Saturday, May 30, 2009

Simply To Complete the Factual Record. . . .


I did not cover this part of the May 27, 2009 "Investor FAQ" document, in my original post -- but here it is:

. . . .Q: Can you provide an update on the PEGINTRON melanoma regulatory application in the U.S.?

A: Schering-Plough has amended its application with the Food and Drug Administration (FDA) for the use of PEGINTRON (peginterferon alfa-2b) in the adjuvant setting in node positive melanoma. The company anticipates a six-month review by FDA.
The submission of this amendment was in response to a Complete Response Letter received in March 2008 from the FDA regarding its supplemental biologics license application for melanoma. In the letter, the agency requested additional information and clarification of submitted data.

Outside the U.S., the application is currently under review in selected countries. . . .

It is interesting that it took Schering-Plough over a year to collect and finalize the response to FDA, on melanoma. Is this [yet another] "please read between the lines" version of disclosing potentially-disappointing future news? I dunno. In any event, here is an image from an archived piece of mine on the main market for Schering-Plough's Pegintron:


[Note: Click above image, to enlarge.]

Friday, May 29, 2009

Why Is Schering-Plough's "Investor FAQ" Archive Page No Longer Indexed on Its Site?


Only yesterday, inside a post of mine, I hosted three links to various pages and PDF documents that reside on the "Investor FAQ" page [inside the "Investor Relations" Section] of the Schering-Plough Corporate Website. This is a page to which Kenilworth added new material, only yesterday. And tonight, finding this new material just got tougher. Hmmm.

While these pages are all still "there" -- they are no longer on the Corporate Sitemap, nor are they listed in the "Left Sidebar" -- of available sub-pages. Odd. Now, to see that these links still work, click below on the three links, as I posted them, verbatim, yesterday:

. . . .Kenilworth also issued an overnight "Investor FAQs" (PDF file) document.

Because Schering-Plough has chosen to speak about these presumably material matters, it would be fair to ask whether Schering-Plough's view is that there is nothing material to report about monthly IMS 'scrip data on the Cholesterol Franchise Joint Venture, Vytorin and Zetia. For thirteen consecutive months, ending in on January 20, 2009, Schering-Plough provided updates on these IMS monthly trends. It then said that it would stop doing so, as trends were "generally stabilizing". . . .

Yep. Click those three links -- the pages are all still "there". Now, look at these screen-caps, from mere moments ago [Click each image, to see full-sized version]:



[Click this link to verify that the above-page appears just that way, in full -- on the corporate website. If one clicks on "Investor FAQ", in the right-hand column -- the below "404 Error -- Page Not Found" is returned:]



[Click this link to verify that the top of the above-page returns this error, on the corporate website.]




[Again, click this link to verify that the above-page appears on the corporate website.]




[Once more, click this link to verify that the above-page appears on the corporate website.]


Now -- just to be sure -- go back and click the three links in the blue blockquoted text I set, from yesterday, up top. Yep. The documents are there -- just not shown, in the index.

Quite. A. Puzzlement. No?

Honestly -- I cannot help but wonder whether it is the fact that 13 months of Vytorin/Zetia Monthly IMS data reside there -- then, starting with February 2009, an abrupt halt, which lasted for two months -- then, Schering-Plough disclosed (on its Q1 2009 earnings conference call) a sequential quarterly 14.2 percent U.S. "down-bubble" -- despite January 20, 2009 assurances (And February 3, 2009 assurances) of "generally stabilizing" monthly IMS 'scrip trends, for Vytorin and Zetia. That is what CEO Hassan said, on the February 3, 2009 call. Could this explain the index removals? I can think of few other plausible reasons to move the pages off the index, and site map.

On January 20, and February 3, 2009, CEO Hassan told the world that the cholesterol franchise sales decline had "generally stabilized" -- and he would no longer report monthly IMS data -- as a way of informing the equity markets, in a more timely fashion, of what Schering's prospects might hold. Then came the March 9, 2009 proposed reverse merger announcement. Then the Q1 earnings call (and my semi-live-blog of it, under that link). What would the exchange ratios have been, on March 9, 2009, had the equity markets seen February 2009 Monthly IMS Data? What would have been the price, had the equity markets known of this continuing monthly deterioration in the the sales revenue, and thus fortunes, of Vytorin/Zetia? A deterioration that Mr. Hassan had said, a month earlier, was ending. Remember, Mr. Hassan did not stop receiving the IMS monthly updates -- he just stopped disclosing them. I think the ENHANCE plaintiffs' class-action securities lawyers will be interested in these facts.

It does seem, at first blush, quite plausible that Schering-Plough would want to make these specific pages harder to retrieve -- why leave that "crumb-trail" for the ENHANCE securities fraud class action plaintiffs' lawyers to find? [To say nothing of the staff at Corp. Fin., or Enforcement -- over at the SEC.]

Well -- that "crumb-trail" is here, now. Permanently. You may bank on it.

Thursday, May 28, 2009

What's CFO "Sandman" Bertolini's Sch-Merck-in' Haul Gonna' Look Like -- Post Merger?


Just as I did with "Flight Attendant" Cox, and Mr. "Con-Air" Hassan, before him, earlier -- I have made an "order of magnitude" estimate of the "all-in" payoff due Schering-Plough CFO Bob "Sandman" Bertolini, should he depart within two years of the reverse-merger's closing date (other than for "cause" -- i.e., only if he commits some truly-egregious error). Again, these figures do not make any estimate for IRS Section 280G payments -- but if the same are due, he will be grossed up for them. [Click at right to enlarge.] Even without the IRS gross-up, he'll come in somewhere between $90 million and $116 million -- assuming he is let go by Merck.

Like Mr. Hassan, Mr. Bertolini's take was greatly underestimated when The Wall Street Journal reported on this, last week -- because the figures it relied upon made no estimate whatsoever of the equity values each executive receives, in compensation. I have corrected, in broad strokes, below, for this oversight. Note that for every $1 that Schering-Plough's stock price rises above $22.91, Mr. Bertolini will receive about $5.2 million in additional payouts. If the merger were to close at tonight's NYSE price of $24.05, Mr. Bertolini's take would be almost $95.2 million.

So, more specifically, here: Mr. Bertolini is due various previously granted stock options of 250,000 shares (at $18.20), 50,000 shares (at $20.70), 200,000 shares (at $20.70), 48,000 shares (at $19.23), 192,000 shares (at $19.23), 276,000 shares (at $18.85), 52,000 shares (at $18.85) and 264,600 shares (at $22.91). So, all of these are exercisable at various prices between $18.20 and $22.91 per share. [I have dropped from the tally, the options that aren't likely to be in the money: they are 46,000 shares, and 184,000 shares, each exercisable at $31.57 -- but do not forget about these, if by some miracle, Schering-Plough trades into the $31.60 range by merger time.]

Don't forget -- he has his 208,000 share option "mega-grant" from November 2003 -- exercisable at $15.87.

He also has the 2003-era 350,000 deferred stock units, and the February 27, 2009 deferred stock unit grant of 208,000 shares -- free and clear. Finally -- he has his "all other performance based" stock units covering 200,159 shares -- if just the target amounts are paid out in 2009, and early 2010. Now, to calculate -- [I advise making another Excel spreadsheet!] on the options, it is simply a matter of subtracting assumed NYSE market prices, from exercise prices -- and multiplying by numbers of shares -- to reach his potential gain, at any given NYSE quoted stock price. Similarly, on outright share-grants, one multiplies the full NYSE stock price, times the total number of shares -- all of those share-gains are his to keep. Simple -- and simply dizzying -- given the sheer-size of these numbers.

For the top three, then -- we are now approaching $300 million in likely payouts, post-merger. Where is that "Schering-Plough Survey on Executive Pay", anyway? Did you send yours in? Be sure you do.

Trivia: There's a Poll Over at CafePharma. . . .


. . . .Which asks whether that Nasonex Bee sounds (and/or looks) like CEO Fred Hassan. Do go take it -- it is all in good fun.

I will report the outcome, here. . . .

I know. Trivial, right? Guilty as charged.

More substantive material -- before too terribly long, now. . . .

New Schering-Plough "Investor FAQs" -- But No Vytorin/Zetia Update. . . .


Schering-Plough has (to answer J&J's presser) put out a J&J arbitration status press release, overnight. Kenilworth also issued an overnight "Investor FAQs" (PDF file) document.

Because Schering-Plough has chosen to speak about these presumably material matters (see below), it would be fair to ask whether Schering-Plough's view is that there is nothing material to report about monthly IMS 'scrip data on the Cholesterol Franchise Joint Venture, Vytorin and Zetia. For thirteen consecutive months, ending in on January 20, 2009, Schering-Plough provided updates on these IMS monthly trends. It then said that it would stop doing so, as trends were "generally stabilizing". Schering-Plough's first quarter 2009 audited numbers told a different story, entirely -- down another 14.2 percent, in sequential quarters, in the US. What will Q2 hold? Who knows, at this point?

Okay -- from last night's FAQs, proper, then:

. . . .Q: Can you provide an update on patient enrollment for the Thrombin Receptor Antagonist (TRA) phase III program?

A: We have a global Phase III development program for TRA that includes two studies: TRA for Secondary Prevention (TRA•2P TIMI 50) and TRA for Clinical Events Reduction (TRA•CER). These trials are designed to show whether adding TRA to standard therapy will reduce cardiovascular events such as cardiovascular death, heart attacks, strokes and the need for urgent coronary revascularization. The TRA•2P study is being conducted by the TIMI group from Boston and TRA•CER is being conducted by the Duke Clinical Research Institute. There is a common Data Safety Monitoring Board (DSMB) for both studies.

Currently, there are more than 22,000 patients enrolled at over 1,000 sites in over 30 countries between both trials. The Executive Committee of the TRA•2P TIMI 50 trial recently increased the target sample size of the trial from 19,500 patients to approximately 25,000 patients based on blinded aggregated clinical event rates. . . . [Editor's Note -- Sounds a little like the ENHANCE events; and a little like what we may soon hear on IMPROVE-IT.] . . . .we do not expect the increase in patient enrollment in the TRA•2P TIMI 50 study to impact the estimated completion of the trial in September 2010. The estimated completion date is based on the accrual of the necessary number of patients with clinical events, as well as a minimum of one year patient follow-up. . . .

Q: What is the status of the SAPHRIS (asenapine) regulatory application in the U.S.? When do you plan to file in Europe?

A: . . . .Schering-Plough has received a communication from the FDA that asenapine will be reviewed at an upcoming meeting of FDA’s Psychopharmacologic Drugs Advisory Committee (PDAC). A date for this meeting has not yet been disclosed. . . . [Editor's Note: Again, this portends a potential additional, newly-disclosed delay in the expected FDA approval date.]

More -- as ever -- to come.

The Rules Favor Compromises -- in AAA-Governed Arbitrations


UPDATED -- 05.28.09 @ 2:12 PM EDT: The AP is now updating its reports with this reaction, from Steve Brozak of WBB Securities: "J&J has a history of basically sticking to its guns," he said. "You'll probably see more give by Merck-Schering-Plough," with them offering Johnson & Johnson a bigger share of the revenue to settle the dispute. . . . Indeed.

~~~~~~~~~~~~~~


Overnight, Johnson & Johnson announced that it filed a demand for arbitration on May 27, 2009. The key new piece of information here is that it did so, with the American Arbirtation Association. If the rules of that body, now in effect, are to govern this dispute, it is marginally more likely that Schering-Plough and Merck will have to surrender some part of the Remicade® and Simponi™ rights -- or, at least agree significantly enhanced royalties payable to J&J on all sales, ex-U.S. . . . I'll explain why, after we look at the J&J press release:
. . . . In an arbitration demand filed today with the American Arbitration Association, Johnson & Johnson has requested a ruling that the agreement and plan of merger between Merck & Co., Inc., and Schering-Plough Corporation constitutes a change of control that would permit the termination of the agreements between Schering-Plough and Johnson & Johnson’s subsidiary Centocor Ortho Biotech Inc., regarding the product REMICADE® (infliximab), a well-established biologic product for inflammatory/immunological diseases, and SIMPONI™ (golimumab), a next-generation treatment. The termination of the agreements would return full rights to Johnson & Johnson for the distribution of these products in markets outside the United States where Schering-Plough currently has the rights to distribute these products.

"As its public statements have made clear, Merck is acquiring Schering-Plough," the company said. "The acquisition constitutes a change of control that triggers the right of our Centocor Ortho Biotech subsidiary to terminate the agreements. . . ."

Now, here are the rules of commercial arbitration, from the American Arbitration Association, which rules will presumably govern this demand by J&J. Note particularly Rules 30, and 31:
R-30. Conduct of Proceedings

(a) The claimant shall present evidence to support its claim. The respondent shall then present evidence to support its defense. Witnesses for each party shall also submit to questions from the arbitrator and the adverse party. The arbitrator has the discretion to vary this procedure, provided that the parties are treated with equality and that each party has the right to be heard and is given a fair opportunity to present its case.

(b) The arbitrator, exercising his or her discretion, shall conduct the proceedings with a view to expediting the resolution of the dispute and may direct the order of proof, bifurcate proceedings and direct the parties to focus their presentations on issues the decision of which could dispose of all or part of the case. . . .

R-31. Evidence

(a) The parties may offer such evidence as is relevant and material to the dispute and shall produce such evidence as the arbitrator may deem necessary to an understanding and determination of the dispute. Conformity to legal rules of evidence shall not be necessary. . . .

Note the portions I have bolded -- the arbitrator(s) "shall. . . expedite resolution of the dispute". This rule reflects a bias against overly formalistic, lawyerly arguments, and a bias toward finding compromises both parties can "live with".

Moreover, Rule 31 provides that the strict rules of evidence need not be adhered to, thus J&J may submit "common sense based", and obvious public record data, as to whether Fred Hassan and Dick Clark are treating this transaction as a "change of control" transaction. Indeed, they are.

So, J&J is in particularly good shape here -- as all it arguably need do is show that Schering-Plough's reverse merger structure is an overly-formalistic, "cute-lawyering" attempt to avoid the obvious.

The "obvious" here comprising the "Change of Control" payments Mr. Hassan and the other Top Five EMT members intend to take, once the deal closes. "Ya' cannah' have it both ways, Mr. Hassan. . . .

More later -- if I find time.

Wednesday, May 27, 2009

"What Bee? I Didn't See Any Bee. . . ." -- Nasonex DTC Hit




Click it to enlarge. Story here.

This commercial ran repeatedly -- in a loop -- before the Annual Stockholders' Meeeting in Chicago, last week. That, along with the one of mini-skirted women in stilettos -- mowing the lawn -- for the new Dr. Scholl's, for her -- really showed some class. Nice. Here is the FDA's guidance document -- as a PDF file.

Tuesday, May 26, 2009

Latest Asenapine Study Primary Endpoint -- Clank!


Like one of Shaq's free throws (Clank!) -- and more, soon -- this from MedPage Today:

. . . .Long-term findings for the novel antipsychotic agent asenapine did not confirm any advantage over second-generation antipsychotics for negative symptoms of schizophrenia. . . .

Earlier in the clinical trials program for asenapine, an unhypothesized benefit turned up -- it appeared to improve negative symptoms of schizophrenia significantly better than risperidone (Risperdal).

These negative symptoms, such as lack of motivation and social withdrawal, are far more likely to persist over time than are the core, positive symptoms of the disorder, "which have a much more waxing and waning form," Dr. Schooler said.

To examine this potential advantage prospectively, the researchers conducted the Aphrodite 25543 study, which included 26 weeks of double-dummy treatment with asenapine (5 to 10 mg bid) or olanzapine (5 to 20 mg qd) in 481 schizophrenia patients who had higher negative than positive symptom scores.

Dr. Schooler's presentation focused on the 26-week extension phase that followed for the 134 asenapine-treated patients and 172 olanzapine-treated patients that remained in the trial.

For the primary outcome of Negative Symptom Assessment Scale 16 scores, there was no significant difference between the drugs at week 52 (P=0.2344).

Likewise, they found no differences -- and little change over time -- for the positive symptom portion of the Positive and Negative Syndrome Scale (PANSS) or for the anxiety and depression portion. . . .

Oops.

Depositions Today, in "Sun Screen Battle Royale". . . .


This ought to be entertaining today, in the lawyers' offices, in New York -- as the battle of the SPF, UVB and UVA experts gets underway:

Sunday, May 24, 2009

Interesting Time-Line Stuff -- "Dueling Patent Infringement Suits", Updated. . . .


We now know (courtesy of the preliminary S-4 filing with the SEC, this week) that on May 5, 2009, Bill Weldon, CEO of Johnson & Johnson, formally notified Schering-Plough CEO Fred Hassan that he, and J&J, would invoke the mandatory arbitration clause -- and seek the return of the international Remicade® and Simponi® distribution rights. Fascinatingly, on May 4, 2009 -- Abbott sued J&J, for patent infringement -- in the federal courts, in Massachusetts -- alleging that Centocor's recently-approved Simponi® (golimumab) infringed patents held by Abbott's Humira®. Was that fight "the straw that broke the camel's back", the very-next morning? Here's what I observed, that day:

. . . .Why do I mention all of these excesses of testosterone? Well, because I think these litigation "puts and takes" will at least marginally increase Johnson & Johnson's desire to seek the return of the non-US rights to Remicade and Simponi, from Schering-Plough (via the "change in Control" escape hatch). That (mandatory arbitration) is a slightly less-thorny path (for J&J) to secure an estimated $3 billion per year in incremental revenue, as compared to protracted dueling sets of opposing patent litigation proceedings, in two separate federal courts, half a continent apart. I actually expect that Abbott and Centocor/J&J will ultimately settle their respective differences -- working out reciprocal royalties, of some sort, on all US sales of each product -- but that, in turn may well reduce J&J's margins -- in the US -- on Remicade and Simponi.

And that is where the "rubber will likely meet the road" -- as CEO Bill Weldon drives toward Keniworth, thinking about all those Euros, Pounds-Sterling and Yen piling up on Remicade, and now, Simponi sales -- and being booked, on a consolidated basis, month-by-month, into K-1 (and very soon, now -- into Whitehouse Station). . . .

Indeed, it seems he acted on those thoughts, the very next morning.

Friday, May 22, 2009

If Carrie Cox Is Let Go, Shortly After The Reverse-Merger. . . .


I have, as promised, tried to estimate her "all-in" golden parachute payments -- the amounts she'll walk away with, solely in 2009-2010, assuming the merger is closed on the present terms. By my reckoning, she'll likely garner somewhere between $36 million and $44 million. Significantly, her ultimate pay-out will rise by over $1.59 million – for every dollar over $22.91 that Schering-Plough’s common stock rises, in NYSE trading, as of the reverse-merger date. Wow, that's some Air-Hassan mega bar-tip.

My figures are a little fuzzy, because a modest portion of some of her options may not vest until May 2010, due to changes in the option plans adopted in 2008 -- but other than that, I think the range is a fairly good guess. It does also include about $6.7 million of IRS Section 280G tax gross-up payments -- a figure I did not even attempt to estimate for CEO Hassan's calculation (though he will be entitled to it).

Ms. Cox's golden parachute compensation will be dramatically lower than CEO Hassan's, largely because he has three more years (she came onboard in 2003 2005, as did Hassan, but she liquidated 900,000 options in April and May of 2007 -- see my newly revised last paragraph, below, for more on that) -- CEO Hassan never engaged in any "cashless exercises" of his option grants (they all remain unexercised) and he kept his restricted stock grants -- and all of his grants were several multiples larger than hers. Still -- hers is an outsized package, by any measure. Click the image, at right, to see the "Air Hassan" Flight Attendant, full-sized.

. . . .If the Merck transaction were completed at last night's closing NYSE price ($23.68), Ms. Cox would walk away with about $37.4 million. . . .

Finally -- remember that Ms. Cox netted about $11 million (about $29 million in gross proceeds) by exercisng options in April and May of 2007, before the release of the disappointing ENHANCE results. That amount is not in any of the above figures -- but one ought to consider it as part of her "takeover haul" -- at a bare-minimum. And, perhaps, if we were to accept the securities fraud plaintiffs' view -- we should think of the $11 million as truly "ill-gotten gains". Thus, from a recent filing in the In Re Schering-Plough ENHANCE Securitites Litigation (Case No. 08-397, US Dist. Ct., N.J.):



That would push her total range to between $47 million, and $55 million. This all would be comical -- if 16,000 people weren't going to be put out of work in the process.

Thursday, May 21, 2009

What the Wall Street Journal (and Most Others) Don't Understand About CEO Hassan's "Special" Compensation. . . .


Lately, Schering-Plough's SEC filings have recited that "stock options granted on or after January 1, 2008" -- will not automatically vest on a Change of Control. That will be true for most pigs -- but CEO Fred Hassan is unlike most pigs. . . .

That is, it may be true as to other executives, but CEO Hassan negotiated "special grandfathering" of stock options, and other forms of equity compensation, for himself, and himself alone, in the event of a Change of Control, back in 2003, when he signed on -- here's his full employment agreement (the below is from Section 3(j) -- on page 4):

. . . .(j) DURING CHANGE OF CONTROL PERIOD

Without limiting the generality of the foregoing, during a Change of Control Period, the incentive, savings and retirement benefit opportunities (measured with respect to both regular and special incentive opportunities, to the extent, if any, that such distinction is applicable) and the other benefits provided to the Executive pursuant to Sections 3(d), (e), (f), (g), (h) and (i) shall in no event be less than the most favorable such opportunities and benefits provided to the Executive by the Company and its affiliates at any time during the 120-day period immediately preceding the Change of Control Date. In addition, notwithstanding anything herein or in the 2002 Plan to the contrary, upon the Change of Control Date, the Shares and the Options shall immediately vest in full, and the Options shall remain exercisable for the remainder of their stated term. . . .

That last bit nullifies any later action taken by the Board or Compensation Committee to limit the immediate, and full-vesting -- should a Change of Control occur, at least as to CEO Hassan.

And should the Merck transaction close, that is exactly what Fred Hassan will say: all options -- including those granted on May 1, 2009 -- even after the announcement of the proposed merger -- must vest in full as to Hassan, and Hassan alone.

Some pigs are, indeed, "more equal". Let's try to total it up, then:

Tonight's Wall Street Journal story correctly pegs his immediate cash portions at $17.7 million, plus pension benefits of $13.2 million, and medical benefits of $130,750 (just this year), or about $31 million.

But that's just small potatoes, compared to the equity portions: Mr. Hassan has various option grants of 1,100,000 shares (at $18.20), 220,000 shares (at $20.70), 880,000 shares (at $20.70), 200,000 shares (at $19.23), 800,000 shares (at $19.23), 167,200 shares (at $18.85), 668,800 shares (at $18.85) and 868,300 shares (at $22.91). So, all of these are exercisable at various prices between $18.20 and $22.91 per share. [I have dropped from the tally, the options that aren't likely to be in the money: they are 236,000 shares, and 944,000 shares, each exercisable at $31.57 -- but do not forget about these, if by some miracle, Schering-Plough trades into the $31.60 range by merger time.]

Don't forget -- he has his 900,000 share option mega-grant from early 2004 -- exercisable at $17.34.

He also has the 2003-era 200,000 deferred stock units, and the February 27, 2009 deferred stock unit grant of 195,610 shares -- free and clear. [So the jet just got gilded!]

Finally -- he has his "all other performance based" stock units covering 672,714 shares -- if just the target amounts are paid out in 2009, and early 2010. Now, to calculate -- [I advise making an EXCEL spreadsheet!] on the options, it is simply a matter of subtracting assumed NYSE market prices, from exercise prices -- and multiplying by numbers of shares -- to reach his potential gain, at any given NYSE quoted stock price. Similarly, on outright share-grants, one multiplies the full NYSE stock price, times the total number of shares -- all of those share-gains are his to keep. Simple -- and simply dizzying -- given the size of the numbers, and the endless parade of serial grants.

So, tallying up just the incremental effects -- CEO Hassan's ultimate pay-out will rise by over $7.74 million -- for every dollar over $22.91 that Schering-Plough's common stock rises, in NYSE trading, as of the reverse-merger date (click image to enlarge -- as if you'd need to!):



By my reckoning, if the merger were to close tonight, at $23.68 -- Schering-Plough's NYSE closing common stock quote -- Mr. Hassan would walk away with a grand total of $139.96 million. The NYSE stock price is likely to be closer to $26.25, when the merger occurs -- as that is nearer the March 9, 2009 pegged value -- and, in that case, his personal take-away would be a jaw-slacking $159.85 million.

Now, on top of all of this, remember, the company must pay his taxes -- must gross him up -- should he be hit with any so-called IRS Section 280G "excessive (non-performance based) compensation" taxes. I cannot accurately model the size of that gross-up, in any detail -- but it could add an additional 30 percent to his all-in expense to the company. If the tax gross-up clauses were to be triggered, his compensation costs would likely be north of $200 million (as the company accrues and pays the compensation -- and the taxes on it).

Astonishing, no? I think so.

~~~~~~~~~~~~~~~~~~


UPDATED -- 05.22.09 @ 12:20 PM EDT: Jim Edwards, over at BNet-Pharma has linked this (Thanks, Jim!), and done some calculations of his own. He has left off all the option shares CEO Hassan received on May 1, 2009, and February 27, 2009. He also is valuing the options at $18.85 -- which puts many of them underwater. Worthless, actually. Schering-Plough hasn't traded below $21.60 since the first few days after the proposed merger announcement, on March 9, 2009. Today, it is at $23.70. So, on balance, though I respect Jim a lot -- I think my estimated payout is in the range (call it $140 million -- to $160 million) of the most-likely ones -- unless the entire reverse-merger with Merck is to be subsequently renegotiated. Neither of us tried to estimate the IRS Section 280G tax gross-up amounts.

Company X IS J&J -- Wall Street Journal on 05.21.09


Per the Wall Street Journal:

. . . .The filing didn't identify the other company but it was Johnson & Johnson, according to people familiar with the matter. J&J eventually eventually decided against making a bid. . . .

Heh.

Could Schering-Plough's "Company X" Suitor Have Been Johnson & Johnson?


UPDATED -- 05.21.09 @ 4:40 PM EDT: WSJ confirms.

There will be nothing official, that is certain. But, I submit this -- for the readers' consideration -- tell me why these things don't make it more likely than not, that "Company X" is led by CEO William Weldon -- as the shy, and ultimately retiring, Schering-Plough (non-)suitor (archive Weldon letter, imaged at right):

First, the timing laid out in the "Background of the Transaction" section (at pages 48-55) suggests that someone (at Company X) got up to speed very-quickly, on Schering-Plough (based on public documents), then negotiated and signed a confidentiality agreement, in seven elapsed days, with Schering-Plough GC Sabatino. [And, that, in turn, suggests some very-tight guardrails (right down the middle of the Jersey turnpike!) -- consistent with the overlap in J&J & Schering-Plough businesses.]

Then, just ten days after a confidential information exchange meeting -- with Cox and Koestler, meeting their counterparts at Company X -- Company X formally bowed out. That was February 5, 2009.

On that day, and more importantly, on the day after, Johnson & Johnson announced intitial FDA filings for two indications -- on one of J&J's important home-grown drug candidates -- that's entirely consistent with a "go it alone" strategy being re-affirmed, right? Right.

Those drugs would be used to treat the same conditions as. . . wait for it -- Schering Plough's Saphris (Asenapine). They are for schizophrenia, and related schizoaffective disorders. Wow.

Fascinating, no?

Add to this that the Sunscreen Battle Royale only became litigation after the Remicade negotiations apparently bogged down. Okay. Who owns Neutrogena? That's right. Johnson & Johnson. And the complained-of advertising has been "out there" since 2007, "for more than two years" -- according to Neutrogena's lawyers. But Schering-Plough waited until near the end of April 2009, to file a Lanham Act suit (April 21, 2009).

Interesting timing, that.

So, even aside from the Remicade/Simponi thing -- it struck me that, on the morning of March 9, 2009 (when the reverse merger was announced), CEO Hassan said one of his first calls was from J&J CEO William Weldon. It was described by Hassan as "cordial".

I think it would make sense that Weldon's people found out what they wanted to know -- from Koestler and Cox, about Asenapine/Saphris -- and decided against an outright bid -- knowing that they could have the "most of the milk" (Remicade and Simponi) back -- without buying the whole cow.

So -- of course Weldon was "cordial". Now we are seeing his business-fangs -- presumably, after CEO Hassan's team declined to "be reasonable" about higher royalties on products outside the US, post merger. That's just my take. But it should be yours, too. . . .

Note that the poll, lower left, is runing about 3 to 1 in favor of J&J, as well. So, that nails it, right? Heh.

What am I missing here, folks? Do let me know -- I am an amateur scientist after-all -- and this is just a hypothesis, submitted for your dissection. Dig in.

Hair-Raisingly Bad Spoof of Vioxx Problems? Merck Staffers Cut Up -- and Dyed -- Over Vioxx Woes. . . .


It seems a Vioxx trial is now underway in Australia -- involving claims about Merck's Vioxx -- very much like the civil class action suits now being settled via a judicially-supervised MDL process, here in the U.S. (while Merck's conduct is concurrently being formally investigated by the U.S. Department of Justice). I haven't covered Vioxx very much (at all) here -- but as the merger-time draws nearer, I just might start covering it. It is relevant, afterall, to the to-be combined companies.

So, with a hat tip to Marilyn Mann -- I'll excerpt some of the Australian press accounts of a "Beauty Shop" skit that Merck staffers apparently performed in 2003 or 2004. Do go read it all, but here is a bit from the article run in The Australian:

. . . .The script features three scenes where staff refer to Merck products in the context of nails, facials and hair products. Vioxx is described as a new hair colour that has a "50 per cent reduction in serious hair colour fading for patients".

"I've been HAIRING a lot of mixed reports lately about your new hair colour . . . what was it called again . . . Vitality?" one staff member says as the mock employee of Gloss, Smooth and Shine hair salon. "No, No, Vioxx," the other character says.

"Yes . . . I've heard quite a few mixed stories about Vioxx. In fact, there was something on the radio yesterday, I think it was on Hair Highlights on the ABC - yes, and it was saying Vioxx causes heart attacks," the salon employee character continues. "That's pretty worrying - what's the tangle behind that?"

The skit, tendered by the plaintiff in a class action against the US pharmaceutic giant and its Australian subsidiary, goes on to describe how some Vioxx patients with an increased risk of cardiovascular problems met criteria set by the US Food and Drug Administration -- which they call the "Frizz Disaster Area" -- and should be taking aspirin.

One character then plays down a study that found Vioxx increased heart attacks compared with another drug, naperoxide, saying some patients should have been on aspirin.

"Indeed 38 per cent of all MI (heart attacks) occurred in those patients who probably should have been taking aspirin," she says. "Therefore if we remove these patients from the equation, the data showed that MI incidence was 0.3 per cent for Vioxx and 0.1 per cent for naperoxide . . . (Add reason for difference)."

In reply, the character of the hair salon adds: "Well did it all blow-dry over after that?. . . .

Truly deplorable -- at least some (many?) patients' families believe that Vioxx was a factor in the heart attacks (and, in some cases, deaths) of their loved ones. That is no laughing matter -- or at least, it shouldn't be.

More Court Papers Are Flyin', Today -- In the "Sun-Screen Battle Royale". . . .


To recap, here, about a month ago, Schering-Plough's lawyers filed a federal suit in Delaware District Court -- against Neutrogena, and its Ultrasheer® products advertising -- claiming that some of the sunscreens marketed by Neutrogena made "literally false" comparative claims about some of the Coppertone® products sold by Schering-Plough, constituting arguable violations of the federal Lanham Act (which Act prohibits false advertisements through channels of interstate commerce -- like print and TV ads).

Last week, Neutrogena formally answered those Coppertone charges -- and made a few of their own. In technical terms, Neutrogena filed counterclaims against Schering-Plough's Coppertone earlier Lanham Act claims. In the street-vernacular, though -- Neutrogena cracked open a very tall can of "shut-up juice". Last night, Neutrogena filed its briefs in support of dismissing Schering's claims, and supporting its own counterclaims. While these documents are riddled with redactions (to protect both parties' trade secrets, primarily), and some (of Schering-Plough's) were filed under seal, entirely -- this much is easy to understand (click the below to enlarge):


Yep -- The United States is a "commercial" free-speech "zone", from coast to coast.

Now, this is from the Neutrogena Ultrasheer® marketing peoples' earlier filed counterclaims -- essentially urging that Schering-Plough cannot be heard to complain about allegedly false advertising, if the Coppertone® marketing people are making similarly-arguably-false claims, on their own:

. . . .97. These counterclaims are for false advertising under Section 43(a) of the Lanham Act, 15 U.S.C. § 1125(a) and the state statutory and common law of unfair competition. Specifically, Schering has caused to be published and disseminated false and misleading advertisements that claim that only Coppertone NutraShield with Dual Defense provides both UVA/UVB protection and antioxidants that promote skin repair, when in fact Neutrogena and other sunscreen manufacturers market and sell such products. . . .

102. Schering and Neutrogena both market and sell sun protection products.

103. Schering markets and sells a sunscreen lotion called Coppertone NutraShield.

104. Beginning on or about March 2009, Schering began airing a television advertisement claiming that “Only NutraShield has Dual Defense. One, I get powerful sun protection and two, antioxidants that promote natural skin repair.” (Exh. A, attached).

105. On or about April 1, 2009, Schering ran a print advertisement claiming that “Only new Coppertone NutraShield has Dual Defense. . . . Dual Defense gives you: (1) Advanced UVA/UVB sun protection / (2) Nourishing antioxidants that help neutralize free radicals to help skin repair itself.” (Exh. B, attached).

106. Coppertone NutraShield® products are not the only products that provide both UVA/UVB sun protection and antioxidants that promote skin repair.

107. Sunscreen manufacturers other than Schering market and sell sun protection products that provide both UVA/UVB protection and antioxidants that promote skin repair.

108. For example, Neutrogena markets and sells Neutrogena UltraSheer® SPF 45, which provides both significant UVA/UVB protection and antioxidants that promote skin repair. Other sunscreen manufacturers likewise market sunscreens with similar characteristics. . . .

111. Schering’s advertising for its Coppertone NutraShield sunscreen lotion is false and misleading, and violates Section 43(a) of the Lanham Act, 15 U.S.C. § 1125(a). . . .

Geez -- this may. . . Go. On. All. Summer. Long!

Both Companies Re-Filed H-S-R Notices on May 20, 2009: Per the Form S-4


This is a rather minor matter -- but this will, I predict, still lead to a substantial "second request" for information, from the FTC's Antitrust staffers. The below is from page 98 of the preliminary SEC Form S-4. Thus, the December 2009 hoped-for merger closing date is marginally less-likely, as a result of Merck's earlier withdrawal, and then refiling:

. . . .Merck and Schering-Plough each filed its required HSR notification and report form with respect to the merger on April 17, 2009, commencing the initial 30-day waiting period. On May 18, 2009, Schering-Plough, with the concurrence of Merck, voluntarily withdrew its notification and report form. Schering-Plough refiled the required notification and report form on May 20, 2009, at which time a new initial 30-day waiting period commenced. . . .

Stay-tuned.

Wednesday, May 20, 2009

Comparing Levels of Sophistication -- Pfizer's Deal v. Schering-Plough's Deal


This is a story of "what's not there" -- in the Schering-Plough "History of the Negotiations" deal disclosures. Consider, for example, "what is there" -- in the Pfizer-Wyeth deal. The differences are truly telling.

This is from the latest SEC Form S-4 (at page 60) filed by Pfizer, as it seeks to acquire Wyeth:

. . . .Between January 14 and January 16, 2009, representatives of Pfizer and Wyeth continued to negotiate the key parameters of a transaction, including that Pfizer would not enter into exclusive arrangements with more than five lenders that would preclude such lending firm from participating in the financing of a possible proposal by a third party in competition with Pfizer’s proposal for Wyeth, would agree to certain restrictions designed to have Pfizer conserve cash prior to a closing in an effort to ensure that the minimum ratings condition was satisfied and that the termination fee payable by Wyeth in the event of circumstances involving a third-party acquisition proposal would be tiered with the lower fee equal to $1.5 billion, and the higher fee equal to $2.0 billion. . . .

Tie-ups with no more than five lenders for the acquiror, as exclusive arrangers -- along with efforts to protect and preserve cash levels, to ensure favorable future debt ratings reviews. [Wachtell Lipton is in on this deal, too.] Both would make higher offers less cumbersome -- thus allowing the boards of both companies to easily satisfy their fiduciary duties. [And, not incidentally, to more easily allow all shareholders to benefit from a truly superior-priced offer.]

Equally importantly, in this vein, note the lower termination fees, even though Pfizer's Wyeth deal is a larger deal (at $68 billion v. $41 billion, for Merck-Schering-Plough).

Each of these considerations is nowhere to be found in the Schering-Plough "Background of the Transaction" section of tonight's preliminary Form S-4. No, there the focus appeared to be "be sure we get some deal -- any deal -- done."

On termination fees, in the Schering-Plough deal (page 58):
. . . .After further discussion among the advisors for Merck and Schering-Plough, Merck and Schering-Plough agreed to an increase in the financing termination fee to $2.5 billion and that the general termination fee would be reduced to $1.25 billion. . . .

Unfortunate, in the extreme -- and telling -- of the "deal-doing" accumen of internal management at Pfizer v. Schering-Plough.

And. . . Who is Company "X" -- Who Declined to Bid on Schering-Plough?


UPDATED: WSJ confirms Company X's identity.

Some lighter fare, now: According to the preliminary Form S-4, an unnamed company -- a large multinational pharmaceutical company, by all indications, met with CEO Hassan, and team -- did some significant due diligence -- then formally declined to bid on Schering-Plough -- right smack in the middle of the Merck negotiations. See here, on pages 53-55:

. . . .On January 25, 2009, Dr. Koestler along with Ms. Carrie Cox, Executive Vice President and President, Global Pharmaceutical Business at Schering-Plough, met with senior members of Company X’s research and commercial teams for a technical discussion focusing on Schering-Plough’s early stage pipeline and the companies’ commercial prospects. . . .

. . . .On February 5, 2009, Mr. Hassan received a call from the chief executive officer at Company X. The chief executive officer of Company X noted that his team had been working diligently on assessing the possibility for a business combination but had determined not to proceed with a proposal at that time. . . .

A contest and poll, then -- place your guesses as to the identity of Company X in the comments, below -- or vote (from the list of usual suspects) -- at upper left.

Prizes to the winner(s), those who correctly sleuths it out -- we'll rely on a definitive piece in some future issue of The Wall Street Journal, to ascertain the identity/winner. Fair enough? Good.

How Much Will CEO Hassan REALLY Clear -- From the Merck Reverse Merger?


I am cobbling together the new data, from the S-4, but Schering-Plough's lawyers haven't made it easy, at all. I'll have some fairly solid figures -- at various likely stock prices -- and some new graphics, on Hassan, Cox and Sabatino -- probably by late in the day, tomorrow. . . .

. . . .The WSJ has it as "Schering-Plough Corp. executives could receive $107.9 million in severance and pension payments if they leave after the drug maker is taken over by Merck & Co. . . ."

That is too-low -- by at least 36 percent. Probably more.

Look for it, here.

Okay -- For CEO Hassan alone, assuming the Schering-Plough merger stock price is about $26.25 on Merger Closing Day, his take will be at least $159.8 million, all in -- equity, cash compensation, deferred compensation and retirement benefits, with medical, etc.

Showing my work, now -- the methods by which I arrive at that figure.

Stay tuned.

In graphics, now:



By my reckoning, if the merger were to close tonight, at $23.68 -- Schering-Plough's NYSE closing common stock quote -- Mr. Hassan would walk away with a grand total of $139.96 million. The NYSE stock price is likely to be closer to $26.25, when the merger occurs -- as that is nearer the March 9, 2009 pegged value -- and, in that case, his personal take-away would be a jaw-slacking $159.85 million.

What Were CEO Fred Hassan and GC Tom Sabatino up to, on February 26-27, 2009?


[Updated -- 05.21.09 @ 8:50 AM EDT: Here's a genuinely-friendly little tip of the hat, and a wave, to all the able early-rising partners (and hard-working, late night-oil-burning associates) at Wachtell Lipton -- thanks for looking in on us, over the last 18 hours, one and all! For those not fully-conversant in these matters, lawyers from Wachtell are involved in both this Sch-Merck deal, and the Pfizer-Wyeth deal. Do stop in, again soon! -- The Condor]



According to their own sworn SEC Form S-4 preliminary merger filing, tonight, just this (at page 55):

. . . .In a regular board-only dinner on February 26, 2009, Mr. Hassan updated the Schering-Plough board on the status of the proposed transaction and the board expressed to Mr. Hassan its expectations regarding the information it expected to receive from its outside legal and financial advisors the following day.

The following day, February 27, 2009, the Schering-Plough board reconvened, along with its legal and financial advisors. Goldman Sachs and Morgan Stanley presented a financial analysis of the proposed transaction, and also reviewed each of the large multinational pharmaceutical companies and assessed their ability and willingness to complete a strategic transaction with Schering-Plough, and advised that Merck and Company X were the companies most likely to be interested in, and capable of completing, a business combination with Schering-Plough. Wachtell Lipton discussed the fiduciary duties of the directors and the current state of negotiations with respect to the merger agreement, describing in further detail the most significant issues raised in the initial draft of the merger agreement.

Later that day, Mr. Hassan called Mr. Clark to update him on the Schering-Plough board deliberations.

During that week, representatives of Wachtell Lipton contacted Fried Frank to provide responses to the draft merger agreement. Among other things, Wachtell Lipton noted to Fried Frank that deal certainty was critical to Schering-Plough and that the need for a right to avoid closing based on financing seemed unnecessary given the strong cash flows of the two companies, the cash on hand, as well as the relatively small financing requirement to close the transaction. Relatedly, Wachtell Lipton noted that from Schering-Plough’s perspective the extent of required regulatory efforts required by the draft merger agreement needed to be enhanced. Wachtell Lipton also noted that the draft merger agreement did not contain a right of Schering-Plough to terminate the agreement in the event the Schering-Plough board changed its recommendation in response to a superior alternative proposal. Finally, Wachtell Lipton, without making any request, noted that the agreement was silent with respect to representation of current Schering-Plough directors on the board of the post-merger company. . . .

Throughout the next days, negotiations with respect to the merger agreement continued, including with respect to transaction certainty. . . .

And, then -- on the very same day, February 27, 2009 -- the Schering-Plough Compensation Committee of the Board of Directors, on the motion of its Chairman, Hans Becherer, granted these officers massive deferred stock units. These phantom units are equivalent to common shares, except that they are payable in cash, as soon as the executive leaves the company. It bears repeating -- "in cash" -- as they leave.

Mr. Becherer granted the Top Five (along with many others, not required to be individually-disclosed to the SEC) the following amounts, that day: CEO Hassan -- $3.4 million; Messrs. Bertolini, Cheeley, Kohan, Saunders, Sabatino (who already received an unscheduled $500,000, in cash in December 2008), and Ms. Cox each 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. That was when the stock was at $17.39 a share -- February 27, 2009.

Each of the above figures needs to be inflated by about 36 percent, now that Schering-Plough stock is trading north of $23.66 a share tonight (post the proposed reverse-merger announcement of March 9, 2009). So -- Hassan's soaking, from this one tub, was actually $4.6 million; Sabatino -- and the rest -- actually soaked the company for between $1.36 million and $1.63 million each -- or, $12.25 million in the aggregate, for just the Top Five, and just for that one grant.

Disturbingly conflicted interests, no? Let me repeat it again, from above: ". . . .During that week. . . responses to the draft merger agreement. . . deal certainty was critical to Schering-Plough. . . negotiations for transaction certainty. . . ." Gee -- I wonder why.

The Preliminary Merger SEC Form S-4 Filed Tonight. . . .


I will literally have ten or fifteen posts on it, in the coming days -- but as all the wires are now reporting, as of May 5, 2009, Johnson & Johnson has demanded arbitration (from page 20 -- "Risk Factors") -- just as I predicted William Weldon would:

. . . .The combined company may be subject to a dispute with respect to Schering-Plough’s distribution agreement with Centocor, a wholly owned subsidiary of Johnson & Johnson, for Remicade and golimumab [Simponi].

A subsidiary of Schering-Plough is a party to a distribution agreement with Centocor, a wholly owned subsidiary of Johnson & Johnson, pursuant to which the Schering-Plough subsidiary has rights to distribute and commercialize the rheumatoid arthritis treatment Remicade and golimumab, a next-generation treatment, in certain territories. By its terms, the distribution agreement may be terminated by Centocor upon the occurrence of a “change of control” as defined in the distribution agreement with respect to the Schering-Plough subsidiary. Merck and Schering-Plough believe that the merger does not constitute a change of control as defined in the distribution agreement; therefore, Merck and Schering-Plough believe that completion of the merger will not entitle Centocor to terminate the distribution agreement. On May 5, 2009, Centocor notified Schering-Plough of its intention to arbitrate whether Centocor has the right to terminate the distribution agreement as a result of the merger agreement and the proposed merger.

Merck and Schering-Plough and the combined company would vigorously contest any attempt by Centocor to terminate the distribution agreement as a result of the transaction. However, if the arbitrator required to hear a dispute under the distribution agreement were to conclude that Centocor is permitted to terminate the distribution agreement as a result of the transaction and Centocor in fact terminates the distribution agreement following the merger, the combined company would not be able to distribute and commercialize Remicade, which generated sales for Schering-Plough of approximately $2.1 billion in 2008, and would not have the right to commercialize and distribute golimumab in the future. In addition, due to the uncertainty surrounding the outcome of any threatened or actual proceeding, the parties may choose to settle a dispute under mutually agreeable terms but any agreement reached with Centocor to resolve a dispute under the distribution agreement may result in the terms of the distribution agreement being modified in a manner that may reduce the benefits of the distribution agreement to the combined company. . . .

Much more to come, including CEO Hassan's golden parachute disclosures, and the fact that the Top Five received massive deferred stock unit grants on February 27, 2009 -- while very-actively negotiating the merger's definitive terms (see page 48 "Background of the Transaction") -- and yet, Hans Becherer still approved tons of additional deferred stock units. Astonishing. Simply astonishing. He should not have been allowed to exit so quietly, and gracefully, on Monday morning, in Chicago.

I Always Chuckle at "Merger Arbitrage" Bettors. . . .


UPDATED: 05.21.09 @ 10 AM EDT -- It turns out that JP Morgan also rendered a "fairness opinion" (see page 64) -- to Merck, that the deal was fair, from a financial point of view, to Merck shareholders. Hmmmm. . . . so why would its hedge fund be looking to bang-down the price of Schering-Plough common shares? Wasn't it "fair" enough, already? I dunno.

~~~~~~~~~~~~~


UPDATED: 05.20.09 @ 11 AM EDT -- In an unexpected twist, it turns out that JP Morgan (yes, THAT JP Morgan!) is the ultimate parent affiliated entity of the Highbridge entities. $21 billion under management, at Highbridge -- and $7 billion committed to do the Merck merger financing -- on the banking side.

So -- the $64,000 question: Why is Highbridge holding puts (i.e., short) $4.7 million worth -- on Schering-Plough common stock, as of March 31, 2009? And what is the strike price on those puts?

Is this a bet against the reverse merger getting done -- at least, on these terms?

That's a pretty good question, right? I sure think so.

~~~~~~~~~~~~~


This morning, a few "web-only" investment "news" outlets are fairly-breathlessly covering the latest disclosures by one John Paulson, a hedge fund operator (under the rather predictable name Paulson & Company, Inc.), in his latest SEC Form 13-F, filed just yesterday. Apparently he has made a $180 million bet on the merger arbitrage play in Merck v. Schering-Plough. These bets usually involve going long on the target, and shorting the acquiror -- then waiting for the merger price, and the market price, to converge.

To be fair, he has made a much larger ($1.2 billion!) arbitrage bet on the Pfizer-Wyeth deal. And, also to be fair, he apparently has over $36 billion under management -- so the $180 million bet -- on a closing of the Merck-Schering-Plough deal is not terribly outsized, by his standards, especially relative to the mammoth bet he's made on Pfizer's deal closing (with Wyeth).

Alright -- that's the set-up -- now, my punch-line, here: there is always someone (or a bunch of someones!) on the other side of these trades. And apparently, one of those someones is Highbridge Capital Management, LLC, a New York-based fund.

As of December 31, 2008 (in a 13-F report filed February 17, 2009), Highbridge was long Schering-Plough, holding 365,605 shares or about $6,226,000 worth. Then came the March 9, 2009 reverse merger proposal.

Yesterday, Highbridge disclosed, in a SEC Form 13-F filing, for the quarter ended March 31, 2009, that it was shorting Schering-Plough. Highbridge held puts on 201,800 shares, or about $4,752,000 worth of short positions. Lest you think this is some small time operator, consider this:
. . . .A recent SEC Form D (PDF file) indicates that as of March 10, 2009, Highbridge Capital Corp., an affiliate of the above entity, had raised a little over $3 billion, from 507 private accredited investors ($3,039,160,963, actually) -- or about an average of $6 million from each investor -- of a planned aggregate $6 billion raise. So, the fund is a little over half-sold out. . . .

Now, far be it from me to guess, here, but with Schering-Plough's stock trading well-below what the merger consideration would imply, why would a sophisticated investor go short Schering-Plough? By the way, Highbridge was not long (or short) Merck during these periods.

I think Highbridge must think that the deal won't close on the present terms, or that Merck will continue to decline, driving down the price of the Schering-Plough part of the deal, with it.

To be fair, we'll never know at what strike price Highbridge shorted Schering-Plough.

Fascinating, though, no?

Tuesday, May 19, 2009

Some Poor Precognition Skills -- Among Our 2008 Poll-Takers. . . .


This is a rather small matter, but back in the Summer of 2008, as the Cain v. Hassan, et. al, fur was really flying -- I asked whether Hans Becherer would continue on the board of directors, after the 2009 Annual Meeting. Oh, Alright! -- I asked it in a more provocative fashion [See the archived poll, in the lower-left margin of this blog -- or look at the screen cap, at right -- click it to enlarge.] But I did ask. And he is no longer on the board. This is the law of small numbers, in action.
The actual poll question asked:

. . . .Will Hans Becherer be Removed By The Board in 2009?

Only one person accurately predicted yesterday's outcome. Only one. We will perhaps never know whether the other three were right (about the end of Ira Kay's role as compensation consultant to the Chair of the Compensation Committee, as Merck is almost certain to choose someone else, in any event, for the combined companies' 2010 proxy statement executive compensation disclosures/plan designs).

OTOH, seven people did ask "Wait a Minute -- What About Fred Hassan?"

Funny thing, that.

Judge: CafePharma Postings May Be Evidence of Schering-Plough's Scienter ("Guilty Knowledge")


In the Schering-Plough ENHANCE Securities Litigation (Case No. 08-285, U.S. Dist. Ct. NJ Dist.), a federal securities fraud putative class action, Judge Cavanaugh just ruled that the various statements made -- by six confidential witnesses (former employees), as well as the public, but anonymous, CafePharma postings (which very-accurately pre-saged, by months, the disappointing study results in the pivotal ENHANCE trial -- on Vytorin/Zetia) are properly to be included in the moving papers which frame the suit -- thus ". . .The CafePharma postings and confidential witness statements are relevant to the ultimate issue of scienter [or "guilty knowledge"] in that they purport to show the timing within which Defendants became aware of the ENHANCE study’s results. . . ."

More from today's Opinion (PDF file), entered by Judge Cavanaugh:

. . . .Defendants move under Rule 12(f) to strike a series of statements in the Complaint as "immaterial, impertinent and scandalous." Specifically, Defendants object to the Complaint’s reference to: (1) anonymous postings on the CafePharma Web site; and (2) statements from six anonymous former Schering-Plough employees. Because the Court finds that these statements are neither immaterial, impertinent, nor scandalous, however, Defendant’s motion to strike is denied. . . .

Defendants argue that the Complaint’s references to anonymous postings on the CafePharma Web site and to statements by confidential witnesses should be stricken from the record as impertinent and scandalous. The Court disagrees. The CafePharma postings and confidential witness statements are relevant to the ultimate issue of scienter in that they purport to show the timing within which Defendants became aware of the ENHANCE study’s results.

Arguments over the statements’ admissibility are unpersuasive because such considerations are improper at this stage of the litigation. See Biovail Corp. Int’l v. Hoechst Aktiengesellschaft, 49 F. Supp. 2d 750, 771–72 (D.N.J. 1999). Nor is the Court persuaded by Defendants’ arguments under Tellabs, Chubb, and Avaya that Plaintiffs’ anonymous source allegations should be stricken from the record. See Tellabs, Inc. v. Makor Issues & Rights, Ltd., 551 U.S. 308 (2007); Cal. Pub. Emp. Ret. Sys. v. Chubb Corp., 394 F.3d 126 (3d Cir. 2004); Inst. Inv. Group v. Avaya, Inc., 2009 WL 1151943 (3d Cir. Apr. 30, 2009). These cases deal primarily with the proper weight to be accorded to evidence of scienter at the motion to dismiss stage, and say nothing about taking the "drastic step" of striking materials from the record.

Finally, the Court rejects Defendants’ argument that the contested statements are “scandalous” because all of the statements appear relevant to scienter and the Court sees no evidence suggesting that they "improperly cast[] a derogatory light" on Defendants. See 5C Charles Alan Wright & Arthur R. Miller, Fed. Prac. & Proc. § 1382 (3d ed. 2008). Accordingly, because the Court finds that the contested citations to the CafePharma Web site and confidential witnesses are relevant to the issue of scienter, and because it appears that Defendants will not be unfairly prejudiced by their remaining in the record, the Exchange Act Defendants’ motion to strike is denied. . . .

Buckle-up, buttercup. This is a subtle suggestion, from the very-able jurist, that Schering-Plough's lawyers ought to be thinking settlement, rather than scorched-Earth, at or after, trial.

BREAKING -- Merck Pulls Its H-S-R Filing -- Related to Schering-Plough Merger. . . .


Per the Peter Loftus, at The Wall Street Journal:

. . . .Drug maker Merck & Co. said it has withdrawn its initial filing for U.S. antitrust clearance for its proposed $41 billion purchase of Schering-Plough Corp. but plans to refile with additional information as soon as possible. . . . [A company spokesman] declined to specify the additional information Merck will provide or what led to the withdrawal of the initial filing. . . .

Merck decided to withdraw the filing Monday and will refile soon, which will trigger another 30-day waiting period. . . .

"We believe the refiling for us will provide a productive review process," said [the company spokesman]. "Other parties have taken similar actions in past transactions. We decided to refile as part of our efforts to cooperate with the FTC in their review of the transaction". . . .

This is a common tactical maneuver -- in larger transactions -- to minimize the size, and scope, of the FTC's often-inevitable "second request". [Pfizer received an H-S-R "second request" on the Wyeth deal, for example.] After the initial filing (and after a few consensual waivers of the expiration of the 30 day waiting periods), often the FTC will make a formal request -- a "second request" -- asking for additional information on specific overlapping markets and products.

Merck may very well have gleaned, in its conversations with FTC staffers, where the FTC's deepest antitrust concerns reside. In a pre-emptive move, then, Merck lawyers may have withdrawn the application, temporarily, only to refile it, in a few weeks, with additional details about the markets and products upon which the FTC is focusing most intently.

In any event, this does make a year-end 2009 closing date look less likely -- as I've said, repeatedly, for months now. Moreover, it marginally increases the odds that Merck and Schering-Plough will have to agree to bust-up, and sell-off, more of the to-be-combined company -- to get the deal done.

Monday, May 18, 2009

So Ends Hans Becherer's 20 Year Tenure on Schering-Plough's Board. . . .


No fanfare -- no "high praise for a job well done" -- nope. With a whimper, Hans Becherer's 20-year-long ride on Schering-Plough's Board of Directors, and its Compensation Committee -- just came to an end, this morning, in Chicago.

Per the SEC-filed proxy (page 6)

. . . .Becherer and Mundy are leaving the Board as of the date of the 2009 Annual Meeting of Shareholders. . . .

Mr. Becherer had been a member of Schering-Plough's board of directors since 1989.

That means he was there when the Clarinex-launch was delayed, due to FDA violations that slowed manufacturing efforts, and then when Kogan was run out -- and when ENHANCE was delayed, and most-recently when Fred announced his intention to resign effective on the closing of the proposed Merck reverse merger. He was there, through it all, paying these executives, and claiming his role as a responsible steward of the shareholders' money. I guess only his peers (and the ultimate resolution of the 2001, 2003, 2008 and 2009 series of class action lawsuits) will decide how history judges him.

Annual Meeting Live-Blog -- Right Here! -- 8:30 AM EDT Monday, May 18 2009


We'll hope to cover all the goofily-twisted pretzel logic by which CEO Hassan and his top officers make their case that the proposed reverse merger with Merck is actually [yet another] triumph -- engineered by this vastly-experienced, and entirely selfless pharmaceuticals management team. Technically, the merger is not on the agenda -- but it will undoubtedly come up -- as will questions about the recently-mailed Executive Compensation Survey, so do tune in.

[EMBEDDED VIDEO PLAYER, AND SLIDES, FLASH-
FEED, LIVE -- IF IT WON'T OPEN IN A NEW
WINDOW FOR YOU, AUTOMATICALLY -- JUST
HOLD YOUR "SHIFT" KEY DOWN, WHILE
CLICKING THE IMMEDIATELY-ABOVE
LINK, AT 7:25 AM (EDT) ON MONDAY.


Once you have the new window open,
you can read the live-blogging, and
participate in the chat, here, all
while hearing and watching, over
there -- cool, huh? Cool!


Like last year, Schering-Plough's annual meeting of shareholders is being held in an inconvenient location (Gee -- I wonder why?), and at an inconvenient hour -- in the very early morning hours, for those of us on the West Coast -- through the magic of "the Tubes" (Heh!), I will make it seem like we are all sitting right there, inside Stanley Field Auditorium, microphone on, at The Field Museum, 1400 S. Lake Shore Drive, Chicago, Illinois 60605, at 5:30 AM PDT:


▲ Just like last year, CEO Hassan shuts off the camera, and the mic, during shareholders' Q&A -- relying on his lawyers' advice that the Q&A is not part of the meeting, proper. However, if anything material is there disclosed, he'll need to update the SEC -- via a Form 8-K within two days.

▲ A TRA "info-mercial" now -- it, like the Temodar commercial -- is missing the FDA required disclaimers -- Schering gets around this by saying it is "not intended to be advocate any specific treatment". . . Ri-i-i-i-i-ght.

▲ The 6.5 percent annual return is entirely due to his selling the company to Merck -- prior to that March 9, 2009 announcement, Total Shareholder Return (in the Schering-Plough current proxy statement), at Year-end 2008, was less than three-quarters of one percent.

▲ CEO Hassan just said that Total Shareholder Return was 41 percent from Year End 2003, to the end of April 2009. That is a misleading figure, for it must be divided by the six and one quarter years -- to reach an annualized return. That annualized return is under 6.5 percent.

▲ CEO Hassan is on to talking about his "five stars" -- at least three of which are multiple years behind Hassan's earlier-announced schedule -- for approval.

▲ CEO Hassan describes his second day on the job, six years ago, in 2003: "shareholders were angry". . . . the stock price was $17.25. At year end 2008, the stock price was $17.03. Hmmmm. . . .

▲ Unfortunately, each shareholder proposal garnered a little under 44 percent in favor. Each of these did not pass.

▲ 94 percent of votes cast were in favor of each of the eleven directors.

▲ A commercial for Temodar, now while final tabulation of proxies occurs -- the Temodar piece is missing the FDA required disclaimers -- Schering gets around this by saying it is "not intended to be advocate any specific treatment". . . Ri-i-i-i-i-ght.. . . .

▲ No ballots cast from the floor. Looks to be a very small audience.

▲ Statement in favor of proposal for Special Meeting of Shareholders -- called by Shareholders, by the Steiners. Management opposes it.

▲ Cumulative voting shareholder proposal made. Management opposes it.

▲ Actually, Mr. Becherer isn't even listening in -- he's stepping down today -- let's see who gets nominated as Compensation Committee chair, by Form 8-K later today -- after the (private, non-webcast) board meeting -- which will immediately follow the annual meeting.

Hans Becherer isn't even in the room -- he's phoning it in! Astonishing.

▲ Eleven directors nominated -- no new committee chairmanships listed, yet.

▲ Meeting is now convened -- 8:34 AM EDT -- Fred looks very tired.

▲ Oh, I see -- it's a commercial loop. Clever.

▲ Those Brook Shields' (and others') commercials are just getting started, now -- There's that cute little Nasonex bee in the commercial, the one that experts at Congressional hearings last year testified is, in fact, a device to distract the consumer from fully-retaining, and appreciating the warnings, and other important health information, toward the end of the commercial. Yep -- doin' a heckuva' job, there -- it is now about 8:15 AM EDT.

▲ And. . . we're all set to go -- 7:50 AM EDT.

▲ CEO Fred Hassan. . . at least $51,399,546. . . in change of control payments [times 1.9, or $97.6 million, in total package value -- minimum]. . . .

▲ Payments to Ms. Cox upon termination after change of control: $23,364,614 [plus at least another $28 million gross, or about $11 million, net -- of course]. . . .

Wow -- the shareholders should really ask about that.