Tuesday, November 30, 2010

Prescient Timing! Prostate Cancer Study Result, Today -- Merck's FDA Advisory Panel Tomorrow


MedPage Today is reporting on a JAMA study due out in the morning. This is essentially what I was pointing to yesterday -- when I wrote that some doctors now believe a "wait and see" approach is better, for many types of prostate cancer. Let's hope this learning is fully reflected in tomorrow's FDA Advisory Committee meetings. We'll have it here, either way, though -- count on that.

A bit of the reporting runs thus -- do go read it all:

. . . .Active surveillance for low-risk prostate cancer provides better quality of life than any immediate treatment, researchers found.

A hypothetical 65-year-old with newly diagnosed, clinically localized, low-risk prostate cancer would get at least an additional six months of quality-adjusted life expectancy from active surveillance compared with any treatment strategy with curative intent, according to a decision analysis published in the Dec. 1 issue of the Journal of the American Medical Association. . . .

The results were robust under a wide range of assumptions, even assuming a higher probability of prostate cancer death or progressive disease during active surveillance, Julia H. Hayes, MD, of the Dana-Farber Cancer Institute in Boston, and colleagues reported.

"This benefit reflects the deferred and substantially lower incidence of adverse effects of treatment experienced by men under active surveillance," they wrote. . . .

Fascinating. We'll have the streaming web-video feed of the FDA advisory panel's meeting up here, in the morning. Do stop back.

In Which Salmon And I Discuss The New CEO, Now Taking Up Residence At Whitehouse Station


Salmon and I were discussing today's news in the comment box. I felt we ought to highlight it here, and ask -- what do you believe? Will he be a good CEO, a visionary, and yet self-deprecating leader -- or more of the same? Let us know, in the comment box. I may also set up a poll, at left (done).

Here is Salmon's take:

. . . .I disagree with parts of your assessment. Laudatory behavior in one area does not mean that he will be a good CEO or that he engages in approrpriate behavior in other venues. Specifically in protecting life.

Salmon

November 30, 2010 10:53 AM. . . .

True enough, Salmon -- no one can ever really know how a person will behave, when that person thinks (rightly or wrongly) "no one is looking". On that we agree.

I must admit though, the more I read -- the better I feel about him (despite the Vioxx® matter).

Per Bloomberg BusinessWeek reporting, just now:
. . . .Frazier’s rise at Merck belies his unassuming roots. His mother died when he was 12, leaving his father, a janitor at United Postal Service, to raise three children alone in a North Philadelphia neighborhood. In college, he sold tadpoles and newts to a local aquarium store to make pocket money.

He is married with two children and volunteers for organizations that serve the underprivileged. . . .

The story goes on to recount the work he'd done to save Bo Cochran's life.

Having known a public-company GC who used the company's private jet (ahem) to fly tiny little "accessorized" dogs to various doctor's appointments (from a vacation home), over a weekend -- I would encourage you to take a new look at this Ex-GC, a man who'd willingly spend his weekends, and his own money, in an Alabama prison (on death row, no less -- not a particularly friendly place to be, as a person of color, around those guards), to save a man he'd never met before. That man he'd never met before is Bo Cochran -- who'd had the simple (then-all too-common) misfortune of being a black man, in Alabama in 1976, on a night when a white man was killed, allegedly by someone who was also black.

The contrast between an overly-entitled, snivelling elitist corporate lawyer-to-the-priviledged, and this one -- could not be much more startling -- in my opinion.

All that said -- at base, I agree, Salmon -- we just don't know enough, yet.

[What we do know is that James "Bo" Cochran could not have dragged a body (his supposed victim), from a convenience store counter, to a trailer park, by hand, and placed the victim under a trailer, all while the police were (according to their sworn statements) allegedly continously chasing him, from the crime scene, on foot, as well. It simply could not have happened that way -- or anything like that way:



It seems likely that Bo may have robbed the store, long before, or after someone else shot the man, and dragged him away, leaving him under a trailer -- but Mr. Cochran did not kill that proprietor. The evidence offered at trial could not have supported that verdict. But the jury was 11 to 1 white; and at the time in Alabama, juries were required to find the accused either guilty of murder, or set him free -- there could be no lesser included offense finding (i.e., robbery, but not murder). The jury found him guilty and immediately also sentenced him to death. That was 1976.]

UPDATED: 12.01.10 | 8 AM EST

Salmon has answered -- and I agree wholeheartedly with his:
. . . .I certainly didn't expect such an extensive response. However I have to say it's fair. I agree we don't know enough yet.

His actions in the Bo Cochran case are certainly not what I would expect to see from the typical pharma exec. However I've known others whose charitable behavior was exemplary yet were ruthless and unethical in business.

His job in the Vioxx case was to minimize financial risk to the company post facto regardless of the consequences to those harmed and presumably he did that quite well.

Being a Sr. exec I assume he's learned about running a corporation. However being a lawyer does not necessarily make him qualified to oversee drug development.

As for ethical standards we truly don't know yet. In my experience it has sometimes taken me years to understand the true ethics of some people I've worked with. So I personally don't expect to be able to know much about Frazier. Even so I have to assume that he was involved with the purchase of SP and knows the result of any due diligence. Yet from what I know certain corrupt practices should have been obvious.

I believe his true nature will become apparent when Merck has its next big ethical dilema.

All said, I don't know of any reason why he shouldn't be CEO and can't suggest anyone else. I also think his behavior in the Bo Cochran case was exemplary. As to what he will bring to being the CEO of Merck only time will tell.
In any event I wish him well.


Salmon

December 1, 2010 8:09 AM. . . .

Well-put, my friend.

Kenneth C. Frazier, A Lawyer, To Run World's No. 2 Drugmaker


Now Merck's leadership model is in synch with Pfizer's -- where Jeff Kindler, also a lawyer, runs the show (the No. 1 public pharma co. in the world). This was widely expected, and as I reported last February, was almost certain to unfold in just this way (Pete Loftus had it this way too, back then). Per Reuters, here is some of this morning's item:

. . . .Frazier helped design a new sales model and redeployed resources to emerging markets, where the drugmaker is targeting future growth.

Frazier, who [will be added to the Merck board of directors in January 2011, is] also on the board of Exxon Mobil Corp, and served as the company's general counsel from 1999, a period that included Merck's withdrawal of Vioxx from the market because of an increased risk of heart attack and stroke.

He helped the company fight off thousands of personal injury lawsuits related to the drug's use. Merck eventually settled the litigation for about $4.85 billion, billions less than investors had feared, boosting Frazier's profile within Merck and with Wall Street. . . .

I can say without reservation that this man is plainly very-well qualified for the top spot -- and he brings the right perspective to this very-highly regulated industry position.

Afterall, Merck is supposed to be in the business of saving lives -- and I can almost guarantee that no other sitting Fortune 50 company CEO has ever personally secured the unconditional release of a man sentenced to death for a crime he did not commit.

Ken Frazier has, though -- literally saving "Bo" James Cochran's life -- down in Alabama about ten years ago (see image upper right; click to enlarge). He did it all pro bono -- and on nights and weekends -- after completing his "day job", which was then to defend Merck in the Vioxx® matter.

Congrats, Ken!

Buy Life. Do It. Do It Now. Combat African And Indian Juvenile HIV/AIDS


This -- in view of Merck's anti-retroviral franchises -- seems a particularly worthy charitable effort to feature here, at my space [make a direct donation]:

. . . .There is a profound difference between living and life. Living may extend time for another day. But life is far more than sleeping and waking. Life is more than merely existing. And, although it would be easier, life cannot be bought in a pill.

That is why Keep A Child Alive buys more than just the pills needed to fight HIV/AIDS in Africa and India. It buys the essential nutrition, shelter, support and education to help ensure those pills are taken properly and effectively. It buys the things we all take for granted, but that make all the difference. A bed. A roof. A ride. A book. A smile. KCA offers children, their families and entire communities a shoulder to lean on and a heart that beats for them. Because KCA believes we can do something far bigger and better than buy the ability to live. We can buy the dignity that is life. We can buy compassion. Buy love. Buy the cure. Buy life. Because the more you buy, the more you save. KEEP A CHILD ALIVE. . . .

The idea is that all these celebrities will be "offline", entirely -- no blogging/tweets/posts/rss feeds on 12.01.10 -- until $1 million has been raised for juvenile AIDS relief in Africa and India. This is a worthy derivative/extension of Alicia Keys' earlier charitable concept. Again, click here to donate, directly.

Check Here | Live-Streaming-Video | Wednesday's Proscar® FDA Panel


About ten minutes before 8 am EST on Wednesday, I'll provide a live-stream feed of the video, slides and audio -- from inside the Advisory Committee room, meeting on Merck's Proscar® (finasteride), in Silver Spring, Maryland. [The FDA's draft agenda has it that Merck's drug experts will speak, and present, beginning at about 8:15 am EST.]

As I earlier mentioned, here is some of the non-trivial argument for denying reimbursement, per Susan Heavey, writing for Reuters, tonight:

. . . .[FDA] staff, in documents released ahead of a public advisory meeting on Wednesday, said overall, large trials for each of the drugs showed benefits after . . . seven years with Merck's drug, Proscar -- mostly in men with certain grades of the cancer.

They noted that "neither trial was adequately designed and conducted to characterize the ultimate outcomes of interest," such as death. "In both trials, there was also an unexpected finding of an increased incidence of high-risk prostate cancers among men receiving" the drugs, they added. . . ."

[FDA] advisers will also consider whether the new data should be included on the Proscar's label, although Merck is not seeking formal approval for wider use. . . .

"The benefit of finasteride for the risk reduction in prostate cancer is uncertain since the observed risk reduction of prostate cancer was present only in the subgroup of participants diagnosed" with certain tumors, FDA staff wrote. . . .

Interestingly, as to finasteride, the type of cancer it was shown to be most likely to shrink is one that is almost never lethal -- and some doctors now argue should not be treated aggressively -- except in the rarest of cases.

And so, the committee will likely have its hands quite full, here. Stay tuned.

Monday, November 29, 2010

FDA Advisory Panel To Review Proscar® -- For Prostate Cancer, Wednesday Morning


I'll have more later, but I wanted to get this 148 page PDF file of Merck's background materials -- made public this afternoon -- out right away. Happy digging!

Here is the FDA meeting announcement:

. . . .On December 1, 2010, the committee will discuss supplemental New Drug Applications (sNDAs) 021319/024, trade name AVODART® (dutasteride) Soft Gelatin Capsules, manufactured by SmithKline Beecham Corporation d/b/a (doing business as) GlaxoSmithKline and 020180/034, trade name PROSCAR® (finasteride) tablets, manufactured by Merck & Co., Inc. The proposed indication (use) for AVODART (dutasteride) is for reduction in the risk of prostate cancer in men at increased risk of developing the disease. The population at increased risk of prostate cancer includes men with an elevated serum prostate-specific antigen (PSA) or men otherwise determined to be at increased risk based on other associated risk factors such as age, race, and family history. There is no proposed expansion of the indication for PROSCAR (finasteride); however, in light of the Prostate Cancer Prevention Trial (PCPT) which demonstrated a statistically significant reduction in the 7-year period prevalence of prostate cancer with finasteride (PROSCAR) treatment, and which reported an imbalance in high Gleason grade prostate cancers (indicating more aggressive cancers) in the finasteride treatment arm vs. placebo, the efficacy and safety of both products for use in prostate cancer risk reduction will be examined. . . .

Back later tonight -- board meetings call -- but there is a quite-sensible argument to be made that even if approved, this drug ought not be eligible for reimbursement -- for this condition.

"That Dog Won't Hunt" Dept.: Once A Day Isentress®


This is actually scant news -- if it is news at all. [Earlier background on Isentress® revenue-model here.]

From Whitehouse Station this morning, then:

. . . .This Phase III study evaluated the safety and efficacy of an investigational once-daily dose of raltegravir (800 mg once daily) versus the approved twice-daily dose (400 mg twice daily), each given in combination with a once-daily fixed-dose combination of emtricitabine and tenofovir disoproxil fumarate, in adult treatment-naïve HIV-1-infected patients. In this study, 775 patients were randomized, and 770 patients received study drug and are included in the current analyses. After 48 weeks in the study, 83.2 percent (n=318/382) of patients receiving the regimen including ISENTRESS once daily achieved undetectable viral levels (HIV-RNA < 50 copies/mL), compared to 88.9 percent (n=343/386) of patients receiving the regimen including ISENTRESS twice daily. The treatment difference between the 800 mg once daily group and 400 mg twice daily group was -5.7 percent, with an associated 95 percent confidence interval (CI) of (-10.7 percent, -0.83 percent). The difference did not meet the pre-defined statistical criteria for non-inferiority.

The overall treatment difference observed between the once-daily and twice-daily groups was primarily due to results in patients with high viral load. Among patients with more than 100,000 copies/mL of HIV-RNA, 74.3 percent (n=113/152) of those in the once-daily group achieved viral suppression compared to 84.2 percent (n=128/152) of those in the twice-daily group. . . .

In some ways, as perverse as it sounds, this actually means Merck will procure a continuing "double-dose" of Isentress® -- a good thing, from the perspective of its gross revenues line. There is the chance, though, that Gilead's candidate becomes a clear winner, here -- and takes the bulk of the revenue in the next few years. But that is rather a long-shot -- as it is hard to see a path for reimbursement of what would have to be a nearly universal prophylactic. Stay tuned.

Sunday, November 28, 2010

Singular® (Montelukast) Heads Over "The [Patent] Cliff". . . . Soon?


There's a pretty solid Reuters story out this morning, on the additional restructurings and headcount reductions still needed in pharma -- as the so-called "patent cliff" revenue fall-off has accelrated beyond what Wall Street had projected to this point.

It is easy to guess that Wall Street didn't fully expect that health care reform would pass in the first half of Mr. Obama's first term. Thus the Street didn't bake-in a steep-enough falloff, assuming that the old world would persist throught 2014.

Not so, thus -- according to Esha Dey, writing for Reuters:

. . . .A rolling wave of restructuring reflects the lack of major new drug launches to offset looming generic competition to multibillion-dollar medicines like Sanofi-Aventis and Bristol-Myers Squibb's drug Plavix for blood clots and Merck's Singulair for asthma.

While concerns over the "patent cliff" have dogged the industry for several years, in some cases the entry of generic versions of brand-name drugs has picked up more quickly than Wall Street had anticipated.

The entry of generics can cause branded drugs to quickly lose at least 80 percent of U.S. sales, but can be 90 percent or more once multiple generics are available. . . .

Indeed. Here's a mid-2009 backgrounder, on the Singular® (Montelukast) patent litigation status -- with Teva. Since then, a "pay for delay" deal has been struck (as this January 2010 agreed dismissal of appeal hints) -- which likely has the patent exclusivity ending not much before August of 2012. That would be when the drug comes off patent, anyway. We'll keep you posted, if a shorter date emerges on this $5 billion a year Merck franchise.

Saturday, November 27, 2010

Judicial Tinkering With Healthcare Reform? Likely To Be Marginal


Kevn Sack and Robert Pear, writing this morning for The New York Times, do a nice job of balancing the bellicose rhetoric out of House Speaker John A. Boehner's mouth, against the realities of a law that is already in place -- and cannot be veto-overridden without a two-thirds majority in the Senate (i.e., ain't. nevah'. gonna'. happen.).

Do go read it all -- but I'll be back later with some additional analysis:

. . . .Lawyers on both sides expect the issue eventually to be decided by the Supreme Court. But the appellate path to that decision could take two years. In the meantime, any district court judge who rules against the law would have to decide whether to block enforcement of one or more of its provisions, potentially creating bureaucratic chaos.

Such a decision would prompt a flurry of appeals, as the Justice Department almost certainly would ask the judge and then the appellate courts to stay, or delay, the injunction pending the outcome of higher court rulings.

Administration officials, as well as some lawyers for the plaintiffs, agree that Judge Hudson seems unlikely, based on his comments from the bench, to enjoin the entire law. The judge volunteered at a hearing last month that his courtroom was “just one brief stop on the way to the Supreme Court.”

If he does not enjoin the law, the immediate impact of a finding against the insurance mandate would be limited because that provision, and others that might fall with it, do not take effect for more than three years. . . .

My personal prediction is that the Supremes will hold the law constitutional, and that -- in view of the importance of the question -- no lower court will order that it be enjoined. So -- net, net -- it will be decided long before the 2013 mandate for insurance arrives, under the law as it stands.

Friday, November 26, 2010

Re Merck's Remicade® Rights: EU Draft Rules To Allow BioSimilars Competition In EU Sooner?


Eva von Schaper and Naomi Kresge, writing for Bloomberg overnight, have a story out about the much anticipated EU draft regulations that will govern the process for seeking approval to sell "generic" versions of bioscience therapies generally, and monoclonal antibodies, specifically, once patent protection ends.

These, as many may know, aren't really "generics" in the traditional sense -- they will be biologically-similar to the original, but will not be simple, exact chemical copies of the same protiens, etc. The reasons for the difference are manifold, but suffice it to say that manufacturing a powder pill or capsule is a very different process than extracting monoclonal antibodies.

Still, the market potential here is vast, and growing -- with some of the earliest biotech therapies coming off patent in Europe (and the US) the next few years -- Teva and others will be looking to sell unbranded, but similar versions of these complex protiens and other bioagents.

Interestingly, Remicade® is among those due to lose patent protection before 2015, making the arbitration story just a little more complicated. If Merck wins the arbitration, it and J&J's Centocor unit will share equally in the loss of revenue on Remicade -- 50-50, by then -- throughout the EU zone. If Merck loses the overall $10 billion arbitration, it will lose all the Remicade (and Simponi®) sales revenue next year. Then, sometime in 2015, J&J will begin to see sales erosion in the EU due to biosimilar competition, likely from Teva.

In any event, here is a link to the draft EU regs (a 13 page PDF file -- comments to the draft are presently being accepted here), and below is a bit of the Bloomberg item -- do go read it all:

. . . .Europe’s drug regulator set out guidelines for copying some of the most expensive biotechnology medicines, giving companies such as Novartis AG and Teva Pharmaceutical Industries Ltd. access to a $36.4 billion market.

The European Medicines Agency’s draft regulation, posted today on the agency’s website, aims to clarify how drugmakers can copy and sell so-called monoclonal antibodies after they lose patent protection. The document is open to public comments until May 31, the London-based agency said. . . .

We'll keep you informed about the emerging path of the law, here -- as it portends to redefine a $50 billion market landscape for such therapies. [Addendum -- here is the 11 page PDF file of the draft regs for clinical in vivo use of monoclonal antibodies.]

Thursday, November 25, 2010

First Puerto Rico, Now Ireland? Where (Or When) Will Merck Need To Move Its Tax-Haven Operations?


The Financial Times has a solid piece out, tonight -- on the burgeoning political pressure inside Ireland -- to increase the corporate tax rate on non-Irish corporate profits earned there. Just like many multinational pharma and device companies, Merck does a substantial amount of manufacturing, and EU region financial consolidation in Ireland -- in order to take advantage of the 12 percent tax rates on corporate profits there.

Given that the Irish have just seen a sharp drop in the internal minimum wage (legislated as part of the pending EU debt bailout), pressure is bound to increase, from a populist point of view, on the foreign corporates' tax rates. Here is a bit of the item -- but do go read it all:

. . . .Neil Boyle, the managing director of MSD Ireland, part of Merck, another US-owned pharmaceutical company, said it was vital for the government to retain an “indefatigable” focus on international competitiveness if it was to steer the Irish economy out of the crisis.

[Editor's Note: I might point out that in late 2009, and early fall 2010, MSD closed two facilities: Wicklow/Bray, Ireland, and Brinny/West Cork, Ireland -- thus laying off an aggregate of 400 highly-trained, competitive workers-- so it is rather ironic to hear this sort of speechifyin' from the MSD mouthpiece there.]

“The corporation tax rate is a signal in terms of the government having a positive agenda for inward investment,” he said.

The combination of low corporate taxes, a well educated English-speaking workforce, access to the markets of the European Union, relatively low costs before the boom, and a welcoming political climate made Ireland an exceptionally attractive location for US companies in particular. The US accounted for more than half of all the inward investment into Ireland over the past five years, according to Ernst & Young. . . .

If the increase in tax-rates for foreign-domicile corporations persists in Puerto Rico (Law 154 is scheduled to take effect January 1, 2011 -- if not amended or rescinded), and if Ireland's own workforce demands a foreign domicile corporate tax increase, in return for the forced reduction of minimum wages there, Merck will begin to run out of tax-haven jurisdictions for its manufacturing and financial clearing operations. We'll keep you posted.

BusinessWeek's Tom Randall Misses One Third Of CETP Story. No Surprise, There.


As I wrote much earlier, the main stream science media has done a marginal job -- at best -- of going beyond the soundbites very carefully fed them, by Merck, certain Oxford and (to a lesser extent) Harvard researchers, each affiliated with the Anacetrapib DEFINE study.

Continuing that trend overnight, Bloomberg's BusinessWeek has a new piece out, written by Tom Randall, purporting to recite the history between Merck and Pfizer, and the $50 billion battle to lead cholesterol management medicine, over the last 15 years or so.

Randall concludes that Merck may emerge the winner -- despite Pfizer's Lipitor® decade of dominance, now coming to an end -- as it goes generic next year (another fact he, and Bloomberg's BusinessWeek fail to mention, or put in context). Randall reaches this conclusion by citing Merck's perserverance, in continuing on with Anacetrapib -- after Pfizer's lethal study results on Torcetrapib (same class) in 2006. True enough -- that was a visionary and courageous decision -- in so far as it goes. But it is not all of the story -- by any stretch.

Mr. Randall forgets to mention Roche. Roche's Dalcetrapib is two years (at least!) ahead of Merck's CETP candidate. [Not that Roche is a screaming buy here, either though -- see next full paragraph.]

Merck won't be in the US market with Anacetrapib before 2018, in all likelihood.

And, because Lipitor goes generic next year -- some 20 million Americans will have been on cheap, effective generic statins for five years when Roche's Dalcetrapib CETP inhibitor (a thus-far less effective variant on MRK's CETP inhibitor) reaches market in 2014 to 2016. All that assumes no deadly flame out, for either candidate.

Yep, as I earlier mentioned, back in July of 2009, Roche began a 15,600 patient Phase III, multi-center efficacy/CV outcomes study on its CETP inhibitor candidate, called Dalcetrapib. Merck will take the equivalent step, with its CETP candidate, Anacetrapib, on its timeline, sometime in early 2011, in a 30,000 patient trial run by Oxford University, to be called REVEAL.

Thus, Merck is now -- simply stated -- a couple of years behind Roche -- but Merck's Anacetrapib is showing (at least at this stage of the game) considerably better lab results, with its CETP inhibitor candidate. Even so, both Roche and Merck will face a population -- in 2018 -- that has been on statins (at perhaps one-one hundredth the price) for seven to ten years, and is seeing real benefit from that course of therapy.

Net, net: I'd not bet too terribly much on the Tom Randall Bloomberg/BusinessWeek piece.

Wednesday, November 24, 2010

One Expert Network Professional "Gets It Exactly Backwards"


I just ran across this updated story out of Bloomberg, written by Christopher Condon, Anthony Effinger and Sree Bhaktavatsalam. It is a good solid read -- and it is telling in many ways, by the things said -- and left unsaid -- in the pull-quotes. This is good journalism. It seems they've captured the essence of what is troubling the DoJ, the SEC and the FBI in these new cases -- right out of the mouth of one of the members of the investigated industry. Do go read it all, but here is the bit:

. . . .Expert networks can include former employees of companies being examined, professors and doctors, Geoff Bobroff, an independent fund consultant in East Greenwich, Rhode Island, said in a telephone interview. Bobroff is part of Gerson Lehrman’s network.

Bobroff said the use of experts has risen in conjunction with the decline of traditional Wall Street research. Because of mergers, investment banks such as Goldman Sachs Group Inc. and Morgan Stanley now account for far fewer equity analysts than they did 10 or 15 years ago, he said.

Wall Street was also placed under greater regulatory restrictions after 10 firms collectively paid $1.4 billion in 2003 to settle claims they slanted their research to win banking business.

"This clearly was an outgrowth of the Wall Street settlement on proprietary research," Bobroff said. . . .

That last bit (Bobroff's pull-quote) gets it exactly backwards, doesn't it?

The slanted research (as a way to win underwriting fees, or M&A advisory fees) cases -- in no manner whatsover -- caused this investigation. No, it was dishonesty that caused both sets of cases -- the 2003 vintage, and the ones that led to this morning's arrest in Somerset, New Jersey.

These came to the attention of law enforcement due to unusual trading patterns, patterns that reflected successful attempts to secure information from "tippers" -- people whom the "tippee" knew (or should have known) was under a duty to keep the same fastidiously confidential. Each paradigm was investigated; and in 2003, multi-billion dollar civil settlements were reached. In this latest version, the "expert network" version, I predict will there will be criminal indictments -- very soon.

Particularly telling in this regard, was the one wiretapped conversation the FBI detailed today, as the complaint against Chu was unsealed.

He seemed to be advising an "expert" how "not ot leave a trace" (or so he thought!) in doing whatever it was he was doing. In the criminal law, that is called mens re -- or evidence of a guilty mind. In short, it is some proof (allegedly) that he knew what he was proposing was wrong -- if not legally, at least morally. Otherwise, why would he not want to leave "any trace"?

He was, it is alledged, effectively encouraging and exhorting various people to violate agreements they had signed with public companies. Agreements to keep the companies' secrets. . . secret. Or again, so it is alleged, by the US Attorney.

To be fair, though, we shall have to wait and see -- once the wiretapped conversations are set in a proper and more-complete context. To see whether he was just being obsessively and unreasonably secretive in his otherwise completely lawful business dealings (afterall, we each have a fourth amendment right to keep our secrets. . . secret!) -- or whether he was obsessed with secrecy in order to avoid detection, as a broker of illegal inside information, (or as a direct "tipper," or "tippee").


Insiders' "Expert Network" | First "Tech/Telecom Sector" Arrest; How Soon Before A Pharma-Related Arrest?


The Manhattan US Attorneys' office just announced the arrest of a 56 year old tech sector "expert network" insider. The investigation is continuing, noted Preet Bharara, the U.S. Attorney for the Southern District of New York. So, it is safe to assume that it is simply a matter of time, now, before a similar health-care (or pharma, more specifically) expert networker is arrested, in the seemingly ever-widening probe. Per WSJ MarketWatch's reporting

. . . .Authorities said Don Ching Trang Chu, known as Don Chu, was arrested Wednesday morning, at his Somerset, New Jersey home, on conspiracy charges in connection with his employment at an “expert-networking” firm. . . .

Chu has been charged with conspiring to promote the firm’s consulting services by arranging for insiders at publicly traded companies to provide nonpublic information to the firm’s hedge-fund clients for the purpose of executing profitable securities transactions, according to a joint statement by the Justice Department and the Federal Bureau of Investigation.

Chu was scheduled to depart for Taiwan on Nov. 28. . . .

He faces one count of conspiracy to commit securities fraud and one count of conspiracy to commit wire fraud and fraud in connection with securities, the authorities added.

Count one carries a maximum potential penalty of five years in prison and a fine of $250,000, or twice the gross gain or loss from the offense. Count two carries a maximum potential penalty of 25 years in prison and a fine of $250,000, or twice the gross gain or loss from the offense. . . .

Stay tuned -- decidedly nervous turkey carvers will abound, tomorrow -- in the nation's medicine chest, I bet.

Tuesday, November 23, 2010

Could This Be A 2010 Edition "Bad Timing" Dept. -- For Goldman Sachs Bankers?


Borderline O/T, but. . . we'll drop this in, at a busy day's end, courtesy of the New York Times' DealBook blog. With all the swirl, this may prove particularly embarrassing -- that one of Goldman's analysts is featured in the DealBook's "Wall Street's Swagger Returns" story, tonight:

. . . .Exuberance made a comeback this year at Josh Koplewicz’s annual Halloween party. More than 1,000 people packed into a 6,000-square-foot space at the Good Units night club in Manhattan, a substantially larger crowd than in the last several years. The open bar was sponsored by Russian Standard vodka, and Mr. Koplewicz, an investment analyst at Goldman Sachs, was able to snag a big headliner: the hip-hop star Lil’ Kim, who performed dressed in a black cat costume. . . .

Photos from this event may be among the prosecution's visual aids, should the Goldman matter eventually wend its way toward trial. Sorta' trivial, I know. I'll have better stuff tomorrow, I promise.

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

Editor's Subsequent Correction: The caption on the photo is incorrect: the top image includes only "Spindarella" with "Pepa", not old school "Salt". So, only 2/3rd of what was the late-80s rap-group "Salt-N-Pepa" is depicted. I regret the (rather trivial) error.

WSJ Confirms Tonight That Wellington Was Served A Subpoena -- Not Just An Informal Request


Sort of a smallish matter, but it is now confirmed (by the Wall Street Journal, as of about a half hour ago) that Wellington did receive a subpoena (answering my earlier questions on that score) from the US Attorneys' office, in Manhattan. It seeks more than trading records, though -- according the the Journal's latest reporting:

. . . .Hedge-fund giants SAC Capital Advisors and Citadel LLC, big mutual-fund company Janus Capital Group Inc. and Wellington Management Co., one of the nation's biggest institutional-investment firms, have received subpoenas from the Manhattan U.S. Attorney's office seeking trading, communications and other data as part of a broad criminal investigation, according to people familiar with the matter.

The Federal Bureau of Investigation also recently questioned an account manager at Primary Global Research LLC, a California company that provides "expert-network" services to hedge funds and mutual funds, people familiar with the matter say. . . .

Still another strand of the probe is examining whether Goldman Sachs Group Inc. bankers leaked information about transactions, including health-care mergers, in ways that benefited certain investors, the people say. Goldman declined to comment. . . .

This is going to be a rather wild ride, heading into the holiday season -- for many, many "old school" pros, previously used to doing it the "old back-alley" way -- and now caught square in the process, and in the FBI's wiretapped spotlights.

We'll keep an eye on it.

In View Of WSJ's Goldman "Leaks" Allegations -- Reread THIS


I'll simply reprint my April 3, 2009 item -- on remarks made by a Goldman Sachs & Co. internal lawyer at Tulane that day -- fascinating, given the new perspective -- I've left everything the way it was, as of April 3, 2009:

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April 3, 2009: Goldman Sachs Lawyer Makes Startling Disclosure At Tulane. . . .

Apparently there was a deplorable excess of testosterone flowing -- at a panel-discussion during Thursday's corporate law seminar at Tulane University, to wit:

A senior writer for Corporate Control Alert is quoted on The Deal.com as having heard the Goldman lawyer (an adviser on the contemplated deal) describe one proposed (but not prevailing) structure for the Merck Schering-Plough reverse merger as including a direct borrowing, by the target (Schering), from the acquiror's (Merck's) banks. That borrowing was to be used to fund a pre-closing cash payment to Schering-Plough shareholders. Astonishing. He recounts it, thus:
. . . .To address the funding uncertainties posed by the $41 billion deal, Schering considered borrowing money directly from Merck's banks and paying it to Schering shareholders before the deal's close. The scheme would have given Schering a direct claim against the banks funding the deal, rather than have the buyer be in contractual privity with the banks. . . .

[Emphasis supplied.]

[To be sure we all follow what was proposed, here, let me re-cast this, in a more familiar setting, as an illustrative (if not perfectly-analogous) example: if this structure were employed as you went to sell your home, it would give you -- the seller, the right to get half of the cash, for your house, well before the closing, and then to sue the buyers' bank -- if that bank didn't give you the cash, before the closing -- while the title-report was still being prepared, and the prior real estate tax payments were still being confirmed. Doesn't that seem rather extraordinary?]



Okay -- now, I have at least three reactions: (1) Such a pre-closing payment, in cash, of $10.50 per share, would smell quite a bit like a "settlement" payment -- to the institutional shareholders. Collectively, institutions hold something north of 70 percent of all outstanding Schering-Plough shares -- the proposed "settlement payment" would arguably be offered to take care of all the matters I have blogged about these past 14 months. Why do I say so? Because payments in cash, so far in advance of a merger are almost unheard of, in public company transactional practice -- especially in any deal near this size. That leads me to my next reaction:

(2) Such a pre-closing payment would essentially "gut" the deal of half of its value -- making it nearly impossible to break it up, with a higher offer. It would effectively eviscerate the synergy value of the deal, pre-close -- by paying over $17 billion out to the "old" Schering-Plough shareholders, and leaving only the "husks" for closing day -- in the form of the actual share exchange values (the .5767 shares of Merck). And that leads to my third reaction:

(3) This proposed structure -- paying so much out, in cash, so significantly in advance of closing -- would have almost certainly been a breach of the Schering-Plough officers' and directors' fiduciary duties (among them the duty to determine that this was the highest, best offer available). Consider that such a mechanism would effectively (a) line the Schering officers' pockets with brand new cash, pre-close, and (b) preclude any other bid, by obligating Schering to repay the banks some $17.33 billion ($10.50, times 1.65 billion Schering-Plough shares) -- even if Schering didn't nominally end up acquiring Merck (via the reverse merger -- which is, in substance, the wipe-out of Schering). And that structure -- if endorsed by Merck's officers and directors -- would arguably be a breach of the fiduciary duties owed by Merck's directors and officers, to the "old" Merck shareholders, as well. Wild.

To be fair, though, the Goldman lawyer plainly offered it as anecdotal evidence of the choppiness of the deal-funding credit markets, at present. I do think he "said the soft part a little too loudly", in so doing. That is, his statement has all the earmarks of a very-rushed, or not very-well-vetted, "do the deal, at all costs" feel to it.

Now -- is it possible that the Goldman Sachs lawyer was simply "selling wolf tickets" -- at Tulane, yesterday? Sure. It's possible. It seems unlikely, though. It seems like just the kind of soup CEO Hassan, and his Top Six would cook up. [Note that it would have given each of them a very-nice, pre-closing, gift of cash (for over half of the then-NYSE-price of their shares!), to boot. Can you say "self-interested"? Yep. You certainly can.]

Finally, this is -- if true -- a detail that we likely would not have learned from the publicly-filed merger proxy filings (when they are filed, in a few weeks' time). So, this is a selective piece of disclosure, at least arguably. And it is, to my eye, at least arguably material -- given the insight it offers -- to the extremely-motivated approach Schering's CEO and team seemed to be taking, to get this deal "cashed-out" early.

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Wild.