Tuesday, March 31, 2009

Schering-Plough to Close Bray, Wicklow (Ireland) Animal Health -- 240 to be Severed

Irish web-papers are reporting the just-announced cuts, 21 minutes ago, now:

. . . .Pharmaceutical company Schering-Plough has announced it plans to close its operation in Bray, County Wicklow, by the middle of 2011.

The US-based company, which employs 240 people in Bray, says it does not expect redundancies within the next 12 months, but does plan to close in just over two years time. . . .

Tough times -- tough measures.

Monday, March 30, 2009

Early ACS Misses Primary and Secondary Endpoints. Yawn.

This news out of ACC 2009 [was it really only a year ago, today, that the ACC panel laid waste to Vytorin? Wow!], and in the NEJM, was widely-expected -- there must have been seven separate threads over at CafePharma predicting this -- but now it is official: Schering's Early ACS trial has missed both the primary and secondary endpoints.

If/when the Merck merger transaction goes through, this bad ACS outcome might actually be transformed into a mild positive -- if Merck uses it as an contra-example -- and has the discipline to allocate resources away from these sorts of studies. But then again, there is this -- so Early ACS may well remain a[nother] Hassan-inflicted black-eye -- from the study press release, today:

. . . .Significantly higher rates of bleeding were observed in the study group, with 118 patients experiencing a TIMI major bleeding event, compared to 83 in the delayed provisional group (p=0.015). Investigators reported a 7.6 percent vs. 5.1 percent rate of moderate or severe bleeding (p<0.001) in the study group as compared to the delayed provisional group, as measured by the GUSTO scale. Red blood cell transfusions occurred in 8.6 percent of patients in the study group vs. 6.7 percent of patients in the delayed provisional group (p=0.001). There were no significant differences in mortality or any serious adverse events between the two groups. . . .

It increases bleeding -- not. a. good. thing. There really is no way to paint a happy face on that data.

Saturday, March 28, 2009

More Ambiguous News for Vytorin/Zetia, and Cancer Incidence Rates. . . .

Marilyn Mann, over at Gooznews has a very careful, cogent review of the latest FDA-reported adverse events SEAS (my error here corrected, by Marilyn Mann's comment below -- do read it, as well) data study -- published in the April issue of the Journal of Clinical Lipidology (by authors, BTW, who report receiving speaking fees and honoraria from Schering-Plough and Merck -- huge surprise, that!), this Saturday afternoon -- do go read it all, but here is a "money" quote:

. . . .it is difficult to see how any particular case of cancer could be definitively connected to ezetimibe even if it turns out that ezetimibe causes cancer or increases the risk of cancer death. Bottom line: if you are worried about the cancer signal in SEAS, this study is unlikely to provide you any comfort. . . . .

Indeed. I am not sure a down-shifted cancer incidence rate is really a "selling point" -- for a cholesterol drug.

There are Now at Least 15 Lawsuits Challenging the Reverse Merger

The lawyers for Mr. Husarsky (one of three would-be class action plaintiffs in federal court) filed a brief last night, in federal court, that detailed -- for the first time -- all the other known to-be-pending class action and similar suits that would seek to enjoin or otherwise equitably reform the proposed reverse merger between Merck and Schering-Plough.

By the lawyers' count, there are at least 15 such suits now pending (three in federal court, and 12 in the various state courts of New Jersey):

. . . .Mr. Husarsky is the plaintiff in one of the actions pending before this Court, Civil Action 09-1244(DMC), and Mr. Manson is the plaintiff in a parallel action, Manson v. Becherer, Docket No. UNN-C-37-09, pending in the Superior Court of New Jersey. These two actions, along with the Landesbank Berlin action, Civil Action No. 09-1099(DMC) and Louisiana Municipal Police Employees Retirement System action, Civil Action No. 08-1247(DMC) pending here, 10 other actions pending in state court in Union County and an additional case pending in state court in Hunterdon County, are all class action shareholder suits challenging the pending reverse merger between Schering-Plough and Merck, and they all allege that the defendants breached their fiduciary duty by agreeing to merger terms that were unfair to the shareholders and by failing to follow procedures designed to insure that the merger agreement was the best transaction for the shareholders that was reasonably available. . . .

This is going to get very busy, very quickly -- especially if, as the Financial Times posits, J&J decides to jump in -- to claim its reversionary rights.

Friday, March 27, 2009

Financial Times has Newly-Rumored Details of JNJ's Remicade Reversionary Rights Intentions. . . .

The New York desk of London's Financial Times has a few new, well-sourced, but still-purported, bits of the Johnson & Johnson* puzzle, out tonight.

To the FT story, I might add that [and, honestly, I had hoped to hold this lil' tidbit until Monday morning! Dang!] Monday, March 30, 2009 should be circled -- in red -- on Schering-Plough, and Merck, calendars -- for that is probably when J&J may first demand arbitration of its Remicade [and Simponi] reversionary rights. [Here are my twin backgrounders -- of March 10, March 12 and March 9 -- on this.]

Do go read it all, but here are the snippets I found most intriguing:

. . . .Johnson & Johnson is preparing a push to extract concessions from Schering-Plough in exchange for allowing Merck’s planned. . . takeover of Schering to move forward without a messier fight, dealmakers say. . . .

. . . .While the arthritis franchise is important to Merck, its interest in Schering is broad and includes Schering’s strengths in treating cardiovascular disease. Merck could agree to carve out the arthritis venture and trade it to J&J –- which may hand J&J the asset it wants most without forcing it to buy the rest of Schering.

Bankers pointed out, however, that such a transaction could have been worked out before Merck and Schering announced their merger if the parties had been willing, suggesting that any battle over Schering’s assets may grow complicated. . . .

Should be entertaining.



Trading on the NYSE on Monday will be fascinating. [There was heavy-volume, after-hours, on Friday night, in the NASDAQ session, in both Merck and Schering-Plough. Hmmmm.] I do think the bankers quoted in the FT piece, above, are perfectly spot-on in suggesting that, IF it had been deemed "possible" to do an quick, easy, "friendly" deal between Johnson & Johnson CEO Weldon, and Merck CEO Clark -- before March 9, 2009 (the announcement date of the proposed merger) -- these parties would have already done one.

The rather dark implication is that a "friendly" Remicade/Simponi reversion/increased license-fee/royalty rate deal was not viewed as possible, on one side -- or the other.

I guess a third possibility would be that CEOs Clark and Hassan were running so fast, they didn't bother to ask Weldon at all.

That would seem to be at least an arguable breach of the officers' fiduciary duty of due care (and loyalty?), though. When the SEC merger proxies and registration statements are filed in a few weeks (by Schering-Plough and Merck, respectively), we'll be able to read much more of the history of these negotiations. Or non-negotiations.

We'll also learn whether Schering-Plough has sought, and paid for, a so-called "fairness opinion" -- that the deal is fair, from a financial point of view, to Schering-Plough shareholders. Will its lead banker give that opinion, or a banker without any "skin" in the deal? I dunno. [Editor's Note: Here is an example of what one JP Morgan version of a property catastrophe reinsurance industry "fairness" opinion looks like -- in a March 2009 transaction.]

That would be a tough opinion to render if, by then, Johnson & Johnson CEO Bill Weldon has stepped in -- to arbitrate a "claw back" of the Remicade/Simponi rights.

Note that if a banker is going to give that "fairness" opinion, it will need to discuss, in the very-public SEC filings, all the weaknesses in SGP's present stand-alone businesses, to reach the conclusion that this price was "fair". [And CEO Hassan would never want all of that made public!]

My bet? There will be no fairness opinion (in part because it would be atrociously-expensive, from a reputable bank, in this setting) -- and the Schering-Plough Board of Directors will be sitting in a tough spot (placed there, by CEO Hassan, no less!) -- trying to defend the fairness of this deal -- while facing pending class-action suits from large institutional investors -- alleging that the deal is unfair. We'll see.


* Just a casual reminder here (since it has been a while): All trademarks, tradenames and wordmarks imaged, or appearing anywhere on this site are, and remain, the exclusive intellectual property of their respective owners. 'Nuff said.

CEO Hassan, and the Board -- Sued Twice More -- for "Inadequate Merck Merger Negotiating"

Now a second Schering-Plough institutional investor, the Louisiana Municipal Police Employees Retirement System, has filed a putative federal class action suit against CEO Hassan personally, and each member of the Schering board of directors, for allegedly failing to act in the best interests of the shareholders, while conducting the negotiations for the nominal acquisition of Merck -- by reverse merger -- which, in substance, is the sale by Schering-Plough, of itself, to Merck. Earlier in March, Landesbank Berlin Investment GmbH did so. Additionally, each institution has filed motions to consolidate these putative class-action suits before Judge Cavanaugh. [An individual investor has also filed a very-similar suit.]

. . . .The Director Defendants’ fail[ed] to maximize shareholder value by ensuring that the price paid for Schering-Plough is the best price available for the Company. Rather, the Director Defendants have agreed to be acquired by Merck under terms that effectively prevent the Company from obtaining any competitive, potentially superior, bids. More specifically, the Director Defendants have agreed to pay Merck an enormous termination fee -- $1.25 billion -– if another company acquires Schering-Plough. This effectively hinders the likelihood of another suitor coming forward with a superior bid for the Company in that the termination fee adds an additional $.77 per share to the cost of any other acquirer to make a superior bid for Schering-Plough. In addition, the Director Defendants have agreed to not solicit any potential suitors, despite the fact that other potential acquirers may have been willing to pay more for Schering-Plough than the Company is receiving under the Merger Agreement with Merck. As a result, the Director Defendants have essentially capped the price of Schering-Plough at Merck’s offer.

These acts have prevented Plaintiff and other members of the Class from realizing the full value of their holdings in Schering-Plough stock. Rather than act in the best interests of the Company and its shareholders, the Director Defendants are preventing the Company and its shareholders from realizing the full potential value of the Company in violation of the fiduciary duties of due care, good faith, fair dealing and loyalty. . . .

And, from the amended Husarsky complaint:
28. Before entering into the merger agreement Schering-Plough was not for sale and even after receiving the Merck proposal did not open itself up to competitive bids. It also did not perform a “market check” to determine the value the company would likely fetch if it were sold or merged with another company. The Individual Defendants therefore did not satisfy their fiduciary duty to use all reasonable efforts to obtain the best possible transaction for Schering-Plough’s shareholders. . . .

33. In contrast to the benefits of the Reverse Merger to Merck and its shareholders, the transaction puts in jeopardy Schering-Plough’s 50% interest in the blockbuster arthritis treatment Remicade and a new arthritis therapy drug called Golimumab. Johnson & Johnson holds the other 50% interest in those pharmaceuticals and would have the contractual right to acquire Schering-Plough’s interest if Schering Plough undergoes a “change of control”. Defendants Clark and Hassan “structured the deal in legal terms as a takeover of Merck by Schering-Plough”, i.e., a reverse merger, in an attempt to avoid the change of control provision. There is no guaranty that this strategy will work if Johnson & Johnson challenges the transaction and attempts to invoke its change of control rights.

34. David S. Moskowitz, an analyst with Caris & Company, commented that Schering-Plough is so attractive to Merck because of “the number of drugs in their pipeline and the lack of generic competition”, but that the uncertainty over Remicade puts Schering-Plough shareholders at a disadvantage. . . .

Ouch. The Louisiana case (in blue, above) is 09-1247, complaint filed March 19, 2009 (the other, individual case, Husarsky, (in green, above) is 09-1244; amended complaint filed March 23, 2009) in the U.S. District Court for New Jersey, in Newark.

Tuesday, March 24, 2009

"Artifact, or Evidence", UPDATED -- An Artifact, Perhaps.

For the first time, Dick Clark, CEO over at Merck, used the "SUBSTANTIAL" majority of Schering-Plough people "to be retained" formulation, in an SEC-filed-document, last night:

. . . .The combined company will be a much larger organization -- and a substantial majority of Schering-Plough employees will be part of the combined company. . . .

This item updates this post, from last week.

Monday, March 23, 2009

Surprising No One, Merck Announces that the DoJ VIOXX Criminal Investigation "Target Letter" Has Arrived. . . .

Indeed. The empaneling of grand jury was widely-expected, on the VIOXX matter -- but it is a criminal inquiry, nonetheless:

. . . .The letter we received is in connection with an ongoing investigation into Merck's activities related to VIOXX. This investigation began in 2004, and includes subpoenas for information and documents from the company and for witnesses to appear before a grand jury. . . .

UPDATED 08.04.09

Merck (per Page 58 of the just filed second quarter 2009 Form 10-Q) has not cleared most of the other governmental civil and criminal probes on Vioxx [nor any of the remaining civil and criminal probes related to Vytorin/Zetia (a product-responsibility it shares with Schering-Plough)]:
. . . .In March 2009, Merck received a letter from the U.S. Attorney’s Office for the District of Massachusetts identifying it as a target of the grand jury investigation regarding Vioxx. Further, as previously disclosed, investigations are being conducted by local authorities in certain cities in Europe in order to determine whether any criminal charges should be brought concerning Vioxx. The Company is cooperating with these governmental entities in their respective investigations. . . . The Company cannot predict the outcome of these inquiries; however, they could result in potential civil and/or criminal dispositions. In addition, the Company received a subpoena in September 2006 from the State of California Attorney General seeking documents and information related to the placement of Vioxx on California’s Medi-Cal formulary. The Company is cooperating with the Attorney General in responding to the subpoena. . . .


Saturday, March 21, 2009

"A $72* $47 Billion Market Loss to Merck Shareholders" v. $41 Billion "Deal" for Them?

In a putative class-action that I have not reported on, or described in any detail, before today -- one called In Re Merck & Co., Inc. Vytorin/Zetia Securities Litigation (Case No. 08-2177, US Dist. Ct. NJ, Complaint Filed May 5, 2008) -- there is a dispute pending about whether the Plaintiffs -- Merck shareholders -- should be allowed to see all the documents that Merck (and Schering-Plough) have already delivered to the governmental investigators, and other plaintiffs, in other putative Vytorin class actions.

While it may seem a simple, straight-forward matter of fundamental fairness that they ought to be able to see whatever else has been delivered in other litigation and investigations, a wrinkle in the Private Securities Litigation Reform Act allows company-defendants to assert a "stay" -- delaying such information sharing -- in securities fraud cases, like this one, until a much later stage of the proceedings. The drafters of the PSLRA felt that this provision would prevent the burden and expense of "fishing expeditions" in dubious securities fraud cases -- of which there are many. A similar battle is underway in the Schering-Plough versions of these would-be class actions.

These are by no means dubious securities fraud class actions, however:

. . . .The true facts regarding Merck have resulted in a loss of more than $47 billion in market capitalization to Merck shareholders. In addition, Merck is facing other actions, including investigations by various State Attorneys General and the United States Department of Justice, the Food and Drug Administration, as well as product liability and consumer fraud actions concerning the facts and circumstances alleged in the Complaint. In connection with these ongoing governmental investigations and other private party litigation, Defendants have compiled and produced, and will continue to compile and produce, evidence to governmental regulators and investigators (collectively the “Regulators”) and to the plaintiffs in the ongoing product liability and consumer fraud litigation (collectively the “Related Action Plaintiffs”).

Lead Plaintiffs have requested specific documents that have been produced or will be produced to the Regulators and Related Action Plaintiffs. See Banko Decl. Ex. A.3 Defendants, however, have refused to produce these materials. See Banko Decl. Ex. B. As a result, Lead Plaintiffs seek an order lifting the PSLRA’s discovery stay for the limited purpose of permitting Lead Plaintiffs to obtain documents that Defendants have already produced or will produce to the Regulators and the Related Action Plaintiffs in connection with the investigations by those agencies and plaintiffs into the same facts and circumstances alleged in the Complaint, as well as transcripts of witness interviews and depositions related to those investigations and civil actions.. . .

I suspect this motion will win the day -- and a similar one will prevail in the Schering-Plough versions.

Any contrary result (ongoing delays) will unduly prejudice the rights of the Merck and Schering-Plough shareholders -- especially as attention and energy in both companies is diverted toward combining the two. Memories will fade, documents may be tossed, people will be assigned new roles and the institutional memory will cloud over. That is a fact, and there is scant reason for people injured by arguable securities fraud to have to sit at the back of the bus, and wait -- while the consumer fraud plaintiffs, RICO claims, and governmental investigations move forward -- to assert their relative interests in the documents -- and potentially deplete the assets available for recovery -- at the now-combined companies.

Above, now-rather-dated look (click to enlarge) at SGP trading prices in early 2008.


* I wanted to close by foot-noting that a tricky reverse merger deal worth $41 billion doesn't really seem to make up for a market capitalization decline of $47 billion. . . . But then it occured to me that the $41 billion does not take into account the similar Schering-Plough declines.

Thus, the "all-in" declines will be about $25 billion steeper, when the Schering-Plough declines are added in (from $27.50 to $12; times 1.6 billion shares), post merger. So, the figure is really more like $72 billion of lost market capitalization.

Thursday, March 19, 2009

Meanwhile, Vertex's Teleprevir Shows a 51 Percent Cure Rate -- in Non-Responders!

While Schering-Plough's boceprevir, to be fair, continues to inch forward, Vertex's competing Teleprevir Next Gen Hep C candidate will post very-impressive "Late Breaking" deveolpments at EASL, in Copenhagen, in a few weeks. Take a look a the EASL PROVE 3 study abstract; then read this snippet from TheStreet.com:

. . . .The new data come from Vertex's PROVE 3 study, which enrolled 453 patients who had failed prior treatment with the current standard drug regimen for hepatitis C -- a 48-week course of long-acting interferon plus ribavirin. In the phase II study, these patients were randomized to receive either treatment with a combination of telaprevir plus the standard therapy or retreatment with the standard therapy alone.

In all, 51% of patients treated with a 24-week regimen that included 12 weeks of telaprevir reported undetectable levels of the hepatitis C virus six months after treatment. In hepatitis C parlance, that's known as a sustained virologic response, or SVR. Simply stated, these patients are considered cured of hepatitis C.

By comparison, only 14% of the patients retreated with 48 weeks of standard therapy alone achieved an SVR, or cure, six months after treatment. . . .

Wow! So, once again, Vertex "goes yard"!

Schering-Plough Europe Withdraws 2007 EMEA Peginterferon Alpha-2b (Cylatron) Melanoma Approval Submission. . . .

PharmaNews.EU reported yesterday (with a H/T to my erstwhile anonymous commenter(s)!) that Cylatron, or Peginterferon Alpha-2b, is no longer on the list to be approved (for Stage III melanoma) by EU regulatory authorities, due to a determination by Schering-Plough itself that the risk-benefit ratio isn't sufficient, given the study data:

. . . .At the time of the withdrawal, it was under review by the Agency’s Committee for Medicinal Products for Human Use (CHMP). In its official letter, the company stated that the withdrawal of the application was based on the CHMP's view that the data provided were not sufficient to allow the Committee to conclude on a positive benefit-risk balance for Cylatron at that time. . . .

What does this mean for its prospects in the US? [Is it approved here? I haven't looked, yet It is listed as a "Vaue-Added" candidate, in FDA review, per the below commenter -- the above makes it less likely to be approved by FDA, in my estimation. -- Thanks, commenter!]


Wednesday, March 18, 2009

A Proposal For Understanding, and Tracking the Value, of the Merck Price Offered for Schering-Plough. . . .

I have just seen several peoples' commonly-voiced lament -- that Schering-Plough common stock doesn't rise as much as Merck's does, of late -- and seems to fall a little more than Merck's. This, they say, is evidence of a widening arbitrage spread. I am unconvinced, and here's why [this is what I wrote over there, at Yahoo!, below, in blue]:

. . . .I think what you are missing, with all due respect, is that about $10.50 of the value to be paid is now like an unsecured, non-interest-bearing debt obligation (owed to Schering-Plough holders of common -- as of the merger record date). That is, it is (1) taxable (a chunk goes away, there), (2) should fairly be discounted to the present value -- of the $10.50 to be paid at the end of 2009 (three-quarters of a year away, minimum) -- albeit at a smallish discount-rate, (3) some small uncertainty about the deal getting done (at all) -- and then, most-importantly, here: (4) the $10.50 (unless re-invested) will not particate in any of Merck's future growth opportunities -- it is essentially "dead money" after Merger Date (for valuation purposes).

So -- about half of Schering-Plough common is trading like commercial paper (i.e., debt -- not equity), at the moment, paper issued by Merck's operations (but not its legal entity, because of the would-be J&J avoidance "cuteness").

The other .5767 of a common Schering-Plough share should move closely to Merck's equity -- except for the J&J uncertainty (~$4 billion), and the uncertainty about whether any of the value of the Animal Health businesses (~$3 billion), upon divestiture (spin, split or whatever-may-come) ever reaches the pockets of the .5767 holders.

Note that the percentage move today, looks to fairly approximate .5767 of Merck's percentage (less, of course, $7 billion [$3B plus $4B, from above], spread over 1.653 billion outstanding "old" Schering-Plough common shares).

I think that's a sensible way to value the deal, and the relative trading spreads. . . .

Anyone out there see it differently? Have I (once again) missed something obvious?

Something obvious -- like the possibility that the $10.50 per share in cash is a settlement payment, to all the purchasers of common stock in the August 2007 Organon-financing offering -- underwritten at $27.50. Yeh -- something like that. Heh.

Artifact -- or, Evidence? Slides Collected Last Night, at the SEC's EDGAR Filing Desk. . . .


UPDATED 03.24.09 @ 9 AM

See the updated item.


Last night, Merck filed with the SEC more of its disclosure materials -- in this case, an updated slide-deck, being used with Merck employees, in "town hall" style meetings about the merger process. Page 14 of the newly-revised deck lept out at me, for two reasons:

First, note that if "a majority" of Schering-Plough's people are to be retained, then, to keep this statement purely factual, and accurate, up to 49.9999 percent of the pre-merger Schering-Plough people could be severed, in the merger. If that seems a tortured reading, consider that earlier pronouncements (Page 26, dated March 11, 2009, and filed with the SEC on March 12, 2009) on the topic, used the phrase "a substantial majority" -- and the ensuing difference is truly-striking [Click to enlarge images.]:

. . . .March 16, 2009, Page 14: Majority of Schering-Plough colleagues to remain. . . .

. . . .No top down review of Merck colleagues. . . .

Next, note that there will be no "top-down", position-by-position review of Merck people -- this fairly infers that there will be no "open-slating process" for all surviving positions (with nominees from both companies). The presumption here is that the pre-merger Merck people, absent special circumstances (poor performance issues; previously-declared redundant/outsourced -- in earlier Merck restructuring reviews), will be presumed to be placed in their positions, in the "new" Merck.

This is the newly-emerging reality -- and a perhaps unwelcome one -- for the Schering-Plough people, especially the corporate headquarters staff people, in my experience. There is little doubt that Merck already has substantially all of those roles covered, in Whitehouse Station. In the field, and in the R&D labs, this will be less-likely to be the case, in my estimation.

Will SHARP (Vytorin for Renal Disease) Trial Fail in 2010? Tim Anderson Thinks Similar Crestor Trial Has Failed: Reuters Reports

The relevant Reuters story of this morning concludes by suggesting that, if Crestor's to-be-announced-March 30, 2009 trial (called "Aurora") for end stage renal disease patients (on dialysis) has failed, it would seem likely that Schering-Plough's SHARP study will also fail, when finished, in 2010. Who knows? But here is the snippet -- from the Reuters story -- related to Schering-Plough:

. . . .Anderson said failure in the Aurora [Crestor] study would not be surprising.

A previous trial called 4D, with Pfizer's Lipitor, also failed in a similar way and Anderson said. . . Schering-Plough's Vytorin could be the next to fail when results from the Sharp trial are released in 2010.

"Having penetrated more traditional cardiovascular patient populations, drug companies have pushed to find new patient populations -- like those with severe kidney disease -- for their products. The outer limits of who might benefit next may have been reached," he said. . . .

Lowenstein Has Withdrawn Its Preemption Argument -- in Older Schering Temodar/Intron Class Action

It is puzzling that Mr. Rooney -- of Mr. Eakesley's firm -- has withdrawn his preemption arguments in the Temodar/Intron litigation (as a result of the Wyeth v. Levine decision), but as of the moment, none of the current (Vytorin/ENHANCE-related) case-files (most-notably, the Manson case) show a similar letter from Lowenstein, Sandler. Odd. In any event, here is an image of that Temodar/Intron letter:

"What was this older (2006-era) piece of litigation all about?", you may ask. [This is from a time prior to my covering Schering-Plough's travails, so I haven't mentioned it before now. 'Tis high-time, sez me!] Well, it involves allegedly "off-label" promotion of various Schering-Plough drugs -- these claims were at the heart of a $435 million criminal consent decree in Massachusetts:

. . . .In December 2006, the first of the ten cases consolidated in this Court was filed alleging that Schering engaged in an illegal and fraudulent marketing campaign to inflate sales of Schering’s Intron Franchise Drugs (which include Intron-A, PEG-Intron, and Rebetol when sold individually or in combination), Temodar, Eulexin, Integrilin, and Fareston (collectively, the “Subject Drugs”). Schering perpetrated this scheme through a variety of improper off-label marketing tactics, which included paying bribes and illegal kickbacks to doctors. . . .

. . . .In August 2006, the Government’s investigation culminated in a guilty plea by Schering Sales for making false statements to the Food and Drug Administration (FDA) to conceal Schering’s vast off-label marketing campaign. Also, Schering settled civil claims that it defrauded Government agencies that purchase prescription medication, such as Medicare and Medicaid, by paying kickbacks to doctors and engaging in other proscribed methods off-label marketing. As Schering is well-aware, the facts revealed from these investigations form the backbone of Plaintiffs’ Consolidated Complaint. . . .

Tuesday, March 17, 2009

Dechert LLP Withdraws Preemption Arguments in Light of Wyeth v. Levine. . . .

Exactly as expected -- albeit more grudgingly offered, than I might have guessed. No word (yet) from Lowenstein, Sandler -- only Dechert has advised Judge Cavanaugh of the Supremes' latest views on the matter.

This was filed as footnote 1 in a March 16, 2009 response to motion in Polk v. Schering-Plough, et al.:

Sunday, March 15, 2009

What All That Whistling -- in the Halls of Kenilworth -- is About. . . .

I am reliably informed, by an anonymous commenter, below, that the denizens of Kenilworth have taken to smirking their way through the day, at least since March 9, 2009. So, I created a badge they may download, cut-n-paste, print -- whatever(!), royalty free, in perpetuity. Do enjoy. And remember -- to "just whistle while you Sch-Merck!" [As ever, click to enlarge.]

[Now, I guess, I'll go ahead and file this under the header "from the sublime -- to the ridiculous. . ."]

Friday, March 13, 2009

Merck/Schering-Plough Deal to be Enjoined? First Shareholders' Putative Class Action Filed Against Board; Schering-Plough


Last night, Landesbank Berlin Investment GMBH filed a shareholders' putative class action complaint, seeking (among other things) equitable relief -- from Judge Cavanaugh's federal District courtroom-bench, in Newark, New Jersey. [He is the same very able jurist handling all the other Schering-Plough/Vytorin-related litigation.]

This wholly-new suit alleges that the Schering-Plough board, and CEO Hassan, each personally breached (or, as below, SCH-IRCK'ed!) their fiduciary duties of loyalty, good faith and due care -- by endorsing such a low offer for Schering-Plough, and then, so-tightly limiting the ability of Schering-Plough to even entertain, let alone accept, a superior proposal. The suit also alleges that certain structural aspects of the reverse merger are intended primarily to benefit Schering-Plough senior executives, at the expense of a potentially superior structure, for the benefit of Schering-Plough's common shareholders.

Finally, Landesbank seeks to enjoin -- or halt -- the transaction altogether, so that a more transparent, open, and orderly auction process may ensue. Fascinating. Doubly so, that it was apparently brought by an institutional investor, not an individual. Buckle-up, here's the new logo [click to enlarge]!

Breaking with my usual prior practice -- I'll not quote any snippet, here -- I'll simply let you digest the 16 page-complaint (a PDF file), at your leisure. It is a very-worthy read.

In any event, Monday's NYSE open ought to be rather interesting, after the Merck-related run-up in today's NYSE session. The suit is captioned Landesbank v. Schering-Plough, et al. (Case No. 09-1099, US Dist. Ct., N.J., Complaint filed March 12, 2009).

UPDATED @ 3.15.09 PM -- Now, New and Improved! -- With "Whistle While You Schmerck" Action!:


Thursday, March 12, 2009

You'll Have to Ask "The Insider" -- at PharmaGossip. . . .

What on Earth are Fred Hassan, Paris Hilton, Laura Bush and Sarah Palin et al., doing "River-Dancing" together? You'll have to ask PharmaGossip.

Were there a pot of gold in front of Fast Freddie, I would completely understand the video, here, very near St. Paddy's -- but there isn't. So -- I'll be content to laugh at the sheer pointlessness of it all:

Try JibJab Sendables® eCards today!

Yikes. Why is the last person included? I dunno UPDATED: Jack explains it all -- in the comments, on his site.

Schering-Plough Expects a Challenge -- on Remicade -- from JNJ

Yep -- that may plainly be inferred from Schering-Plough's latest Rule 425 prospectus material filed yesterday afternoon with the SEC -- the shiny-new SMIRK (Heh!) filed a Q&A document.

In it, we learn that CEOs Clark and Hassan plainly expected J&J to seek reversion rights as to Remicade (and Simponi?) -- but not an outright bid from J&J. That is, they each excluded a "J&J/Remicade" event from what would trigger the MAC -- or "material adverse change" clause -- and let all parties scuttle on out of the bust-up deal.

Long story short -- they expect a Remicade horse-trading session, or worst case, an arbitration, but not a full-on buy-out offer [below, "Saturn" is the code-name for "Schering-Plough"; "Mercury" is "Merck"]:

. . . .Q: In the Merger Agreement, are matters relating to the Schering joint venture with J&J (Remicade) arising in connection with the merger expressly excluded from events that could cause a Schering Material Adverse Effect?

A: Yes. [See Definition of Saturn Material Adverse Effect]. . . .

Wednesday, March 11, 2009

What the Supremes' Decision in Wyeth v. Levine Means to Schering Vytorin Class Action Suits

I won't dwell on this, other than to say that I predicted this outcome, quite a while ago.

Rather than reprint -- as images -- only small portions of the Plaintiffs lawyer's letter, I'll upload the whole two-page document as a PDF file. It is a very worthy read, and represents the latest deluge in a veritable typhoon of bad news for Schering-Plough's legal positions in the more than 145 ENHANCE (and related) Vytorin lawsuits -- most of which seek class action status.

. . . .The Supreme Court in Wyeth explicitly endorses the ability of private suits to "uncover unknown drug hazards and provide incentives for drug manufacturers to disclose safety risks promptly. . . ." These considerations are particularly germane to the Vytorin litigation, which involves allegations of Defendants' ongoing concealment and supression of information concerning the efficacy and utility of a drug for which the plaintiffs and the alleged class paid many millions of dollars. . . .

Tuesday, March 10, 2009

Any JNJ/Centocor Reversion Clause Dispute is Mandatorially Arbitrated

This will be interesting. As many experienced lawyers will tell you, in mandatory arbitration, there is an almost universal tendency to "split the baby down the middle". That is, once the arbitrators get involved, they usually find that each party gets at least a part of what each asks for. Said another way, each party walks away at least a little unhappy. That is what arbitrators often feel the face of "justice" should resemble.

So, in this case, even if -- in a court of law -- Schering-Plough might otherwise be declared a clear winner (get to keep the rights to these products), it has already agreed to accept an arbitrators' outcome. The way mandatory arbitration usually works -- and thus, this version of the standard arbitration clause -- might, on balance, encourage William Weldon to at least explore the possibilty of forcing arbitration on the Section 8.2(c) Change of Control determination. Here is that Arbitration provision, in context:

. . . .12.7 Arbitration and Limitation of Damages.

Any unresolved dispute between the parties or any claim of one party against the other arising under or in connection with this Agreement will be resolved through binding arbitration pursuant to the mechanism set forth in Appendix K [Editor's Note: Schering-Plough did not file Appendix K with the orginal contract; it is now material, and must be filed promptly]; provided, however, that no party will refer a dispute to arbitration under this Section without giving at least twenty (20) days' notice to the Oversight Committee of its intention to do so. . . .

That Appendix K might provide for an appeal to a court of law, in the event that the arbitrators' award is unsatisfactory to either party, or it might provide that the arbitrators' decision is final, binding and not subject to any additional appeals.

If the latter is the case, the only way Schering/Merck gets to a court of law, is if the clause was the subject of overreaching, fraud or bad faith (i.e., not likely).

Stay tuned for a shot a cross the bow -- from Johnson and Johnson. It is worth about $4 billion in annual sales, all in (of which Schering-Plough now books about $2.3 billion, per year). This number will be about $1 billion higher, should Simponi/Golimumab win an early approval from FDA. Well, if nothing else -- it all should be entertaining -- so, pop the popcorn!

Monday, March 9, 2009

And Already, the Talk of Various Sub-Businesses -- to be "Busted-Up" -- Begins

Honestly, though I dissed as rumours-(Friday)-what-became-reality (this morning), in the larger picture, it is clearly not an "intact merger of equals". In the larger picture, it is shaping up pretty much as I predicted, at least three months ago -- a bust-up, or nothing. And so it is a "bust-up". A bust-up in the making, it would seem, according to Bloomberg, already -- by and Noon, today, to boot -- when the deal wasn't even four hours old:

Bloomberg has reported that the old Organon/Schering-Plough Merck/Sanofi-Aventis Animal Health businesses may -- or may not -- be among the businesses sold off (how's that for insightful reporting?), to pay down combined Merck/Schering-Plough debt. While an earlier version suggested that it might be the Organon/Schering-Plough ones, now it suggests the Merck/Sanofi ones, as "on the block". And so, perhaps this is the only truly-reliable portion:

. . . ."There are a variety of options the company is considering," said Amy Rose, a spokeswoman for Whitehouse Station, New Jersey-based Merck, in a telephone interview." Given that the deal was just announced today it is too early to speculate about conclusions that may be reached through the integration work". . . .

But mark my words -- "there will be blood. . . ." That is the less polite, but more accurate, face of the business term "integration work".

Of Barnum's Prescience, Part Two. . . .

UPDATED -- 03.09.09 @ 10:30 AM EDT

The NEW Logo, Below!


I think the Centocor/JNJ reversion clause at 8.2(c), will be triggered, if this deal closes on the terms described today:
". . . .(c) Change in Control. If either party is acquired by a third party or otherwise comes under Control (as defined in Section 1.4 above) of a third party, it will promptly notify the other party not subject to such change of control. The party not subject to such change of control will have the right, however not later than thirty (30) days from such notification, to notify in writing the party subject to the change of Control of the termination of the Agreement taking effect immediately. As used herein "Change of Control" shall mean (i) any merger, reorganization, consolidation or combination in which a party to this Agreement is not the surviving corporation; or (ii) any "person" (within the meaning of Section 13(d) and Section 14(d)(2) of the Securities Exchange Act of 1934), excluding a party's Affiliates, is or becomes the beneficial owner, directly or indirectly, of securities of the party representing more than fifty percent (50%) of either (A) the then-outstanding shares of common stock of the party or (B) the combined voting power of the party's then-outstanding voting securities; or (iii) if individuals who as of the Effective Date constitute the Board of Directors of the party (the "Incumbent Board") cease for any reason to constitute at least a majority of the Board of Directors of the party; provided, however, that any individual becoming a director subsequent to the Effective Date whose election, or nomination for election by the party's shareholders, was approved by a vote of at least a majority of the directors then comprising the Incumbent Board shall be considered as though such individual were a member of the Incumbent Board, but excluding, for this purpose, any such individual whose initial assumption of office occurs as a result of an actual or threatened election contest with respect to the election or removal of directors or other actual or threatened solicitation of proxies or consents by or on behalf of a person other than the Board; or (iv) approval by the shareholders of a party of a complete liquidation or the complete dissolution of such party. . . ."

Note the bolded portions -- only three of Schering-Plough's previously-serving directors will be elected to the renamed-as-Merck surviving board, post transaction.

Note also, that "the Board" referred to in 8.2(c) above must mean only the Shering-Plough board. Not any board led by CEO Clark. No, it means the "old" Schering board -- for a contract cannot bind anyone who is not then a party to it, or does not agree to be bound by it. And Clark's board did not, in 2003. Ponder this, afterall -- is it not CEO Clark offering to exchange "combined company" shares, today, for the "old ones" which represented the stand-alone Schering-Plough businesses? Lawyers can -- and will -- argue about this, despite the contrary assurances of Merck's General Counsel, today, on the call. Plainly, Centocor meant to prevent these rights/arrangements from fallling into "enemy hands". Centocor bargained, and paid for that right. I suspect this is far from clear.

Well, this will be entertaining, if nothing else, as the parties also agreed to binding arbitration of any dispute. [Follow the link to learn more about how that might play out.]

~~~~~~~~~~~~ * ~~~~~~~~~~~~

So, in a reverse-merger (ostensibly to keep the JNJ reversion clause from being triggered -- more on that, below), Messrs. Clark and Hassan have agreed, apparently, that Schering-Plough is worth only about $16.6 billion more than Schering-Plough paid for Organon, outright, in November 2007. Organon cost Schering just under $16 billion. At this morning's open, Schering-Plough is worth $19.80 -- or an approximate $32.67 billion market cap, on 1.65 billion outstanding common shares. NYSE opening tape:

. . . .SGP 9:41AM ET $19.80. . . .

So, is all the rest of old Schering-Plough (excluding Organon), only worth $16.6 billion?

I'd say that this deal is a huge coup for Merck (if it clears Hart-Scott, and EU Merger authorities, relatively intact, and perhaps more importantly, doesn't get delayed, or scuttled, by litigation from Johnson and Johnson). I'd say that, once again, CEO Hassan has managed to cart off something like $70 million, while shafting the common shareholders (especially those that bought at $27.50 $32 [$32 was the Spring of 2007 high-price] in the last public offering -- September of 2007!), and (probably) getting about 40 percent of Schering-Plough's rank-and-file workforce severed. Cut loose. Fired.

"Doin' a heckuva' job, Freddie!"

Now, as I alluded to above, expect a challenge -- in some form -- from JNJ. The Remicade/Golimumab reversion clause (via the Centacor distribution agreement), by rights, ought to have been triggered by this deal. But Schering and Merck have structured it so that Schering-Plough (renamed to Merck) is actually the surviving entity. The CEO will be Clark; the colors will be that odd off blue-green and white, the HQ will be in Whitehouse Station -- but under those surgical drapes, in the OR, Schering-Plough CEO (for the moment!) Hassan will tell JNJ CEO Weldon, "the patient's heart is still beating, maroon and white. . . ."

That is, the JNJ reversion is not triggered, they'll say, because the SGP legal entity survived this full-body transplant. "It is just that the heart, Schering-Plough, the business, stopped beating. A minor technicality. Really. Let the Frankenstein Monster off the table, they'll say.

But William Weldon is smarter than that.

Expect Merck/Schering to pay, and pay a lot, to JNJ for this transaction structure -- and not in a way that increases the deal price received -- by the long-suffering Schering-Plough shareholders.

I'll cover Fred Hassan's personal potential payday -- after I finish vomiting. He is to be made (probably north of $72 million!) -- after I finish vomiting. He is to be made filthy rich again -- see Pharmacia), for running a company into the ground.


Saturday, March 7, 2009

Proving P.T. Barnum* Right, Once Again. . . .

As a goofy parlor game, about two-and-a-half months ago, I set out -- by product lines -- some guesses at 2008 through 2010 revenue streams, from various Schering-Plough franchises. I did so with the express purpose of helping the investing public (and analysts and bankers, too!) make more informed guesses at which pieces of Schering-Plough would fetch the most -- and the least -- in some mythical bust-up scenario.

Yesterday, Barbara Ryan apparently reinvigorated this tired old parlor game, with a renewed rumor piece -- since published by Bloomberg -- and so, I thought we could all play along. Any new guesses?

Obviously, I mean other than the current flavor of the month: JNJ/MRK combining to split-off the Consumer Products lines, from the Cholesterol Franchise, with each, in order, taking those lines, respectively -- and then either spinning off, or breaking down, the Animal Health and remaining old-line pharma pill businesses.

This goofy rumor leaves the twin problems of:

(1) All that Schering-Plough debt: who, and what, will pay it all off? and. . .

(2)(a) Contingent liabilities a-go-go: who, or what, would be willing to accept ongoing litigation responsibility for the current 145-plus suits (and the potentially $2-plus billion in payouts -- upon settlement, or trial)?

(2)(b) Perhaps more importantly, what would all those plaintiffs' lawyers demand/be willing to accept, as transaction hold-backs, escrows or assurances of adequate liquidity and solvency (you know they'll file motions opposing any transaction that decreases their potential recovery pots!) -- and what would Judge Cavanaugh be willing to sanction, as a fair order, in this regard?

Really, people, the rocky-road to closing any such rumored deal runs straight through the plaintiff-lawyers' front yard. Um, good luck with that.

Thus, as I say, this is very unlikely to happen -- Friday was a sucker's bounce, in Schering-Plough stock prices.


* He supposedly said "There's a sucker born every minute. . . ."

Wednesday, March 4, 2009

Note That Dr. Koestler Got NO Phantom Stock This Time Around. . . .

Despite being a recipient of these Phantom Stock Unit grants in prior years, I just noticed that Dr. Thomas Koestler, head of SPRI, was not included in the list of end of February 2009 SEC Forms 4 discussed here.

Perhaps the 250,000 shares he'd been awarded, and the 16 percent pay bump, and 70 percent bonus opportunity (all increased figures) as of September 15, 2008, were deemed adequate largesse -- by the Compensation Committee -- for the year 2008, so he was skipped over, in this February 2009 grant.

Well, I guess that does make a modicum of sense -- but it has set me to wondering why the Compensation Committee didn't skip Mr. Sabatino, as well -- the other interim-period retention bonus baby. Nope -- he got his full phantom stock unit award -- about another $1 million, on top of everything else -- for 2009. Odd.

Yet ANOTHER $3.4 million -- for Schering-Plough CEO Hassan, Tonight.

And 2009 proxy-and-pay season is just barely underway, here! Wow!

In a just-filed Form 4, CEO Fred Hassan has received $3.4 million -- at the February 27, 2009 grant valuation date. These phantom units are equivalent to common shares, except that they are payable in cash, as soon as he leaves the company. This is yet another Hans Becherer-engineered golden parachute.

[In passing, I'll note that each of Messrs. Bertolini, Cheeley, Kohan, Saunders, Sabatino (who already received an unscheduled $500,000, in cash in December 2008 -- about three months ago!), and Ms. Cox received between $1 million, and $1.2 million worth of identical phantom units, as well. Over $9 million in the aggregate, just from this one pot. Sheesh!]

All of the Schering-Plough team members who were severed in 2008 should take a very close look at these figures -- how many of your salaries would have been covered by a renunciation of just this portion of the "Top Six's" 2008 pay package? And for how many YEARS? [Where is the Annual Shareholders' Meeting, this year? Show up! -- Speak out! -- Act up!]:

195,610 Phantom Stock Units. . . . Price: $17.39. . . .

. . . .Each unit of phantom stock is the economic equivalent of one share of common stock. The units of phantom stock will be held in the Issuer's Phantom Stock Fund under the Issuer's non-qualified deferred compensation plan, and will become payable, in cash, following the reporting person's termination of service. . . .

So -- no performance-based pay is present in any of these phantom shares -- and thus they are simply [another] $3.4 million "golden parachute" -- to Hassan, and the top six.

What possible motivational engine is served here, on top of the more than $30 million Mr. Hassan has already been granted by the Board's Compensation Committee? Really -- what purpose do these latest phantom stock units serve? Cue Mr. Becherer (the chair of that committee). [Crickets chirping. . . .]

I Wonder Whether Mr. Eakeley will bring THIS Case to the Attention of Judge Cavanaugh!

On and off, over the past few months, lawyers at the firms of Lowenstein, Sandler and Dechert, LLP have been peppering Judge Cavanaugh with letters advising him of other federal court rulings, mostly related to arguments supporting the notion of preemption (by FDA drug approval). Note that Congress has provided this form of preemption should apply to devices.

That leaves them in the rather unfortunate position of having to now let Judge Cavanaugh know that the nation's highest court disagrees with those earlier arguments (Wyeth v. Levine, SCOTUS No. 06-1249, Argued November 3, 2008 -- Decided March 4, 2009). Hilarious. [I think Judge Cavanaugh already knows about this one, boys.] This is the passage of the majority's (6-3) opinion Douglas Eakeley, of Lowenstein, Sandler ought to quote, by subsequent letter, to federal District Court Judge Cavanaugh (Cavanaugh is presiding over the current bolus of 145 lawsuits against Schering-Plough) -- if he truly wishes to keep the judge abreast of the developing path of the law of FDA preemption (as his earlier letters suggested):

. . . .Wyeth’s cramped reading of the CBE regulation and its broad reading of the FDCA’s misbranding and unauthorized distribution provisions are premised on a more fundamental misunderstanding. Wyeth suggests that the FDA, rather than the manufacturer, bears primary responsibility for drug labeling. Yet through many amendments to the FDCA and to FDA regulations, it has remained a central premise of federal drug regulation that the manufacturer bears responsibility for the content of its label at all times. It is charged both with crafting an adequate label and with ensuring that its warnings remain adequate as long as the drug is on the market. See, e.g., 21 CFR §201.80(e) (requiring a manufacturer to revise its label “to include a warning as soon as there is reasonable evidence of an association of a serious hazard with a drug”); §314.80(b) (placing responsibility for post-marketing surveillance on the manufacturer); 73 Fed. Reg. 49605 (“Manufacturers continue to have a responsibility under Federal law. . . . to maintain their labeling and update the labeling with new safety information”).

Indeed, prior to 2007, the FDA lacked the authority to order manufacturers to revise their labels. See 121 Stat. 924–926. When Congress granted the FDA this authority, it reaffirmed the manufacturer’s obligations and referred specifically to the CBE regulation, which both reflects the manufacturer’s ultimate responsibility for its label and provides a mechanism for adding safety information to the label prior to FDA approval. . . .

Note that, on January 23, 2008, FDA warned Schering-Plough that the Vytorin label would be "misleading" if not updated for the non-superiority outcome in ENHANCE. Schering apparently waited until it had "stocked out" of the old labels to revise them. Interesting -- in light of today's decision.

Sunday, March 1, 2009

2001-Era Securities Fraud Class Action to Cost Schering-Plough at Least $165 Million

Some time this month -- in March of 2009 -- (within 30 days of February 19, 2009), Schering-Plough will have to deposit in cash at least $165 million -- into an interest-bearing escrow account -- to settle allegations that, under former CEO Richard Kogan, the company failed to adequately dislcose various manufacturing violations and problems, documented by FDA, in its plants -- resulting in a delayed US launch of Clarinex, and thus, Schering-Plough stock price declines. While Schering-Plough denies that any of this damaged the shareholders, it has finally agreed to pay the $165,000,000 to settle. And that is decidedly more than some "nuisance" value. The to-be-settled case is captioned In Re Schering-Plough Securities Litigation (NJ Dist. Ct., Case No. 01-829 Judge Hayden).

Assuming that an appropriately small number of class action participants choose to "opt-out" of this settlement, and that Judge Hayden enters a final order of approval in July 2009 (including an explicit approval of about $2.1 million in plaintiffs attorneys' fees) -- the $165 million, plus accrued interest, will be released to the plaintiffs during the third quarter of 2009.

The amount of this payment was not disclosed in the Legal Proceedings section of the SEC Form 10-K Schering filed Friday night, so it is safe to assume Schering-Plough has not yet wired the money into the escrow account. Look for that development to appear in the March 31, 2009 Form 10-Q.

I do wonder whether the current ENHANCE securities fraud putative class action litigation will result in settlement figures that are an integral multiple of the above $165 million, given what seems to be both pattern behaviour, and stronger evidence. We shall see -- I will keep you informed as to the progress of this particular federal settlement stipulation.