Thursday, March 29, 2012

Rumor Report: Some "Local Color" -- On Outgoing Merck Chief Compliance Officer

This morning's installment comes as an update to my post of yesterday morning -- to which an anonymous reader offered the following backrgound -- in my comment box:

. . . .Anonymous said. . .

That [naming the new Merck CCO] took a lot longer than most thought. The scuttlebutt at the merger was that Rick left Legacy Merck in a fury when he was passed over to head MMD in favor of Dick Clark (who transitioned to CEO from there). This was allegedly 'proven' by the fact that all units of the company had their compliance areas consolidated under Bowles except MMD. Alleged sour grapes dragging on. I suppose the real proof will be if MMD's compliance folks fold under the new guy. We shall see.

March 28, 2012 11:38 AM. . . .

Let's keep our eye out for this -- it would make no sense not to have the whole company under one chief compliance officer, as the as-amended corporate integrity agreement between Merck and the DoJ covers the entire company -- not just certain units. And it seems pretty clear that the lawyers driving the governance changes in the settlement of the federal ENHANCE ERISA suits (requiring prompt disclosure mechanisms, as to all future clinical trials conducted by Merck -- and disclosure oversight boards), all made final last week, are hinged upon a strong independent CCO -- and Michael Holston is certainly that. Stay tuned.

Wednesday, March 28, 2012

Merck "Looks Outside" To Find New Chief Compliance Officer

As a legacy Schering Plough CCO announces his retirement after 35 years (between the various predessessor companies), Chairman & CEO Kenneth Frazier goes outside the organization -- selecting someone he apparently previously worked directly with, when Frazier was the GC, on the Vioxx® matters.

Most recently, Michael J. Holston was the GC at HP. Interesting. Here is the company's presser:

. . . .Holston most recently served as executive vice president and general counsel for Hewlett-Packard Company, where he oversaw compliance, government affairs, privacy, ethics operations and legal affairs. Prior to his role with Hewlett-Packard, Holston was a partner in the litigation practice at Morgan, Lewis & Bockius LLP, where he served as external counsel to Merck on matters such as product litigation, government investigations and compliance with healthcare laws and regulations. Before joining Morgan Lewis, he served as a prosecutor in the criminal division of the U.S. Attorney's Office for the Eastern District of Pennsylvania. . . .

So it goes.

Merck: No Early Positive Outcome -- In Massive Vytorin® IMPROVE-IT Study

Not remotely shocking, but Merck's independent panel of safety monitors won't even look at the massive (18,000 patient) definitive Vytorin® study again for about nine months. This also demonstrates that there was no overwhelmingly positive signal, either -- such that Merck could have decided to declare victory, and stop IMPROVE-IT early.

No, IMPROVE-IT will now run to the end-date -- and we will all have to wait and wonder about whether the drug combo is improving any real world cardiovascular outcomes, until perhaps 2014. From Reuters:

. . . .Wall Street has been eagerly anticipating the interim report for the 18,000-patient Improve-It study to see whether Vytorin is helping improve heart outcomes, and thereby increase sales for the franchise.

However, Merck did not release any data on Wednesday, saying it has not seen the results of the interim analysis. It said only that the safety monitors overseeing the trial recommended it continue without change and that they plan to review the data again in about nine months. . . .

And so -- it may be mid-2014 before the final results are published -- as I've always suggested. That's about eight years of multi-billion dollar revenues for a drug combo that may well provide no outcomes benefit. As the Supremes ponder a revamp of the current system, it sure looks like the current [non-]system is broken, and wildly inefficient, here.

Wednesday, March 21, 2012

I Said A Year And A Half Ago That Merck's Ridaforolimus "Was Never Going To Be A Blockbuster"

As ABC is reporting, an FDA panel voted 13-1 against approving ridaforolimus, saying the side-effects -- seen in about 60 percent of studied patients -- outweighed the benefits, for this candidate conceived as maintenence therapy, for a relatively rare form of cancer.

Here's that St. Patrick's Day 2011 post of mine (with even earlier background, here).
From, then -- a bit:

. . . .The panel saw less potential for Merck's ridaforolimus, which the company acquired through Ariad Pharmaceuticals Inc. The group voted 13-1 against the drug, saying its significant side effects -- which affected 60 percent of patients -- outweighed its benefits.

Merck & Co. Inc. of Whitehouse Station, N.J., submitted the drug as a maintenance therapy, meaning it would be used to help repress sarcoma of the bone and tissue in patients whose cancer is already in remission. Since such patients are healthier than patients with active disease, panelists said they wanted to see a more dramatic benefit to justify putting patients on a drug with major side effects. The FDA has only approved a handful of cancer drugs for maintenance use.

Company trials showed no survival benefit and a meager seven-week delay in disease progression compared with patients not taking the drug. . . .

So it goes.

Tuesday, March 20, 2012

Adam Feuerstein Is Exactly Right: EASL Offers Easily-Abused Selective Liver Study Disclosure To Hedge Funds, Etc.

This has, quite-frankly, long troubled me. I am excited to see someone -- anyone -- making a larger issue of it. It has impacted, and will, in the future, certainly continue to impact the stock prices of the participants in the next-gen Hep C wars. And more than occasionally, it will do so in non-transparent ways -- conferring significant trading (and thus financial) benefits upon Wall Street's high-powered-elite: the hedge funds and largest portfolio managers.

Writing for The Street, Adam hits the nail on the head, here:

. . . .But if you want an advance look at potentially market-moving hepatitis C drug data, you'll have to be an EASL member or a registered attendee of the EASL meeting -- a group which includes hedge fund and mutual fund portfolio managers and sell-side analysts, all of whom can pay for early access.

EASL plans to selectively distribute hepatitis C drug research abstracts to these folks on Thursday. The same documents will not be made available to the public. That means a select group of investors will have access to potentially stock-moving clinical data while a majority of investors will be kept in the dark. . . .

Exactly right. The EASL conference selective disclosure/embargo system needs to be reworked -- there is scant legitimate reason to suggest that EASL members need advance access.

Monday, March 19, 2012

Merck Drops Development Of Oral Atrial Fib Candidate (Vernakalant); Keeps IV Version

Larry Huston, writing for Forbes, has the scoop -- do go read it all:

. . . .Merck has discontinued its development of oral vernakalant for the long term prevention of atrial fibrillation (AF) recurrence. Cardiome Pharma, Merck’s partner in the drug, said today that the "decision was based on Merck’s assessment of the regulatory environment and projected development timeline."

Merck and Cardiome will continue their partnership with the intravenous formulation of vernakalant, Brinavess, which is approved in 37 countries outside the US for the rapid conversion of recent onset AF. . . .

So it goes.

Wednesday, March 14, 2012

WSJ Under-Estimates J&J CEO Weldon's Walk-Away Package By 38 Percent. . .

. . .But, at $197 Million, Weldon's is still almost 20 percent smaller than Ex-CEO Fred Hassan's was, as granted at the end of 2009!

And Mr. Weldon -- say whatever else you like aout the man, but he worked for 40 years to earn it. Hassan? A little more than five years. [So, Weldon worked eight times longer to earn about 20 percent less.]

The MSM reports calculate only the cash values for soon to be Ex-CEO Weldon, not the present value of his stock options, at today's NYSE closing price for J&J of $65.08. So, that -- plus the vesting of his February 2012 JNJ RSUs and Stock Option awards [see page 45 of the link (but such amounts are ommitted from the year end 2011 proxy, on which the WSJ relied)] -- add about $53.47 million to the Weldon walkaway haul.

But even so -- it is still well shy of Fred Hassan's deal, just as Ex-CEO Clark's deal (after 36 years at legacy Merck) was dwarfed by Hassan's $235 million, all-in -- for five years of mismanagement. From tonight's Wall Street Journal reporting, then:

. . . .CEO Weldon's pension valued at $48.4 million, deferred compensation at $95.1 million

J&J says Weldon earned benefits over a 40-year career

J&J changes executive-pay practices after shareholder-advisory vote last year

J&J spokesman Al Wasilewski said Weldon, who started working at the company in 1971, earned his post-retirement benefits over "a very long career at J&J, 10 of those years as CEO."

Weldon, who will be succeeded as CEO by Vice Chairman Alex Gorsky, stands to collect benefits from two main buckets. The present value of his accumulated pension benefit is $48.4 million, portions of which are paid out as a monthly annuity for life, according to a proxy statement filed Wednesday with the Securities and Exchange Commission.

Weldon's pension value ranks well into the top 10% of CEOs of S&P 500 companies, said Paul Hodgson, chief communications officer and senior research associate at GMI Ratings, which tracks corporate-governance information.

In addition, Weldon has accumulated $95.1 million in nonqualified deferred-compensation plans. This represents portions of his salary and bonus that have been deferred in prior years, as well as company contributions to savings plans. Parts of his deferred compensation have been recorded each year as part of Weldon's total annual compensation.

Of the $95.1 million, more than $70 million represents Weldon's accumulated balance from a legacy cash incentive plan that J&J has discontinued and replaced with a new executive-compensation plan. This amount would be paid to Weldon at retirement, Wasilewski said. All deferred compensation is subject to taxes. . . .

Here is my spread sheet [an Excel file] on his option- and RSU- values, by the way. Break out your tiny violins, folks. But -- if you do -- be sure not to play them for Mr. Hassan. Sheesh.

Tuesday, March 13, 2012

At The Supremes -- Health Care Reform Oral Arguments -- In Two Weeks

The very finely-researched and written has the definitive media roundup -- do go read it all -- but here is a bit of it:

. . . .With oral arguments in the challenge to the Affordable Care Act set to begin in two weeks, the weekend’s coverage of the Court focuses on the Term’s most anticipated case. . . .

In the New York Times, Adam Liptak writes that the Court’s health care decision will "shape, if not define," the legacy of Chief Justice John Roberts, reasoning that "clashes like the one over the health care law come around only a few times in a century, and he may well complete his service without encountering another case posing such fundamental questions about the structure of American government. . . ."

Writing for Forbes, Lawrence Hunter describes the White House’s "campaign to hoist the Court on the petard of conservative justice Antonin Scalia’s words," based on the Justice’s "expansive view of . . . the Commerce Clause and the Necessary and Proper Clause". . . .

Separately, I should mention that Merck will present at the Barclays conference down in Florida, tomorrow at 8:30 am Eastern, and that Merck's Victrelis® (boceprevir) received a NICE green-light, for reimbursement in the United Kingdom, recently. Expect it to mentioned at Barclays.

Monday, March 12, 2012

Merck Stock Likely Saw "Dividend Captures" Cause NYSE Volume To Triple, On Friday

When a stock's dividend yield is over 4.5 percent, with deep cash-flow like Merck's -- and low debt to equity, all in a steady Fortune 100 stock -- traders begin to trade in and out of it, simply to clip the fat dividend. It looks like that happened on Friday, with 44 million shares changing hands on the NYSE. A normal day would be around 15 million shares.

Now we wait for the reversing volumes, post the record date. [Older background, on this, from our site, here.]

Mrs. Boles' Fosamax® ONJ Lawyer Will Have To Wait -- To Appeal His Sanctions Order

During the lawyers' summations of the Boles II Fosamax® ONJ trial, the very able New York federal District Court Judge John F. Keenan held one of the lawyers before him in contempt for an alleged act of professional misconduct -- and subsequently ordered that particular lawyer to pay a $2,500 fine for -- it is claimed -- arguing in summation that the jury should calculate the damages award to "punish" New Merck. In this (and almost all other) Fosamax ONJ cases, the required pleadings and showings for so-called "punitive" damages did, and do not exist. [To be fair, the image at right, used by the Merck lawyers in summation -- also seemed questionable -- as it suggested the judge would be willing to pay the jury for for the truth. There was quite a bit of hard-nosed, "border-lining" advocacy, at the end of the trial, on both sides, it would seem, in Boles II.]

So, a "punishing" damages verdict from the jury would be inappropriate. And so, to intentionally mislead the jury -- by appealing to passion or prejudice by arguing for such a punishing award, in summation, would arguably be misconduct.

The appellate court just ruled that it doesn't have jurisdiction to decide whether the sanction was appropriate, because the questions raised by the sanctions appeal are to closely intertwined with the questions still in play, in the retrial on the merits (Boles III). So, the involved lawyer will have to wait to file his appeal until Boles III is complete. From the appellate oourt mandate order (PDF file, 4 pages), then:

. . . .[B]ecause the sanctions inquiry now urged “would differ only marginally from an inquiry into the merits,” Cunningham v. Hamilton Cnty., 527 U.S. at 206, the collateral order doctrine does not apply here.

Further, although a final order in this case awaits retrial, that circumstance only delays Douglas’s ability to appeal the sanctions order; it does not render that order unreviewable. Whenever and however a final judgment is entered, “an attorney may appeal a decision where the district court imposes a tangible sanction or makes an express finding that a lawyer has committed specific acts of professional misconduct.” Keach v. County of Schenectady, 593 F.3d 218, 226 (2d Cir. 2010). . . .

For the foregoing reasons, the appeal is dismissed for lack of appellate jurisdiction. . . .

Now we wait until later in 2012, for the retrial of the damages award portion of the Boles II verdict -- also to a jury -- but this time to an entirely new jury.

Thursday, March 8, 2012

No Surprise -- The Lead In Treating HCV/HIV Co-Infection Belongs To Incivek®

First, a word of caution -- both legacy Schering-Plough's Victrelis® (boceprevir), and Vertex Pharma's Incivek® (telaprevir) are still "investigational" drugs -- when we speak about treating HCV/HIV co-infected patients. That is, FDA has not approved either drug for use in such patients -- the companies' drugs are only labeled to treat Hep C (or HCV), at present. [So, technically speaking, their use in co-infected patients is "off-label", but under study, i.e. -- "investigational" in FDA parlance.]

Thus, both companies are running trials to determine whether either one will be allowed to be marketed as useful for treating patients with both HIV and Hep C -- a rather common occurence in the current US patient population. So far -- as was true with the overall efficacy studies on Hep C alone -- it seems that Incivek is posting more impressive cure rates, with (thus far) no HIV viral breakthroughs.

You'll recall that a month ago, FDA specifically warned about not treating HIV/HCV co-infected patients with a combination of Merck's Victrelis, and any ritonavir-boosted protease inhibitor -- as it seemed as though that combination (in some not-well understood way) weakened the anti-HIV regimen (a statistically-significant rate of HIV breakthroughs were observed, in patients on such a combination-laden therapy). Merck has concurred with this assessment, and has openly said that Victrelis shouldn't be used in such settings.

Significantly, no such drug-interaction/side-effect has been seen in any of Vertex's Incivek trials. The two base molecules are different enough (see at right), that it would be plausible to believe that Incivek (telaprevir) doesn't suffer the same defect, structurally, that Victrelis (boceprevir) does. Of course, we don't know exactly why this breakthough effect is happening -- but it does reinforce the notion that, in the science of biology (and thus evolution), even slight variations often make significant differences, over the vast multiples of generations that are the engine of evolution. Remember that HIV virus types (and, for that matter, HCV virus types) may transition through hundreds of thousands of such "generations" in just a few weeks' time, inside a human host.

What it all means, in my opinion, is that Vertex holds the lead in current Hep C regimens -- at least for the next few years -- to early 2016 (especially since Gilead's next-gen Hep C setback). And Vertex rose over 2 percent yesterday, on the NYSE, while Merck declined throughout the day -- dropping below $37, in the early going, only to make it most of the way back to flat, by day's end.

Here is a bit of the Reuters reporting, with the data, out of the conference in Seattle, late Tuesday -- do go read it all:

. . . .Vertex said 74 percent of trial patients treated with Incivek followed by the standard regimen of interferon and ribavirin were free of the hepatitis C virus, or HCV, 12 weeks after ending treatment, compared with 45 percent of patients given interferon and ribavirin alone.

There were no instances of a rebound of HIV for patients in the Incivek trial. Side effects seen more frequently with that drug were itching, headache, nausea, rash, fever and depression. No cases of severe rash were reported.

Merck's mid-stage trial found that 63.9 percent of patients treated with Victrelis and the standard hepatitis C therapy were free of HCV at 48 weeks of treatment, compared with 29.4 percent of patients treated only with interferon and ribavirin.

Two patients on Victrelis and three in the control group had an increase in HIV. . . .

So -- will Merck's (which is actually legacy Schering-Plough's) Hep C drug, Victrelis, ever reach 20 percent share, in the US market? I personally doubt it.

Tuesday, March 6, 2012

More Details Emerge, On Concerns With Victrelis® & HIV Co-Infected

I am tempted to offer the acidic observation that this was dumped into a 9 pm Eastern Super Tuesday results news blizzard -- perhaps in the hope it would be buried under the drama unfolding in Ohio tonight. But I won't.

More seriously, I think this is going to turn into more tough sledding for the legacy Schering-Plough Victrelis® (boceprevir) campaign -- it may never reach 20 percent share in the United States. Vertex will benefit here. From Whitehouse Station, tonight -- do go read it all:

. . . .Merck announced results as part of a late-breaker poster session [Poster #771] from a pharmacokinetic study evaluating drug interactions between VICTRELIS and ritonavir-boosted HIV protease inhibitors in 39 healthy volunteers. In this study, concomitant administration of VICTRELIS with ritonavir (Norvir®) in combination with atazanavir (Reyataz®) or darunavir (Prezista®), or with lopinavir/ritonavir (Kaletra®) resulted in reduced exposures of the HIV medicines and VICTRELIS. These drug interactions may be clinically significant for patients infected with both chronic HCV and HIV by potentially reducing the effectiveness of these medicines when co-administered. Merck does not recommend the co-administration of VICTRELIS and ritonavir-boosted HIV protease inhibitors.

"In light of the differing results in these data sets, Merck recognizes it is important to continue to study VICTRELIS in combination therapy in this difficult-to-treat patient population," said Eliav Barr, M.D., vice president, Project Leadership and Management, Infectious Diseases, Merck Research Laboratories. "Our collaborative studies with the French National Agency for Research on AIDS and Viral Hepatitis2 (ANRS) and the AIDS Clinical Trial Group (ACTG), which is funded by the U.S. National Institute of Allergy and Infectious Diseases, will provide greater insight into the potential role of VICTRELIS in treating patients with chronic HCV genotype 1 infection who are coinfected with HIV-1. . . ."

We first mentioned this a month ago, now. This will blunt the Roche marketing muscle, I guess, as well. Tough break.

Merck Reduces Q1 2012 Guidance (Foreign Exchange); Shares Open Off $0.75 On NYSE

So Peter Kim's presentation at Cowen & Co. has been completely overshadowed by the guidance update -- out of Whitehouse Station this morning.

It shouldn't surprise anyone who follows currencies, but Merck is clearly suffering the effects of a stronger dollar -- vis-a-vis the euro, and to a lesser extent, the Japanese yen. [Where is the hedging program, I wonder -- this could have been mitigated.]

Per, just now:

. . . .Merck & Co. said Tuesday it expects adjusted first-quarter profit of 95 cents to 98 cents a share, compared to the Wall Street estimate of $1.01 a share in a survey of analysts by FactSet Research. . . .

Just as I said, right here, just about three months ago. Currencies will be an important Merck headwind in 2012 -- unless the global economic balance shifts significantly in the second half of 2012.

Monday, March 5, 2012

Merck's Peter Kim To Webcast, At Cowen & Co. -- in Boston -- Tomorrow

He's not likely to make any real news in Boston tomorrow, but we'll likely listen in just the same. We may liveblog any real news:

. . . .Peter Kim, president of Merck Research Laboratories, is scheduled to present at the Cowen & Company 32nd Annual Health Care Conference in Boston, Mass. on March 6 at 8:40 a.m. EST. Investors, analysts, members of the media and the general public are invited to listen to a live audio webcast of the presentation. . . .

So, do stop back by -- around 8:40 Eastern tomorrow morning. I doubt he'll discuss the ragweed allergy candidate, or the FDA complete response on "Son of Vytorin" [great tag, there Matt Herper!] -- but who knows?

FDA: "No, For Now" -- On Lipitor®/Zetia® Combo Pill

Not remotely surprising -- but Merck must now either decide to double-down, and invest anew in the combo-pill (despite the vagaries experienced with the Vytorin® combo-pill), or decide to cut its losses, and move on. Fascinating. [More of my background, here.] From the AP, then:

. . . .The Merck experimental drug combines the company's cholesterol drug Zetia with a generic version of rival Pfizer Inc.'s Lipitor, which had been the top-selling drug of all time.

Merck says company officials will talk with the FDA to determine the next steps for trying to win approval. . . .

This actually may save Whitehouse Station some money in the longer run, if it decides to moth-ball the combo. Obviously, Lipitor® is now a cheap generic, and the jury is still out (IMPROVE-IT -- due 2014) on whether statins (of which Lipitor is one) combined with Zetia® actually improve outcomes, or just lower the numbers, in blood levels, without any overall CV risk reduction effect.

Sunday, March 4, 2012

Merck To Enter Crowded, Lower-Priced Homeopathics (Ragweed Allergy Remedies) -- By 2014?

I've long believed that there are at least some homeopathic remedies that actually work, against a range of conditions and diseases. It would seem that Whitehouse Station is (becoming) a believer, as well.

The long term problem has been -- as to the homeopathics -- that they generally lack the rigorous study data FDA requires to make an allergy-relieving/health care labeling claim. Once again, it seems that Merck is looking to change that -- at least as to ragweed antigens, and grass antigens. [It will in part cannibalize the OTC versions of Claritin®, etc. -- I guess.]

While Merck is pitching it as an alternative to allergy shots (in doctors' offices), as well, it will also have to go head to head with numerous (generally low-priced) homeopathic pills and capsules. I'll be curious to see whether the study data will support "pharmaceutical-grade" as a pricing differentiator.

Merck posseses, by license, the North American rights to a new ragweed-antigen based daily oral drug candidate developed by ALK-Abelló. It has shown moderately positive results, at least as compared to a placebo, in a Phase III trial. These studies were just reported at a conference in Orlando, Florida this weekend.

From Reuters, this morning -- just a bit -- do go read it all:

. . . .Merck & Co on Sunday said it would seek U.S. approvals next year for separate allergy pills that help tame the immune system's reaction to ragweed and grass, and the drugmaker released favorable data from a late-stage trial of the ragweed medicine.

The pills are meant to be an alternative to traditional allergy shots given in doctors' offices, which include a mixture of proteins that gradually weaken the immune system's response to ragweed, grass, foods and other allergy triggers.

The Phase III study involved 565 patients 18 to 50 years old prone to ragweed-induced allergies, with or without asthma. Patients took Merck's once-daily tablet for 52 weeks, at one of two available doses, or took placebos.

The active ingredient of the pill is Ambrosia artemisifolia, the chemical name of the ragweed allergen, or protein, that causes runny noses, sneezing and other miseries for millions of Americans. . . .

Specifically, the pill reduced allergy symptoms during peak ragweed season by 17 percent and 14 percent, respectively, at the higher and lower doses. . . .

The studies will support the thesis, no doubt -- but will they be enough to push the homeopathics to the side -- or will Merck's spend on an FDA approval backfire, and bolster demand for the homeopathics (many of which contain the very same active ingredient)? Only time will tell. At least Merck is looking everywhere, for new revenue, it seems.

Friday, March 2, 2012

Unusually Strong Hiring -- At Merck's Nascent Durham, NC Vaccines Facility

Local Raleigh-Durham news outlets are reporting that the vaccine ramp-up is running ahead of schedule:

. . . .By the end of this year, Merck will grow its Durham vaccine-producing plant to 1,000 employees, higher than previous estimates and nearly five times larger than the work force at the beginning of 2010. . . .

Since 2010, the Durham facility has been partially manufacturing Varivax, a childhood vaccine to combat chickenpox, but splits manufacturing duties with a plant in Pennsylvania. Early next year, Durham hopes to receive approval to manufacture Varivax from start to finish, Wagner says. . . .

When fully licensed, the facility will manufacture parts of Zostavax, a vaccine for shingles in older adults, M-M-R II for measles, mumps and rubella, and ProQuad for measles, mumps, rubella and chickenpox.

Through the first three quarters, sales of those vaccines combined were on pace to generate more than $1.5 billion in 2011. In 2010, the vaccines had combined sales of $1.6 billion. Merck did not record any sales of ProQuad in the second or third quarters of 2011, which had made up the smallest portion of sales in the previous quarters.

Although Merck is relocating some production work from Pennsylvania to North Carolina, union leaders in Pennsylvania are not concerned, says Fred Redmond, the international vice president for the United Steelworkers, which represents 800 workers at the Merck facility in West Point, Pa. "We don’t see this as a shift to work from a unionized state to a non-unionized state," he says. "For now, we aren’t concerned. . . ."

Since construction began in 2004, Merck has invested nearly $1 billion in the Durham facility, says Cheznee Johnson, Merck’s global communications manager. . . .

We shall see, but longer term (as I've repeatedly said since late 2009), West Point probably should be concerned -- this new shop is a $1 billion, state of the art, entirely non-union plant. It is adding jobs way ahead of schedule, with numerous new FDA site approvals reaching the business end of the pipe, soon.

Thursday, March 1, 2012

Cain v. Hassan, et al. Settled -- As I Reported Over Four Months Ago

Back on October 19, 2011, I reported (exclusively, worldwide near as I can tell) that Cain v. [Ex-CEO Fred] Hassan, et al. would settle, based on federal (New Jersey) District Court pleadings and papers filed as a matter of public record that day.

Well, it took a while, but the AP is now covering it.

Why? Because the settlement is final (Judge Cavanaugh's non-precedential opinion PDF -- 12 pages, made public yesterday).

Here's some of my New Years' Bowl Game Day 2012 background on what is still to come:

. . . .Said another way, the insurers expect that there is only an around 5 percent chance that the $7.5 billion would be awarded by a jury. The expert, in his law review article, quotes an insurer (anonymously, for obvious reasons), thus -- particularly apt, as it refers to another pharma securities fraud case:

. . . .Pfizer has — I’m talking off the top of my head — 3 billion shares outstanding, and the stock went down 10 bucks. That’s $30 billion of damages. 5% of that is $1.5 billion. Settlement.

And you go to a judge and say, “The damages are $30 billion. We are proposing a settlement that is 5%. How can you say that is unreasonable?” And we say, “It’s unreasonable because it doesn’t reflect the liability,” and they say, “Sure it does. It’s 5% of the total, but it could happen. So it is 5-to-95 chance to win. Yes, it’s a perfect discount. . . .”

And so sometimes the numbers will in and of themselves take over, and I have that on a number of the pharmaceutical companies or large, large, jumbo-cap companies. I have it with General Motors, General Electric. The stock ticks down $2, which isn’t enormous. It’s not a free fall[. It’s] based on some news that might be innocuous, and it’s enough because that creates a damage pool that is into the billions which immediately gets the plaintiffs’ lawyers out because there [are] damages, and the case has value irrespective of the merits. . . .

If you look at the numbers, the settlement compared to the damages, you are talking anywhere from 2% to 6% of [plaintiffs’-style damages]. . . .

So, applying this to the ENHANCE facts, at legacy Schering-Plough/New Merck, we multiply $7.5 billion times 2 percent to get $150 million. If it is 6 percent, we'd yield a settlement value of $450 million. So something between $200 million, and $500 million, is the likely rough value of the cases still pending, for damages -- according to the parties' own jointly selected settlement defense expert. And that's before approaching the involved lead underwriters, in the Schering-Plough convertible securities offerings, back in August of 2007 (some $4 billion worth, in the aggregate).

Are you paying attention, here, Fred Hassan? This is what poor management and lax oversight costs a company, and its owners. . . .

There are still several ENHANCE era would be federal class action securities lawsuits pending -- though most are now either before a mediator, or a team of mediators, with views (on all sides) toward finding an agreed settlement posture.

All of those are far more likely to involve money damages, rather than corporate governance reforms, in my estimation.

In that regard, Merck's From 10-K recently disclosed (for the first time, I think -- in Footnote 12, on page 121) that it carries insurance of around $250 million for such claims. Even so, Merck says its reserves are adequate for defense costs only -- not (necessarily) potential settlement payout amounts. Interesting.