Updated from Jan. 21OKLAHOMA CITY -- In the summer of 2006, Schering-Plough ( SGP) made a bold -- if premature -- call. During a two-day strategy session, the company's latest proxy statement shows, Schering-Plough declared that its crisis period from recent years had come to an end. The company reached that conclusion shortly after the close of a key trial meant to further strengthen a booming cholesterol-drug franchise that it operates with Merck ( MRK). Not until last week, nearly a year and a half later, did the results of that trial finally emerge. The study, popularly known as ENHANCE, suggested that Schering-Plough's blockbuster cholesterol-lowering drugs work no better -- and could pose greater risks -- than the far cheaper generic Zocor. Schering-Plough's shares plummeted 20% in a matter of days as a result. The stock couldn't even manage a rebound on Friday after CEO Fred Hassan announced plans to buy $2 million worth of the hammered shares. "The media interpretations of the top-line ENHANCE results, and the resulting stock price reaction, have been deeply troubling," Hassan stated. "This investment in Schering-Plough reflects my long-term confidence in the company. ... There are still significant challenges facing Schering-Plough, but I firmly believe this company can be turned around." By now, Hassan and other Schering-Plough leaders have already collected generous awards for the company's "comeback." Notably, regulatory filings show, Schering-Plough linked much of the "long-term" incentive awards for its recovery to a three-year period ending in 2006. Certainly, Schering-Plough looked strong enough at the time. Thanks in part to its new cholesterol drugs, Zetia and Vytorin, the company managed to post substantial improvement in virtually every key financial metric -- including sales, earnings and shareholder returns -- since Hassan's arrival in the spring of 2003.
Vytorin soon became the leading "switch brand" in the market. More than half of its users abandoned other treatments in favor of the single-pill alternative. A massive study, known as IMPROVE-IT, should help prove whether patients should have made that change. But results from that 10,000-patient trial will not emerge for years. In contrast, ENHANCE concluded in April of 2006. Skip Irvine, director of communications for the joint venture, insists that neither company received any clues about ENHANCE until earlier this month. But skeptics, pointing to stock sales by Schering-Plough insiders, have some doubts. Schering-Plough didn't respond to questions about its insider sales. In May of 2006, just one month after ENHANCE came to an end, Carrie Cox, president of Schering-Plough's global pharmaceutical business, sold nearly $1 million worth of company stock. Cox would go on to execute even larger sales, clearing more than $5 million on two separate occasions, a year down the road. Meanwhile, Schering-Plough's top executive had secured $2 million in a stock sale of his own. Hassan pocketed that money at the end of 2006, even as the company wrapped up a banner year that ensured tremendous bonuses.
Schering-Plough responded in familiar fashion, downplaying the significance of ENHANCE and emphasizing the importance of available science supporting the value of low LDL. But that time around, at least, some company executives may have known of the trial's shortcomings.