File this under trick or treat. Four years after Merck and Schering-Plough found themselves enmeshed in scandal over a clinical trial for their Vytorin cholesterol pill, a significant shareholder lawsuit has been settled and the deal was reached on the eve of a scheduled deposition of a former Schering-Plough board member whose replies may have made for some uncomfortable moments, according toA New Merck Reviewed.
For those who may not recall, the Enhance clinical trial was designed to boost Vytorin sales, but ended in failure. And a ruckus erupted when it became known the drugmakers changed the primary endpoint, raising questions about whether patients received sufficient benefit for a heavily promoted and expensive pill (read this). Consequently, the veracity of the drugmakers was also challenged.
The background is complicated, but the primary endpoint changed and was done without consulting the lead investigator (take a peek). Then, the drugmakers appointed an allegedly independent panel to review the data, but no one knew three members had financial conflicts until the names were later released (look here). Meanwhile, several insiders, among them Schering-Plough executives such as Carrie Cox, sold huge chunks of stock, raising speculation about insider trading (see this).
The ensuing controversy prompted various government (read here and here) and, not surprisingly, lawsuits followed, including a so-called derivative shareholder lawsuit, in which a complaint is brought on behalf of a corporation against an insider. In this case, the insiders named were former Schering-Plough execs and board members. The execs, by the way, have long maintained that they knew nothing of the Enhance trial results until after the behind-the-scenes controversy over the endpoint was publicly disclosed.
Now, though, court documents indicate that a deal has been reached, although details have not yet been disclosed (read the letter from the Merck attorneys here). For the record, the lawsuit charges that - in addition to suppressing Enhance trial results; disseminating false and misleading marketing info about Vytorin; deceiving investors about a key product and stock value; and failing to properly oversee appropriate accounting and business ethics - the former Schering-Plough execs and directors were also accused of allowing the insiders to sell almost $45 million of their shares "while in possession of material, adverse, non-public information" (here is the lawsuit).
The timing of the settlement, however, may not be surprising. Later this month, as in right before Halloween, Hans Becherer, a former Schering-Plough director, had been ordered to sit for a deposition, according to A New Merck Reviewed (look here). A deposition, after all, is a prospect that few board members can be expected to relish. But Becherer may have held a key to the charges of "unjust enrichment" that was leveled at the former execs.
Becherer, you see (that's him in the photo), chaired the compensation committee, which approved a gaggle of cheap stock options in May 2008 for former Schering-Plough ceo Fred Hassan and several other execs. These options were quite a reward, given that they were granted after the Enhance controversy caused Schering-Plough shares to take a dive.
And as A New Merck Reviewed noted, the grant ultimately helped push Hassan's payout after Merck acquired Schering-Plough the following year to more $235 million from what would have been closer to $170 million. Avoiding a deposition may have spared Becherer and his former colleagues from enduring some uncomfortable moments. We will update you with further details as they emerge.
handshake thx to o5com on flickr