the ENHANCE trial would not succeed in demonstrating VYTORIN’s superiority over generic statins.

98. According to that confidential source, even though the ENHANCE trial was purportedly blinded, updates regarding the trial were shared in quarterly meetings of Schering-Plough’s Brand Team (the “Brand Team”), that included Sean McNicholas, Ray Russo (“Russo”), Michael McCann, Michael Matin, Eric Cox, Steven Morales and Denise Foy. At the meetings, discussions and detailed PowerPoint presentations updated the participants on developments concerning VYTORIN and ZETIA, including not only the marketing and commercial aspects of the drugs, but also the status of the ongoing research. Further, according to that confidential source, by the Spring or Summer of 2006, it was clear that the results of the ENHANCE trial would be problematic for the Company. Still further, according to that confidential source, the individuals at Schering-Plough who were familiar with the Company’s cholesterol franchise (including Defendants Hassan and Bertolini who were regularly briefed on the details of the ENHANCE trial) were aware of this information.

99. However, at the time, Defendants did not inform the medical community or the investing public, including the Plans’ participants, of VYTORIN’s inefficacy, instead, spending millions of dollars in marketing campaigns. As Harlan Kumholz, a cardiologist at Yale University, had observed in his remarks to Forbes, “By the summer of 2005, [Schering-Plough/Merck’s] marketing division [was] so successful that [VYTORIN was] already a blockbuster drug. There was only downside [to analyzing the results of ENHANCE trial].”

Indeed, according to the information provided to counsel in the companion securities case by a confidential informant, the Company’s marketing department for VYTORIN and ZETIA, headed by Russo, "wanted to control the science; it was very much marketing driven and not science driven," and Schering-Plough was "not concerned with the data as much as they [were] selling the drug". . . .


Footnote 2. References to confidential informants. . . were obtained from the Consolidated Class Action Complaint For Violations Of The Federal Securities Laws, filed with the Court on September 15, 2008 in a companion case pending against Schering-Plough, In re Schering-Plough Corporation/ENHANCE Securities Litigation, Case No. 2:08-cv-00397. . . .

This will, indeed, be very interesting. As ever, more to come -- and, soon -- but here is where all these non-disclosures ultimately landed Schering-Plough:

1 comment:

Anonymous said...

What a great resource!