Tuesday, June 30, 2009

Schering-Plough Pays $55 Million to U.S., California and Florida -- to Settle Drug Price Mark-Up Suits. . . .


At The Eleventh Hour, literally on the eve of a pending trial in the federal District Court in Massachusetts, Schering-Plough, and its subsidiary, Warrick Pharmaceuticals, have agreed to settle the potential financial exposures of each, in a series of actions brought by several states attorneys general, and the United States, claiming that Schering-Plough, and others, artificially inflated the wholesale price of many drugs each sold to Medicare or Medicaid, from as early as 1991 -- to the present day.

Schering-Plough already (at the end of October 2008) paid $31 million to settle similar charges in Missouri -- the largest such settlement ever, there. Earlier, Schering-Plough paid $27 million on similar actions in Texas.

Schering-Plough's payments will be due within 15 days, by wire-transfer. It is $55 million:

. . . .The Relator on behalf of the United States contends that Schering and Warrick submitted, or caused to be submitted, false claims to the Medicaid Program. . . .

The Relator on behalf of the United States contends that Schering and Warrick submitted, or caused to be submitted, false claims to the Medicaid Program. As a result, the Relator contends that the United States has certain claims against Schering/Warrick. . . .

In separate actions brought by California and Florida, California and Florida also contend that Schering/Warrick submitted, or caused to be submitted, for payment by the Medicaid Program false, fraudulent, and excessive claims for reimbursement. . . .

In full and final settlement of all claims that were brought or that could have been brought by the Relator on behalf of the United States, and all claims that were brought or that could have been brought by the States of California and Florida, Schering/Warrick shall pay the sum of Fifty-Five Million Dollars ($55,000,000). . . .

Within fifteen (15) business days from the Effective Date of this Agreement, Schering/Warrick shall pay the Settlement Amount by wire transfer into an escrow account at Frontier Bank (“Escrow Agent”) in accordance with the terms of the separate Escrow Agreement. . . .

I believe there are similar actions still pending in at least 19 other states against Schering-Plough. If each of these settles at around $30 million per state, the "all-in" tab for this alleged overcharging will be north of $685 million.

Meanwhile, at least 16,000 people will lose their jobs -- to improve Schering-Plough's productivity and efficiency. Would it not have been a better business strategy to charge steady, fair prices to the government payors, right along -- since 1991? I think so.

Monday, June 29, 2009

A federal Jury Verdict Form You'll Not See Every Day. . . .


Curtain: Act Two [of a three-act-play -- click to enlarge]. . . .



Recall that Johnson & Johnson's Centocor unit is in a pair of suits alleging, and defending, various claims of patent infringement -- one in Texas, from 2007 -- in which Centocor claims Abbott's Humira infringes several of Remicade's patents. In the other, pending in Boston, which was filed shortly after FDA approval of Simponi (a month or so ago), it is Abbott that claims Centocor has infringed some of Humira's patents, in the sales and marketing of Simponi (golimumab), the Centocor follow-on to Remicade.

Centocor has clearly won the case in Texas -- to the tune of $1.672 billion in jury-awarded patent-infringement (and royalties due) damages:

. . . .$1,168,466,000. . .

[plus]

$504,128,000. . . .

Wow. I do think this will embolden Centocor, and J&J, to very-aggressively pursue Schering-Plough, in the coming arbitration, over the reversion of Remicade and Simponi non-US rights. I think that is so, because Centocor is now flush with a sense of just how valuable this franchise will be, if Abbott's Humira has to pay steep royalties to it, just to stay on the market at all. Centocor will certainly want to likewise aggressively control the future of Simponi, given that the Abbott suit (alleging Simponi infringes on Abbott's Humira patents), in Boston, is still at least a couple of years away from a trial-date.

Were I Merck CEO Dick Clark, I'd seriously think about setlling early with Centocor/J&J -- just to take the risk of a boxcar number (like this one, above) off the arbitrators' table.

Team Merck to SEC, Tonight: "What We Know" and "What We Don't."


Another merger update was provided to Merck employees today, and filed, by Merck, with the SEC, tonight. It is interesting how careful Merck is to point out that the shareholders might not vote in favor of this particular reverse-merger structure -- THRICE. (I've reprinted, and bolded it -- below, along with some of the more salient bits):

TopicWhat We Know. . .What We Don't Know Yet. . .

FacilitiesThe Facilities Integration Team is currently analyzing all the Merck and Schering-Plough sites to see how they would best fit in the combined company. The evaluation of these facilities and their future roles is a complicated process — involving a careful assessment of organizational requirements, employee demographics and community commitments — and will occur over time. Information about site decisions will be shared as soon as appropriate.

Which sites will remain, which ones might decrease or increase in size and which ones will close.
Number of global employees post-closeImmediately at closing, the new Merck will have more than 100,000 employees total. Longer term, the substantial majority of employees will remain, but there will be a 15-percent reduction in the total workforce.Exactly which jobs will be affected and where, or how many and which employees the new Merck will need to operate efficiently. We also don't know when job reductions will occur within individual divisions and functions, although the job reductions are expected to take place through the year 2011. . . .

Employee benefits programsCurrent benefits programs will continue. We anticipate that any changes will be limited to those which are typical for routine business, and are not dependent upon the merger.What the new Merck’s benefits programs will be in the future. Merck's and Schering-Plough's benefits plans will be harmonized over time, with the majority of changes being planned for the year 2011 and later.

Merger Completion Date -- Day 1Our goal is to complete the merger during Q4 2009.

The exact date. . . .
Leadership team of the new MerckDick Clark will lead the new Merck as chairman, president and CEO. Other executive leaders — from Executive Committee through senior leadership, including most country-level senior leadership — will be named close to Day 1.

The specific organizational structure and who will be named to executive leadership roles. . . .
Special shareholders' meetingsOn June 24, the U.S. Securities and Exchange Commission (SEC) completed its review of the companies' joint merger proxy statement and declared it effective. In addition, regulators worldwide will review and approve the proposal for a combined company from an anti-trust perspective. Aug. 7 is the date of the special shareholders' meetings of both companies.

How the shareholders will vote; when and whether the proxy materials will be approved and the anti-trust approvals will be granted.
Shareholders' [Exchange Terms]Under the agreement, Schering-Plough shareholders will receive 0.5767 shares of Merck and $10.50 in cash for each share of Schering-Plough stock they own, upon closing of the merger.If the shareholders of each company will agree to the price and the merger. In the joint proxy materials, the boards of directors of both companies encourage shareholders to vote for the merger.

This ought to be very interesting.

More on the "Trouble for Temodar", Today -- Post-Trial Patent-Challenge Briefs Filed


"An Egregious Misuse of the Patent System. . . ."

After clearing a madatory one-week delay, to allow the redaction of trade secret material, Barr/Teva, Schering-Plough's opponents in the Temodar patent litigation (Cancer Research Technologies, et al. v. Barr Laboratories, et al., Case 07-457 (SLR), US Dist. Ct., Del. -- trial complete April 2, 2009 -- awaiting decision) have laid waste to one of Schering-Plough's central patent protection strategies in this challenge to the exclusivity for Temodar. Do click it to enlarge [a massive 2.6 Mb PDF File of the 60-page brief, full text]:



Background, from earlier SEC Form 10-Q, and federal District Court filings:

. . . .in July 2007, Schering-Plough and its licensor, Cancer Research Technologies, Limited, filed a patent infringement action against companies seeking approval of a generic version of certain strengths of TEMODAR capsules. The trial concluded April 2, 2009. A decision has not yet been rendered. . . .

[Much more on Schering-Plough's "In Substance" Patent Cliffs, more generally, here.]

[From the Delaware filings -- Barr/Teva's Disputed Questions of Law:]

. . . .'291 Patent is Unenforceable Due to Prosecution Laches Resulting from [Schering's] Delay in Prosecuting the Applications Leading to the Issuance of the ‘291 Patent

Prosecution laches is an equitable doctrine that "may render a patent unenforceable when it has issued only after an unreasonable and unexplained delay in prosecution," and may be applied even though a patent applicant complies with pertinent statutes and rules. Symbol Tech., Inc. v. Lemelson Med. Educ. & Research Found., 422 F.3d 1378, 1385 (Fed. Cir. 2005); In re Bogese, 303 F.3d 1362, 1367 (Fed. Cir. 2002). When addressing the issue of the burden of proof applied to prosecution laches, this Court has agreed with other district courts that “the preponderance of the evidence standard should apply. . . ."

. . . .As an equitable doctrine, there are no firm guidelines for determining when prosecution laches should render a patent unenforceable, and the determination is "subject to the discretion of a district court before which the issue is raised." Symbol Tech., 422 F.3d at 1385. Prosecution laches requires “an examination of the totality of the circumstances.” Id. at 1386. Factors district courts have considered to determine whether a delay in prosecution was unreasonable are (1) whether the prosecution history of the patentee’s patents is atypical of patents in that field or patents generally; (2) whether there are unexplained gaps in the prosecution history; (3) whether the patentee took any unusual steps to delay the application process; (4) whether a change in the patentee’s prosecution of the application coincided with or directly followed commercial developments or evolutions in the field of the claimed invention; and (5) whether legitimate grounds can be identified for the abandonment of prior applications. . . .

With so much focus on health care reform in the United States, this case may well become the "poster child" for Big Pharma's more-than-occasional alleged abuse of the United States patent system -- to (in this case) delay the start date of patent protection, until the manufacturer (Schering-Plough) is in the best position to keep any potential generic competitors (Barr/Teva) off the US market-shelves for the longest period of time imaginable. Once again, pressing too hard -- torturing the facts, and the law -- Schering-Plough may yet reap the exact opposite of the result it originally sought. We shall see.

Merck's Zostavax is "Back" -- Raw Material Potency Returns -- Has Cleared Order Backlogs


Vaccine manufacturing is a very complicated proposition -- and almost-unimaginably more complicated, when one needs to acheive the immense-scale bulk operations a blockbuster franchise biological requires -- to reach many markets in vast quantities, and in a timely fashion, to boot. Merck's biological engineeers know this only too well:

Per this morning's The Wall Street Journal -- this looks to be $320 million added back into revenue -- assuming the Whitehouse Station biological engineers have solved the bulk raw material potency problems, for good:

. . . .Merck & Co. (MRK) is back to normal shipping times for its Zostavax shingles vaccine after a year of prolonged delays caused by supply constraints for a key ingredient.

The resolution of back orders is just one milestone in Merck's attempt to bounce back from various problems plaguing its vaunted vaccines unit.

The Whitehouse Station, N.J., company cleared back orders for 10-dose packs of the vaccine in April and for single-dose shipments earlier this month, said spokeswoman Amy Rose. Merck has resumed shipping the product to doctor's offices and other health-care providers within three to five days of order placements. . . .

Thus, Merck is up about 2.5 percent on the NYSE this morning; Schering-Plough is up about half of that.

Sunday, June 28, 2009

Financial Times' UPDATED Story Claims a $4 $10 $4 Billion Animal Health Price


UPDATED on Monday: It appears that both FT stories are now back to reciting the single $4 billion figure. Interesting. This item is entirely credited to the keen eyes of an anonymous commenter of mine, below.

In a new story -- identical to the old, in every respect, save one -- the Financial Times is now asserting that the Animal Health businesses may fetch upwards of $10 billion (up from $4 billion in the original rumor piece, of Friday night).

One increasingly obvious possibility -- to reach that number -- is a sale of everything (Both Merck's Merial share, and Schering-Plough's Intervet businesses):

. . . .Merck. . . is close to restructuring its lucrative animal medicines assets in a wide-ranging deal likely to be finalised in the next few weeks with its partner Sanofi-Aventis that could earn it more than $4 $10 billion. . . .

To be fair, Merck CEO Dick Clark has made very specific statements to the contrary, and in very-recent SEC-filed documents, no less. So, until those are revised, updated or withdrawn, I'm not sure this is anything beyond a simple rumor.

But a rumor with a very high price tag.

Saturday, June 27, 2009

Another Fascinating (Completely Unverified) CafePharma Post -- "Re-Importation" of Schering-Plough Birth Control Drugs/Devices. . . .


With reimportation near the top of the screen, in many of the recent health-care reform discussions -- I thought the readership might find this purely-rumored squib, purporting to be from a Schering-Plough Womens Health Care sales representative -- rather interesting. [I am, candidly, uncertain whether the Implanton birth control system is considered a "device" by FDA, or a "drug" -- but it is a distinction of scant difference, as in either case, re-importation is presently proscribed by applicable U.S. Customs regulations.]

In any event, while Canada may not technically be "overseas" -- this appeared on CafePharma, overnight:

. . . .Yesterday, 5:50 PM | Anonymous

W[omens] H[ealth] C[are] here -- have mercy on me......learned today that one of my top offices has been ordering Implanon FROM CANADA!! Also have some ordering from South America...what a nightmare ....Office Mgr. told me "if your company wouldn't charge $600-700 for one rod, I wouldn't have to do this".....OB said he didn't know -- he just puts them in.......anyone else have this issue? They should DUMP this crappy product and just let offices order on their own OR somehow give the rep credit for ALL orders including out-of-country ones -- but that will NEVER happen. . . .

Click the image to enlarge it [I edited it slightly for typos, blue-language, etc., above -- but this is the original]:



It goes without saying, of course, that it would be unlawful to provide incentive compensation of any kind to Schering-Plough salespeople, for sales made in plain, and knowing, violation of the United States Customs provisions.

And so, I offer this more as an example of just how broken the health-care delivery system really is in the United States -- and less as a specific indictment of Schering-Plough salespeople. I am fairly certain that this sort of stuff occurs (in a presumably very-small fraction of all implanted birth-control procedures), industry-wide. A small percentage of doctors' offices occasionally source, buy, and reimport drugs and devices, from non-U.S. vendors -- both thus apparently willing to take the risks of prosecution and/or injury, to a patient, should an adulterated good be implanted.

Truly unfortunate, even if it only hapens "once in a Blue Moon. . . ."

Fair pricing -- worldwide -- might be a better solution, no? It would remove the powerful financial incentive to reimport, right? I think so.

Financial Times Claims Animal Health Business Deal With Sanofi-Adventis is "Near"


The online version of London's Financial Times had, back in late March of 2009, also run a "rumors" piece that very accurately presaged Johnson & Johnson's filing for arbitration (re Remicade and Simponi non-US rights reversion) -- so I'd tend to give this piece just a little more credence than it might otherwise be entitled, simply on its face.

What was most intriguing to me was the relative prominence that FT's stringer Andrew Jack, in London, allocated to the divestiture of all the Animal Health businesses (as I have, before) -- even in the face of still-operative comments to the contrary from Merck CEO Dick Clark. From Financial Times, then [UPDATED version of this story here]:

. . . .Merck. . . is close to restructuring its lucrative animal medicines assets in a wide-ranging deal likely to be finalised in the next few weeks with its partner Sanofi-Aventis that could earn it more than $4 $10 billion. . . .

Merck is considering whether to fold Schering-Plough’s animal health division into Merial in exchange for a fresh balancing cash injection from Sanofi-Aventis, to sell them to a third party, or to sell its own stake in Merial. . . .

Merial, established as a joint venture in 1997, generated sales last year of $2.8 billion.

Schering-Plough’s own animal health products and those of Intervet, which it acquired from Akzo Nobel in 2007, generated [revenues of] nearly $3 billion last year.

Chris Viehbacher, the head of Sanofi-Aventis appointed at the end of last year, has expressed his interest in diversifying the business away from core pharmaceutical products and stressed a large capacity to fund deals, suggesting an appetite to strengthen the French group’s position in animal health. . . .

That last bit might imply that Sanofi, alone, or with other backing, would buy the whole of all the Animal Health franchises, outright -- then carve them up, in some fashion. If sold, the aggregated Animal Health franchises would greatly reduce New Merck's (and to be clear -- "New Merck" is a far more accurate descriptor for the Sch-Merck entity, than any name which would include the old "Schering-Plough" handle -- so I'll likely use "New Merck" to refer to the post-merged entity, from now on) debt load, post reverse-merger. They could be nearly completely-delevered, when compared to pre-merger levels.

In this market, that would allow New Merck to weather significant internal (i.e., FDA non-approvals and patent-cliffs), or external (i.e., reform-driven pricing pressures and/or any future overall-market calamaties and) challenges.

We'll see.

Friday, June 26, 2009

In 2008, Schering-Plough Employees' Plan-Participants Saw Depreciation of $150 Million, in Company Stock Values Alone


Schering-Plough just filed (with the SEC) its 2008 Annual Reports on Form 11-K covering its employees' saving and investment plans (one for employees in Puerto Rico, and one covering the United States employees), tonight. Together, these plans reported just under $150 million in value-declines, for the calendar year 2008 -- on Schering-Plough common stock investments held by employees, alone (forgetting about the all the rest of the general market-declines).

Meanwhile, CEO Fred Hassan's payday/GAIN -- on the reverse merger's effectiveness -- could easily top $158 million, for his personal account, alone.

That's MORE than ALL the employees' plans unrealized declines of last year, combined.


From the SEC Forms 11-K, then:

. . . .Puerto Rico | Page 12. . . ($1,779,000). . .

United States | Page 13. . . ($149,576,000). . . .

The vast bulk of these declines are now in the accounts of the lowest-paid (and in many cases, soon-to-be laid-off) Schering-Plough employees (and recent ex-employees). . . . But Mr. Hassan will parachute away, safely -- on billowing clouds of golden fleece. . . .

A Grin-Break -- From the Sunscreen Battle Royale -- On a Hot Friday


As most of you know, Schering-Plough (the maker of Coppertone) has sued J&J's Neutrogena unit (seeking, after depositions, a preliminary injuction -- a gambit upon which I personally think Schering-Plough is highly unlikely to prevail), claiming that some of Neutrogena's advertising for its sunscreens is "false and misleading". Of course, Neutrogena not only disputes those allegations, but has, just this week, re-asserted that some of Schering's Coppertone advertising is -- itself -- both "false and misleading", under the federal Lanham Act, as well as local Delaware law (the suit is pending in the federal District Courthouse in Delaware).

What's good for the goose, is better for the gander, it would seem, eh? In any event, at about page 13, of the 19 page Neutrogena filing (full 19 page PDF file), this appears:

. . . .123. Finally, the commercial as a whole conveys the false and misleading message that Coppertone Sport sprays provide better sun protection compared to Neutrogena Ultimate Sport sprays. That claim is false even according to Schering. Schering’s papers filed in this action contend only that Coppertone Sport’s highest SPF products provide at most parity protection compared to Neutrogena’s Ultimate Sport products. And on average, Neutrogena’s Ultimate Sport products, including the spray products, provide better sun protection than do Coppertone’s Sport products.

124. The Coppertone Sport commercial is being aired during the very first selling season for the Neutrogena Ultimate Sport line. Neutrogena has invested in Ultimate Sport years of research and development, significant advertising expenditures, and the time and effort of many Neutrogena employees and executives. A significant portion of that investment could be lost if Schering is not barred from making its false and misleading claims about the Neutrogena Ultimate Sport line.

125. Unless and until Schering is ordered to cease making its false and infringing advertising claims, Neutrogena stands to suffer a loss of sales, hard-earned reputation, and consumer confidence that it may never be able to recoup. . . .

"Ouch -- that's kinda' lobster red, there, Missy!" An aside, here -- do ya' think it matters, at all, that J&J didn't agree to "play ball" with CEO Hassan, on Remicade and Simponi rights outside the US -- and thus, this Coppertone arguable "strike suit" was brought -- almost two full years after most of the ads Schering now complains about were first introduced into the stream of interstate commerce? I do.

Simponi's EMEA "Approvable" Recommendation Likely to Sharpen JNJ's Abritration Focus


Simponi, a Centocor drug, has received the equivalent of an FDA "Approvable Letter" from the European Medicines Agency. This is good news for Johnson & Johnson unit Centocor. If Schering-Plough is able to convince a panel of arbitrators that it should retain the European rights to Simponi (or settle with J&J on favorable terms), this will also be good news for it. But that outcome (even, apparently, in the views of Schering-Plough and Merck, themselves -- given the beefed-up "Risk Factor" disclosure about the matter, of just yesterday, in an official SEC filing) is, at the moment, far from clear -- per Reuters updated story, this morning:

. . . .Johnson & Johnson and Schering-Plough Corp's once-monthly drug Simponi has been recommended for approval in Europe to treat moderate to severe rheumatoid arthritis, the companies said on Friday.

Decisions by the European Medicines Agency are normally endorsed by the European Commission within a couple of months. . . . .

The drugs are proving a high-stakes bone of contention in Merck & Co's planned $41 billion purchase of Schering-Plough, because Merck has said it will inherit overseas rights to the drugs.

Under an earlier marketing deal with J&J, Schering-Plough is obliged to return overseas rights to J&J if control of Schering-Plough changes.

Merck is slated to buy Schering-Plough later this year. But the deal was structured as a "reverse merger," meaning Schering-Plough technically would acquire larger Merck even though Merck is paying it $41 billion.

The strategy would allow Schering-Plough to claim it is a continuing enterprise and therefore has not undergone a change in control that would force it to give up overseas rights to the two arthritis drugs.

J&J has exclusive rights to sales in the United States. Schering-Plough has rights in most other markets.

Schering-Plough said in a filing last month J&J would seek to arbitrate an end to their drug partnership in the wake of the planned merger with Merck. . . .

This certainly means there will soon be much more to fight over -- previously, the EU approval was seen as likely, but no one could reliably predict when the pan-European revenue stream would begin. Thus, assigning a value to the rights was a fuzzy proposition. Everyone agreed it was north of $1 billion, but how far north? Now, in the next few months, we are likely to get a sharpened sense of just how much is really at stake, here -- in the single largest market for which Schering-Plough still arguably may retain its right to sell this very, very high margin drug (along with, and as a follow-on, to Remicade).

As ever, stay tuned -- but I actually think this increases the chance that Schering-Plough and Merck agree to a very generous (to William Weldon's team) royalty-sharing arrangement with JNJ/Centocor, in order to secure at least some portion of this Euro-revenue, with certainty. Even though -- as I've said before -- an "all or nothing" outcome isn't terribly likely in most arbitrations, I think these numbers are just too high for Dick Clark to be willing to simply roll the dice -- potentially seeing "snake eyes" come up -- and lose it all.

Thursday, June 25, 2009

Salmon's Excellent Insights on Yesterday's FDA Transparency Webcast


I knew Salmon would wander by, to grace us with some cogent commentary and analysis -- on the above topic -- and in the comment box, here, he just did:

. . . .Most of the comments as they came from outside the agency were fairly consistent and limited. I didn't pay attention to the non-drug portions so I'll stay focused on comments related to drugs especially as this blog focuses on SP.

Many comments related to difficulties with FOIA, the methods used to redact documents (white out and then scan into pdf image files so they can't be searched). Not including reviews consistently in Drugs@fda. Also not releasing reviews of supplemental indications that have not been approved due to lack of efficacy or safety because companies still promote these uses off-label. One ex-FDA reviewer pointed out the FDAAA 2007 requires release of the action package but not IND reviews which may be pertinent but even so with the very first one under this law there was inappropriate redaction of drug metabolism information and >90% or market withdrawals are due to drug metabolite toxicities. One mother of a boy who died didn't understand why numbers of patients taking a drug should be redacted as it's needed to assess adverse event rates.

Industry comments were pretty much as expected. Don't release stuff because they're trade secret or commercial secret. There were several comments debating the extent of redaction.

However several people indicated that this could be overcome by simply not releasing information until either approval, nonapproval, or prior to an advisory committee and not during the review process.

There were also a number of people who said FDA needs to release all the raw data because analysis by FDA reviewers or analysis of avandia data that came out under discovery showed very different safety risks than admitted to by companies or the FDA.

One ex-FDA reviewer recommended that all new molecular entities have advisory committee meetings in spite of their problems. Dr. Sharfstein probed this and it was suggested that when FDA reviewers can't speak and all the questions are answered by industry or FDA senior people, a different picture may emerge. However when reviewers who know the data are allowed to speak, the committee members can get more nuanced and detailed answers which they can probe and in that reviewer's experience this in one case he was involved in changed the likely Advisory Committee "yes" vote to a "no" vote by the Committee.

Another unique comment by this ex-reviewer was the need to change the FDAAA of 2007 and the Good Review Management Practices/Good Review Practices (GRMPs or GRPs), because they were allowing insider trading.

Off line this ex-reviewer was passing out statements because he had originally been scheduled to speak and when FDA saw his comments he was removed (based on the claim that they were off topic). I have the package which includes the scope of the topics to be discussed and the rules for the meeting and they certainly seem within topic to me, embarassing to FDA yes, but still within the scope.

One of the draft statements is particulary interesting for this blog as it refers to possible insider trading and knowledge of internal FDA information regarding asenapine and possibly the sale of Schering-Plough to Merck. . . .

-- Salmon

Excellent, Salmon! To your last point, I can arrange to collect anything that was made public at an open, federal governmental agency meeting. Whether I'll run it, here, may be another matter. I do try to confine my material to public documents, officially released. Let me get back to you on this, in the comments.

Thank you so very much!

Namaste

Off-Topic -- Like This -- Not Much of What Came Much Later. . . .


Schering-Plough's SEC Filing Amended -- To Reflect Merck's $4.25 Billion Debt Closing. . . .


So, as I had earlier said it would, Schering-Plough amended the Rule 424(b)(3) filing, tonight, at the SEC -- mostly to reflect the closing of the Merck debt offering. Note (below) that the date "25" now appears in place of the "[•]", from last night's amended SEC Form S-4 filing. [The Rule 424(b)(3) prospectus is an incorporated part of the Form S-4. Merck made similar Schedule 14A merger filings with the SEC, as it was required to, tonight.] Here it is:

. . . .On June 25, 2009, Merck completed a $4.25 billion public offering of senior unsecured notes. In connection with this offering, the bridge loan agreement was terminated and the commitment of the lenders under the 364-day asset sale facility was reduced by approximately $375 million. . . .

~~~~~~~~~~~
Segue
~~~~~~~~~~~


As I noted in the comment-box, below, the notion (in the current version of the "Risk Factors" and "Legal Proceedings" sections) that the savings Merck projects from the merger by 2012 won't decline materially in the event J&J prevails in the arbitration is true -- in so far as it goes:
. . . .The estimated annual cost savings of $3.5 billion expected to be realized from the transaction annually after 2011 is not dependent on the retention of the rights to distribute Remicade and golimumab, although the loss of these rights would reduce the amount of sales expected to be generated by the combined company. . . .

However, what it fails to make plain is that, because Remicade (and soon, Simponi) are such high-margin products, the loss of even say $1 billion of sales of the drugs is probably also the loss of over $800 million of pre-tax income. And that is a material amount of EPS, even to the gargantuan New Merck.

"Beefier" Risk Factor on Remicade/Simponi Fight -- Filed With SEC, Overnight. . . .


Overnight, Schering-Plough, likely in response to an SEC comment requesting that it do so, has also beefed up the "Risk Factor" disclosure related to the pending arbitration proceedings involving Johnson & Johnson's subsidiary Centocor, and the reversion of Remicade/Simponi distribution rights outside the United States.

At the outset, let me mention that the merger proxy risk disclosure makes very little (nothing, actually!) of the fact that the parties failed to capitalize the leading capitalized "C" in the term "change of Control" (in the fifth line of Section 8.2(c) of that link) -- when, arguably, it mattered most to do so. I have previously, and repeatedly, explained why I think J&J and Centocor will make some hay out of this decision, by both parties, not to use a defined term, inside the very clause that is now in dispute. [For easy reference, I have made that particular small "c", in Section 8.2, as recited by Schering-Plough's risk factor, below, stand-out as bright red ink. Do look for it.] To hear Schering-Plough explain Centocor's likely position below, one would think it hasn't dawned on Schering's lawyers that this troublesome failure to use a defined term would have any import. [More likely it is a "pay no attention to the little man behind the curtain" moment -- a la the throne-room scene from the Wizard of Oz.]

In any event, the companies' preliminary merger proxy was also declared effective last night. That means Merck and Schering-Plough may officially begin to solicit shareholder votes with this document. Each of the companies, Schering-Plough and Merck, will likely amend it repeatedly in the coming weeks and months, as developments occur. The trick is finding the amended portions -- to keep track of what the companies think are the "material changes" to the prospects for the merger, or the companies, more generally.

This morning, I am struck by the below additions (in dark green lettering) to the Remicade risk factor (beginning on page 20 of the Form S-4, as amended), as much for what they say, as what they don't say:

. . . .An arbitration proceeding commenced by Centocor against Schering-Plough may result in the combined company’s loss of the rights to market Remicade and golimumab [known as "Simponi" in the United States]

A subsidiary of Schering-Plough is a party to a Distribution Agreement with Centocor, a wholly owned subsidiary of Johnson & Johnson, pursuant to
under 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 a party if the other party is subject to a “Change of Control” as defined in the Distribution Agreement.

Under Section 8.2(c) of the Distribution Agreement, “If either party is acquired by a third party or otherwise comes under Control (as defined in Section 1.4 [of the Distribution Agreement]) 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 [April 3, 1998] 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.”

Section 1.4 of the Distribution Agreement defines “Control” to mean “the ability of any entity (the ‘Controlling’ entity), directly or indirectly, through ownership of securities, by agreement or by any other method, to direct the manner in which more than fifty percent (50%) of the outstanding voting rights of any other entity (the ‘Controlled’ entity), whether or not represented by securities, shall be cast, or the right to receive over fifty percent (50%) of the profits or earnings of, or to otherwise control the management decisions of, such other entity (also a ‘Controlled’ entity).”

On May 27, 2009,
Centocor has intitiated delivered to Schering-Plough a notice initiating an arbitration proceeding to resolve the parties' dispute over whether, as a result of the proposed merger between Schering-Plough and Merck and its subsidiary would undergo a change of control that would permit Centocor is permitted to terminate the Distribution Agreement and related agreements. Please see “Legal Proceedings Related to the Transaction” beginning on page 93.

As part of the arbitration process, Centocor will likely take the position that it has the right to terminate the Distribution Agreement on the grounds that, in the proposed merger between Schering-Plough and Merck, Schering-Plough and the Schering-Plough subsidiary party to the Distribution Agreement are (i) being “acquired by a third party or otherwise come[ing] under ‘Control’ (as defined in Section 1.4) of a third party” and/or (ii) undergoing a “Change of Control” (as defined in Section 8.2(c)).

Schering-Plough is vigorously contesting, and the combined company will vigorously contest, Centocor’s attempt to terminate the Distribution Agreement as a result of the proposed merger. However, if the arbitrator 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 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 the arbitration, the parties may choose to settle the dispute under mutually agreeable terms but any agreement reached with Centocor to resolve the 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. . . .

[Continuing, at Page 95:]

. . . .The arbitration process involves a number of steps, including the selection of an independent arbitrator, information exchanges and hearings, before a final decision will be reached. The arbitration proceeding is expected to take place over the next 9 to 12 months and could continue after the merger has closed. Schering-Plough and Merck are fully prepared to arbitrate the matter and to vigorously defend Schering-Plough’s rights (and after the proposed merger has closed, the combined company’s rights) under the Distribution Agreement.

Although Schering-Plough and Merck are confident that the arbitrator will determine that Centocor does not have the right to terminate the Distribution Agreement, there is a risk of an unfavorable outcome. If the arbitrator were to conclude that Centocor is permitted to terminate the Distribution Agreement as a result of the merger and Centocor in fact terminates the Distribution Agreement following the merger, the combined company would not be able to distribute 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 the arbitration, the parties may choose to settle the dispute under mutually agreeable terms but any agreement reached with Centocor to resolve the 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.

However, in spite of these factors:
▲ Any change or termination of the Distribution Agreement with Centocor is excluded by the merger agreement from the definition of “material adverse effect” both with respect to Merck and Schering-Plough and is excluded from the definition of “material adverse effect” in the credit agreements for the credit facilities entered into in connection with financing the merger.

▲ The estimated annual cost savings of $3.5 billion expected to be realized from the transaction annually after 2011 is not dependent on the retention of the rights to distribute Remicade and golimumab, although the loss of these rights would reduce the amount of sales expected to be generated by the combined company.

▲ The anticipated continued payment by the combined company of the current Merck dividend of $1.52 per share annually is not conditioned on the retention of the rights to distribute Remicade and golimumab. . . .

Finally, it is clear from the most-recent changes above (see the sentence in green above which begins "On May 27, 2009. . .") that the arbitration proceeding hearings, before a panel of arbitrators, have not yet formally begun -- note the change to the language -- "delivered a notice" rather than "initiated" an arbitration proceeding. The sentence would read "a panel of arbitrators has set a schedule for discovery and hearings. . ." or some such, were the matter that far along. And it is not, apparently. So that -- again -- calls out for The Little Engine that could MIGHT" graphic, at right.

Wednesday, June 24, 2009

Schering-Plough Filed Another Form S-4 Amendment With The SEC, Tonight. . . .


Here's a link to the newest S-4/A. I am still looking through it -- and there is still no mention of a European Commission antitrust filing date -- but it looks mostly to reflect updates occasioned by the $4.25 billion in Merck debt offerings, of earlier this week. If I am right about that, expect another one of these amendments, when the offerings close tomorrow evening -- June 25, 2009:

. . . .In lieu of drawing on one or more of these facilities at the consummation of the merger, we may, depending on market conditions, issue unsecured notes or bonds or commercial paper of Merck or Schering-Plough. On June [ • ], 2009, Merck completed a $4.25 billion public offering of senior unsecured notes. In connection with this offering, the bridge loan agreement was terminated and the commitment of the lenders under the 364-day asset sale facility was reduced by approximately $375 million. . . .

The commitments described above and the ability to draw under the new credit facilities or render the amendment of Merck’s existing revolving credit facility effective expire on a “drop-dead date” of December 8, 2009. However, this drop-dead date will be automatically extended to March 8, 2010, if the drop-dead date under the merger agreement is extended to March 8, 2010. . . .

Tuesday, June 23, 2009

Pop Open A Window -- Watch the FDA Transparency Webcast -- LIVE, Right Here!


This all has become so easy -- there was a time when it actually took some coding abilities and "skillz" to offer up live webstreams from remote sites. No longer.

So, thankfully -- all you now need do is click this FDA link, after 7:30 am EDT, on Wednesday, June 24, 2009.

. . . .The FDA will hold a public meeting on Wed., June 24, 2009, from 8 a.m. to 5 p.m. to solicit input from interested persons on ways the agency can make useful and understandable information about FDA activities and decision making more readily available to the public in a timely manner and in a user-friendly format. The public meeting will be held in downtown Washington, DC at the National Transportation Safety Board (NTSB) Conference Center, 429 L'Enfant Plaza, SW. Those who cannot attend the meeting may view the proceedings via webcast. . . .

A G E N D A


8:00 am Welcome and Introductory Comments
Joshua Sharfstein, MD, Principal Deputy Commissioner
Afia Asamoah, JD, MPP, Special Assistant to Principal Deputy Commissioner

8:15 am Panel 1
Gregory Meyer, Compliance Media Inc.
Janet Trunzo, AdvaMed (Advanced Medical Technology Association)
David Lim, Independent Consultant

8:45 am Panel 2
Francesca T. Grifo, Ph.D., Union of Concerned Scientists
Jeffrey Francer, PhRMA
Kristi Zonno, MS, CGC, Genetic Alliance

9:15 am Panel 3
Steven Findlay, Consumers Union
Bray Patrick-Lake, Consumer
Allan Coukell, Pew Prescription Project

9:45 am Panel 4
Daniel Fabricant, Ph.D, Natural Products Association
Sarah Janssen, MD, Ph.D, Natural Resources Defense Council
Kathy Means, Produce Marketing Association

10:15 am Break

10:30 am Panel 5
Bob Kelser, IDSN, Inc.
Kathryn Foxhall, Freelance Reporter

11:00 am Panel 6
Shannon Benton, The Senior Citizens League
Peter Lurie, MD, MPH, Public Citizen
Diana Zuckerman, Ph.D., Nat’l Research Center for Women &
Families

11:30 am Panel 7
Mark B. Leahey, Medical Device Manufacturers Association
Nancy Beck, Ph.D., Physicians Committee for Responsible Medicine
Sin Hang Lee, MD, Milford Medical Laboratory

12:00 pm Lunch

1:15 pm Panel 8
Emily Claire Napalo, Breast Cancer Fund
William H. Maisel, MD, MPH, Medical Device Safety Institute
Andrew Emmettt, Biotechnology Industry Organization (BIO)

1:45 pm Panel 9
Sarah Klein, The Center for Science in the Public Interest
Kiyo Oden, The Tatia Oden French Memorial Foundation
Carolyn Brubaker, Microsoft

2:15 pm Break

2:30 pm Open Comment Session

5:00 pm Meeting Adjourns

Is This Where Some of CEO Fred Hassan's "Golden 'Chute" Will Be "Deployed"?


Fascinating -- CEO Fred Hassan's son (Daniel) runs a Massachusetts-based nascent web-media "clickable TV" company -- I wonder whether Dad is the source of some (most?) of the initial $15 million equity financing (or the now-pending additional $4 million)? This item, per Mass HiTech, a few minutes ago:

. . . .According to [the son, Daniel] Hassan, business operations will be split between New York and Boston, with New York starting off as a smaller operation. “Right now we are just going to look at it as a sales office and outreach office,” Hassan said. Backchannelmedia employs 29 workers.

[Daniel] Hassan, who has been chairman of the board as well as co-CEO since 2007, became sole CEO as of June 15. Hassan is son of Fred Hassan, CEO and chairman of New Jersey-based drug giant Schering-Plough Corp. . . .

Of course, clickable, at right, is Dad's 'chute estimate-graphic. Schering-Plough CEO Fred Hassan negotiated a "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 grandfathering is in Section 3(j) -- on page 4).

$4.25 Billion of Merck Debt Securities Priced, at NYSE Close, Last Night. . . .


The graphic at right depicts the proportions, by maturity schedule, of the various debt tranches -- as ever, click it to enlarge. As the AP reported overnight, Merck did go ahead and price the unsecured debt offerings it opened yesterday:

. . . .The company is offering $1.25 billion of 1.875 percent notes due 2011, $1 billion of 4 percent notes due 2015, $1.25 billion of 5 percent notes due 2019, and $750,000 of 5.85 percent notes due 2039. . . .

The closing of the offering will terminate the commitments of lenders and the company's related obligations pursuant to a $3 billion bridge loan. It also will reduce the commitments of lenders under the asset sale facility by about $375 million. . . .

This offering takes the bank syndicate "off the hook" for a large chunk of the merger financing. It effectively places, in the public's hands, the risk of a non-completion of the deal. That is a wise move by the bankers. In aggregate, remember, these bankers will likely make about $100 million in fees for advising on this deal.

As of June 25, 2009, the bankers' exposure here will be greatly diminished [full Pricing Term Sheet, as filed with the SEC, here], should the proposed reverse merger transaction not be completed. Afterall, the reason these interest rates are available to Sch-Merck -- and attractive to the public bondholders buying in the offerings -- is that everyone assumes the deal will close. Should that turn out not to be the case -- it is unlikely that Merck would be able to effectively service the debt, and still maintain its presently-envisioned capital structure, intact. Net-net: A smart move on the part of the banks.

Finally, while the offerings have been rated Aa3/AA-, there had been some talk, yesterday (now silenced) that Merck's near term credit rating/outlook would be "negative" -- meaning that the rating agencies might be rethinking their ratings on Merck's corporate debt, and thus could announce a change at any time. Just FYI, Mr. and Ms. Merck/Schering-Plough Bondholder.

No FDA Approval of OTC Version of Zegerid Until Year-End 2009. . . .


This is waifish, especially when compared to the pro-forma revenues of the to-be-combined companies, but worthy of note, nonetheless -- as it may be the way things go, generally, at FDA for Schering-Plough, for the foreseeable future.

MarketWatch has the scoop, this morning:

. . . .The Food and Drug Administration said it would act in December 2009 on Schering-Plough HealthCare Products' new-drug application to market an over-the-counter version of Zegerid, a treatment for heartburn. . . .

Indeed. The NDA was filed in March of 2008, so that's at least a one-and-three-quarters years-long timeline. And that's very-nearly a "slow roll". . . .

[Meanwhile, ". . .The Little Engine puffed "I think I can, I think I can, I think I can. . ."]

Monday, June 22, 2009

Bloomberg's Afternoon Take -- On The FTC Second Request. . . .


I think this gets it just about right -- the bulk of today's FTC second request likely centers on the Animal Health businesses. What is unknown, still, is whether this was a whopper of a second request, or a fairly mild one. Per Bloomberg, this afternoon:

. . . .If a sale doesn’t settle FTC concerns about competition in the animal drug industry, Merck or Schering-Plough may have to put more products on the market, said David Moskowitz, a Caris & Co. analyst in New York.

“There’s going to be that many more products for sale,” Moskowitz said today by telephone. “It could affect pricing in the sense that Merck really wants to get those approvals.”

Likely suitors for the units include Indianapolis-based Lilly, which wants to expand its animal business, and Paris- based Sanofi, already a partner with Merck in Merial Ltd., maker of the flea-repellant Frontline, Moskowitz said. . . .

The FTC makes a second request for information in a minority of cases to ensure a buyout won’t hurt competition, the commission says on its Web site. Once the companies answer the request, the commission has 30 days to review the material.

Antitrust concerns are unlikely to derail Merck’s purchase of Schering-Plough, said Caris & Co.’s Moskowitz. "Merck absolutely needs this to get done to produce growth over next couple of years,” Moskowitz said. “They’re going to do what they have to do". . . .

Pretty much as I wrote earlier, in fact.

Merck's Debt Offerings Just Got "Green-Shoe"-ed -- to $4.25 Billion. . . .


BREAKING: Per MarketWatch, B of A just upped the debt offering's all-in size -- to an indicated $4.25 billion, in the aggregate:

. . . .Merck & Co. is selling $4.25 billion in debt Monday, with portions maturing from 2 years to 30 years, according to Informa Global Markets. The drugmaker increased the amount from $3.5 billion earlier, Informa said. For one of the largest portions, Merck is likely to pay 0.75 percentage point more than 2-year Treasurys, or about 1.89%. The 30-year portion may yield 1.45 points more than Treasurys, or 5.91%, Informa said. . . .

Note also that the spreads are tightening, from the initial indications -- they've come in, about ten bips, over the course of the morning. As ever, more as it develops.

UPDATED -- 06.22.09 @ 7 pm EDT: Some of the debt proceeds may be used to fund the Vioxx Global Settlement, per Merck's evening press release: ". . . .In addition, Merck may use all or a portion of the proceeds to fully fund the two funds established for qualifying claims pursuant to the company's Vioxx litigation settlement agreement, in which case the collateral previously pledged in connection with such funds will be returned to Merck. . . ."

Interesting.

First Set of Combined Pro-Forma Financials Filed With SEC. . . .


As Merck prepares to issue four separate tranches of merger-related debt securities -- for an indicated $3.5 billion principal amount, in the aggregate -- it has filed an SEC Form 8-K, with some unaudited pro-forma combined financial statements for the two companies -- as though they were already one.

This is significant, because it represents the first public disclosure of the more detailed financial picture Merck expects will emerge, as the two companies are combined. I am still tearing through it -- but this much deserves mention:

. . . .Note 3(r):

Represents the fair value adjustment associated with Merck’s previously held equity interest in the Merck/Schering-Plough cholesterol partnership resulting in a gain, substantially all of which is reflected as a corresponding fair value adjustment to intangible assets and the remainder as an adjustment to inventory. Under FAS 141(R), a business combination in which an acquirer holds a noncontrolling equity investment in the acquiree immediately before obtaining control of that acquiree is referred to as a “step acquisition.” FAS 141(R) requires that the acquirer remeasure its previously held equity interest in the acquiree at its acquisition-date fair value and recognize the resulting gain or loss in earnings. Because this adjustment will not have a continuing impact, it is excluded from the unaudited pro forma condensed combined statement of income. . . .

That is from Footnote 3(r) to the pro-formas. It would seem that Merck will book a one-time, non-operating gain, as it consolidates the Cholesterol J/V -- and will use that to offest a write-down in the Vyotrin and Zetia inventory the J/V now holds -- as selling-prices, and thus carrying values, for those two drugs have eroded substantially in the last twelve months.

Much more as I sort through it all. Additional graphics coming, on the $3.5 billion in total tranches of proposed debt offerings, as well. Here is what is known on these coming debt offerings -- per Reuters:
. . . .The offering includes a two-year note tranche expected to yield about 87.5 basis points over comparable U.S. Treasuries.

It also includes a six-and 10-year note tranche both expected to yield about 150 basis points over U.S. Treasuries and a 30-year bond tranche expected to yield between 155 and 160 basis points over Treasuries.

Proceeds from the offering will be used to help finance its $41.1 billion acquisition of Shering Plough, according to IFR.

Banc of America Securities, Citigroup Global Markets, JP Morgan and RBSGC are the joint lead managers on the sale. . . .

As one potentially helpful comparison point, for these spreads -- I'll note that Pfizer's three year debt (Pfizer is -- of course -- also involved in a pharma mega-merger) was recently trading at 125 bips over the relevant U.S. Treasury instrument. That is about dead in the middle of the two year, and six year, spreads quoted above for Merck's offering. Seems in line, and well in the middle of this market (these spreads are plainly much wider, than they would have been, pre-market meltdown of last fall). More soon.

FTC Makes Second Request of Merck and Schering-Plough


As expected, the companies have received a so-called "second request" for information on competitive overlaps -- under the Hart Scott Rodino Antitrust Improvements Act ("HSR", for short). Significantly -- apparently the companies have, as yet, made no EU Commission filing, at all -- and that is also a "tiger with a rather long tail".

What is not yet known is what areas of the businesses, other than Animal Health, are under review at FTC/DoJ. I had earlier predicted (in a reply-comment to this post) a rather broad and voluminous second request -- we may be able to infer how sweeping the second request is, by seeing how long it takes the companies to refile. Each company will very likely announce when they have complied with the second request, so that the investing public will be able to start the clock on the FTC's 30 day response time.

From Merck's presser of this morning:

. . . .Merck and Schering-Plough intend to cooperate fully with the FTC to obtain approval of the transaction as expeditiously as possible. The transaction is subject to approval by Merck and Schering-Plough shareholders and the satisfaction of customary closing conditions and regulatory approvals, including expiration or termination of the applicable waiting period under the HSR Act, as amended, as well as clearance by the European Commission under the EC Merger Regulation and certain other foreign jurisdictions. Until the merger closes, both companies will continue to operate independently. . . .

I would be surprised if this transaction clears HSR without additional requests, and additional responses, after this "intitial" second request.

Sunday, June 21, 2009

An "$80 Billion" Donut-Hole, Filled? Merck, and PhRMA, Make a Start at It, in Earnest. . . .


President Obama hailed it, yesterday, as a "turning point" in the reform effort, one delivered by, and also taken from the pharmaceutical manufacturers. The industry trade group, PhRMA, spun it as "additional savings" for under-insured seniors. [The President's latest full weekly address video is here.]

Merck CEO Dick Clark positioned it as going "the extra" mile -- any way one slices it, this will mean less revenue, overall for Schering-Plough-cum-Merck. But it is the right thing to do:

. . . ."Our goal is to make sure that every patient who has been prescribed a Merck medicine has access to that medicine," said Richard T. Clark, chairman, president and CEO of Merck. "Merck has been providing free medicines to Medicare Part D beneficiaries through our Patient Assistance Programs for many years. With this new proposal we will go the extra step and offer direct savings to Medicare Part D beneficiaries in the coverage gap regardless of their income". . .

You won't see this here, very often -- but on this Fathers' Day morning, I admire Dick Clark's willingness to do this -- it is the right thing. The truth probably is that he wouldn't have agreed to this -- unless he thought there were essentially no other less-onerous options.

And all the other potential options were, in fact, likely more onerous than this. That said, my hat's off to him, anyway. And this is the beginning, not the end -- of what pharma will need to "kick in" to avoid much more unfavorable pricing-related regulation in the United States (like wholesale re-importation allowances).

This analysis is from the decidedly-reddish The Hill:
. . . .The $80 billion in savings committed by drug companies on Saturday will not specifically pay to cover the estimated 47 million Americans who are uninsured.

Instead, it will be allocated to close the so-called “donut hole” of coverage in the Medicare prescription drug benefit. . . .

For years in the minority, Democrats vowed to fill in the donut hole, which force[s] enrollees to pay 100 percent of the costs of their medicines even while they continue to pay monthly premiums until catastrophic drug coverage kicks in. . . .

Finally, here is the PhRMA release:
. . . ."Under this proposed new legislative program -- which represents the first important step in health care reform -- America's pharmaceutical research and biotechnology companies have agreed to help close the gap in coverage. Specifically, companies will provide a 50 percent discount to most beneficiaries on brand-name medicines covered by a patient's Part D plan when purchased in the coverage gap.

In addition, the entire negotiated price of the Part D covered medicine purchased in the coverage gap would count toward the beneficiary's out-of-pocket costs, thus lowering their total out-of-pocket spending. Importantly, the proposal would not require any additional paperwork on the part of the beneficiary nor would an asset test be used for eligibility.

Since its inception, strong competition among drug plans participating in the Medicare drug benefit has led to significant savings for seniors. On average, beneficiaries are saving $1,200 annually on their medicines, and the average low-income beneficiary saves $3,900, according to the Centers for Medicare and Medicaid Services. This agreement will help to provide additional savings to even more seniors across the nation. . . .

This is -- in truth -- only the beginning. But it is a good one.

Saturday, June 20, 2009

The "Rest of the Story" -- For "Finding Dulcinea". . . .


This very morning, June 20, 2009, Finding Dulcinea has made mention of the CafePharma/ENHANCE results "precognition" controversy. Conspicously absent from her analysis, though, is the rather important fact that, as of May 18, 2009, Judge Cavanaugh had ruled the CafePharma posts -- all of them -- could at least be offered up, to the trial court, for additional subsequent consideration, as potential substanive evidence of the "scienter" of various Schering-Plough officers and directors and affiliated entities. From Finding Dulcinea, then:

. . . .Earlier in 2009, online comments from the site CafePharma, a forum for discussion of drugs, were used in a lawsuit against Schering-Plough Corp. and Merck & Co. The suit asserted that the companies did not disclose test results showing that their drug Vytorin does not unclog arteries any better than an older, less expensive drug. . . .

[From an earlier article, same site:]

. . . .Their remarks follow a lawsuit filed by investors for securities fraud, saying that the companies did not disclose test results showing that Vytorin does not unclog arteries any better than an older, less expensive drug. The suit contained postings from CafePharma.

According to Bloomberg, the comments relate to the fact that the companies knew there were problems with the tests and did not make them public. The posts were “very detailed,” said Sean Coffey, a lawyer for the investors.

But the companies wrote in their request to U.S. District Judge Dennis Cavanaugh that “CafePharma is, literally, the cyberspace equivalent of scrawls left on a men’s room wall.”

The case has added fuel to an already smoldering debate regarding the Internet’s role in the courtroom, as several recent lawsuits have centered on comments made online. . . .

Interesting. As ever, more to come.

Thursday, June 18, 2009

How the Consolidated Federal Suit Challenging the Reverse-Merger Will Likely Proceed. . . .


Okay -- I earlier promised I'd cover this one closely -- and here is the first big delivery on that promise: Judge Cavanaugh signed an order today, setting out the schedule upon which -- it is believed -- the plaintiffs (including at least five large institutional investors) will seek, among other things, a preliminary injunction to delay the proposed reverse merger. This is in what was the Landesbank Berlin Investment GmBH suit (Case No. 09-1099, along with others) -- now called In Re Merck/Schering-Plough Merger Litigation (U.S. Dist. Ct., NJ).

Click the image at right, of the relevant pages of Judge Cavanaugh's order, to see what comes next, in June and July. Look for some volatility in Schering-Plough's NYSE common stock trading price, on July 28, 2009 -- as well as Merck's, potentially -- if the hearing scheduled for that day (highlighted in yellow) actually goes forward. No doubt reports of the "Kentucky windage" from inside the court, will arrive here -- either by my live-blogging from the court, or by financial reporters, via the traditional news-wires.

. . . .A Hearing on plaintiffs' motion for a preliminary injunction shall be held on July 28, 2009 at 9:30 a.m. EDT. . .

Note also that, as of yesterday (and continuing, on a rolling basis through 5 pm EDT next Wednesday), the plaintiff-institutional investors should have already begun receiving internal documents from Merck, and Schering-Plough -- related to the process employed, and alternatives considered, in order to reach the reverse-merger agreement.

Stay tuned. I'll continue to cover all material developments, right here.

The "Daily Deal" Dishes SCH-Merck Dirt. . . .


The "Daily Deal" was in San Francisco -- and picked this up:

. . . .While Wyeth research chief Mikael Dolsten talked up his firm's pipeline and tried his best Tuesday morning to avoid any mention of Pfizer Inc., another megamerger participant -- Merck & Co. chief licensing officer Barbara Yanni, a fixture at industry partnering conferences -- had plenty to say about her firm's pending $41 billion takeover of Schering-Plough Corporation. She posted slides of the two firms' products, pipelines, and reminded the audience of Merck's wonderful reasons for the deal. She even joked about having to post not one but two pages of forward-looking statements. When you're the buyer, it's easier to speak freely, perhaps. Then again, Merck claims it's not really the buyer -- nudge, nudge, wink, wink -- in order to avoid losing (to Johnson & Johnson) Schering's shared rights to a rheumatoid arthritis drug over change-of-control issues. . . .

Heh. We shall see.

Wednesday, June 17, 2009

In The "Oh, My Fees Are BIGGER Than Your Fees" Department. . . .


Footnoted.org has once again done a stellar job of outlining the overlooked* -- this time the nearly $100 million the financial advisors to Merck and Schering-Plough stand to pocket, should this deal close. Do go read it all, over there.

Now, come back here -- I'll readily agree that $100 million is huge -- and the WSJ Blogs went on at length about how outsized these fees are, decrying 'em as the third highest, in a decade. . . .


[I guess, conversely, (or perversely -- click at right!) all of these firms discussed below, lumped together, on the Schering-Plough/Merck deal, are only receiving about two-thirds of what CEO Hassan's golden-parachute is likely to billow outward, into -- if the merger yields over $25 per share for SGP common.]

However, as to the WSJ's claims -- in about only two minutes of Googling (is that officially a verb, Mr. Webster? I dunno), I was able to discern that even though Pfizer's deal to buy Wyeth, announced less than two full months before SCH-Merck's, is only one-third larger -- those PFE-WYE financial advisors may pocket more than double what the SCH-Merck advisors are getting. Double -- like $200 million, or more, per Bloomberg (January 24, 2009). Wow! To be fair, now, Wyeth's advisors are largely Schering-Plough's advisors, and vice-versa -- so all of this dinero ends up in only three or four bankers' pockets. Significant overlap, there. Cozy.

Here is a cleaned-up version of my comment at Footnoted.org:

. . . .I did see this yesterday, in the S-4, as amended, but then went off to scout the Pfizer deal’s fees — as it is about a third larger than the SCH-Merck deal.

From the Pfizer S-4 (pages 83 and 91) we can confidently deduce that Morgan Stanley (advising Wyeth) will receive $65 million, of which $50 million is contingent on the deal’s closing, and Evercore will receive $24 million, of which $19 million is contingent upon a closed deal.

More murky is the fee total for Pfizer’s half on the deal. I honestly cannot find it in the various 424’s, 425’s and S-4/A’s Pfizer has filed. However, Bloomberg reports it thus:
". . . .Pfizer’s advisers — Bank of America, Goldman Sachs, JPMorgan, Barclays Plc and Citigroup Inc. — together may get $82 million in fees, not counting what they’ll earn arranging a $22.5 billion one-year loan that will be replaced later with bonds. . . ."

Bloomberg estimates the fees-feast all-in, grand total at over $200 million for PFE-WYE advisors.

If that is accurate, PFE-WYE dwarfs SGP-MRK on fees, and is grotesquely out of proportion (at over twice the fee-levels, but only one-third larger, in transaction values).

It could be argued that PFE-WYE advisors were deeper in the "China-Syndrome" core of the markets' melt-down, while they evaluated the financing, and acquring risks — and by comparison, SGP-MRK advisors faced somewhat less-troubled markets in March of 2009 — but that argument doesn’t cut a whole lot of ice. And fairness opinion fees/financial advisory signatures are are not to be up-sold, on a risk-adjusted basis (a la insurance policies' premiums) -- or at least that is what the SEC would like the investors to believe. Look, either the deal is fair from a financial point of view, or it is not. The fee charged for these outliers' "fairness" begins to look like a bought-commodity, not a truly independent opinion of a professional, when one reaches these stratospheric numbers.

So I think the PFE-WYE deal takes the "Golden Trough" award, for 2009 — and perhaps, the decade. By the way, the WSJ Blog copied your stuff, but completely missed this PFE-WYE angle in its recital of outsized fees of the decade. . . .

Remember the entire offices of Schering-Plough's (and Merck's) financial advisors will make less than CEO Hassan, alone, on this deal. And this -- for a guy whose company earned a "D" -- from the Corporate Library, on governance, independence and pay practices. Yikes.

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* This whole topic was one, as irony would have it, that I (a self-confessed maven of minutiae), had just "overlooked". Until this commenter alerted me to it, that is. Thanks!