A Note on the "Conflicted-Interestedness" of Today’s JP Morgan Schering Upgrade, Here.

UPDATED — 06.25.08 Midnight EDT — JP Morgan is even more-recently, and puzzlingly, entangled financially in its proferred views of Schering, as apparently reflected in its “upgrade” of earlier today. Why? See these “Bearish” Schering related notes JP Morgan itself is apparently offering, since June 9, 2008.

Let’s go to the video:


Until I have my video finished, start on this one [mine is coming tomorrow now above]:

So, we read that JP Morgan upgraded Schering Plough today (largely-explaining yesterday’s price action — as the note was likely available to clients of the firm, before this morning’s release to the press).

Now, consider that JP Morgan has at least $798 million — at least! — and perhaps, $1.6 billion — of “skin in the Schering-Plough game“. How so?

It was a co-lead underwriter of the September 2007 Schering Euro note offering (Page S-38 of the linked SEC-filed prospectus).

J.P. Morgan € 100,000,000 of 2010 Notes — € 300,000,000 of 2014 Notes

At recent spot rates, those 400 million euros are about $630 million. It also was an underwriter for $61 million of the SGP stock, and $111 million of the SGP converts, in August 2007:

Schering August 2007 common stock prospectus (See Page S-22):

J.P. Morgan Securities Inc. — 2,233,125 shares

But wait! — do not forget the 2007 Schering 6% converts (See Page S-50):

J.P. Morgan Securities Inc. — 444,375 shares

Me? — I’d think twice about the independence of J.P. Morgan’s analysts — Schering-friendly people often are quick to criticize Dr. Harlan Krumholz (among others) for perceived conflicts of interest, as an expert witness (re Vioxx, against Merck). I doubt he has at least $800 million “at stake” in Schering — but perhaps J.P. Morgan still does — either directly, or through what has turned out to be very bad advice to their clients — “Buy-in to SGP at $27.50!” — these folks have a combined $1.6 billion of Schering-Plough’s “egg on their faces“. That bears repeating.

Also, consider this dissenting article, as (more) independent (from whence the above-video was lifted):

Schering’s Plowing

. . . .Schering, if you missed it, was all but sat on and misshapen by recent events. If nothing else, reasonable minds can agree on this: Its future is not under its control. The drugmaker pulls in more than half its profit from drugs it markets with another company — Merck(MRK – Cramer’s Take – Stockpickr) — and all other things being equal, this puts a portion of its fate out of its control.

The partnership means everything to Schering and, proportionally, not nearly as much to the larger Merck. Now add to the mix all the troubling implications a panel of cardiologists created when it said generics were just as good as the Schering-Merck name brands, which should only be used as a last resort, and you have an out-of-control near disaster on your hands. . . .

More coming soon. . . .

4 responses to “A Note on the "Conflicted-Interestedness" of Today’s JP Morgan Schering Upgrade, Here.

  1. Thank you Condor.

    Those Aug 2007 investments were for Scherings purchase of Oraganon. Isn’t the FDA review date for one of the phase III drugs they got from this deal any day now?

  2. First — you are correct that the $3.8 billion raised was used primarily to help Schering pay the $15 billion purchase-price for Organon (PDF file).

    As to the Phase III cadidate — I am not sure which one you mean.

    Suggamadex has received (in late April?) an “approvable” letter from FDA — but that may mean another six-months before ACTUAL approval comes. We will see whether FDA is being extra-cautious about Schering’s filings, for the sensible reason that M-SP so badly bungled (and allegedly DELYAED) the ENHANCE matter.

    Only time will tell.

    Do stop back by!

  3. RE:FDA and cautious approach~~don’t forget S/P-M’s ‘new and improved’ LMC tablets…given an ‘unapprovable’ letter from the FDA.

  4. On November 26, 2007 Schering announced that the FDA had filed the NDA for asenapine an atypical antipsychotic. < http://www.fiercebiotech.com/press-releases/press-release-schering-plough-announces-asenapine-nda-accepted-filing-u-s-fda > This was the Monday after Thanksgiving weekend. Since the announcement went out on Monday I assume that they got the word from FDA the previous week and decided to wait due to the need for time to arrange the announcement and to make the biggest impact. So let’s assume that they got the notice on Tuesday November 20, 2007. Since by law the decision whether to file an NDA for a new drug has to be made by 60 days post submission and since FDA typically waits until the last minute to decide and then takes an additional 2 weeks to write and send the letter. This makes the submission date around Friday September 7th. With a 10 month standard review clock this makes the estimated PDUFA due date Monday July 7th.

    Now with the Food and Drug Administration Amendments Act of 2007 ((FDAAA 2007 Title IX subtitle A Sec. 901 (a) that Amends 21 CFR 505 (o) (3) (E) (i)), the FDA has to enter labeling negotiations 60 days prior to the PDUFA due date or May 7, 2008. The FDAAA doesn’t state 60 days explicitly and instead refers to letters of agreement, but draft versions of the act did spell out the 60 days and I believe referred to these same agreements.

    So by now either Schering has been in labeling negotiations or if they haven’t they’ve got the idea on whether asenapine’s going to be approved or not.

    What’s even more interesting is the history of this drug. About 1 year prior to the announcement of filing Pfizer pulled out of the deal to develop the drug and this was after they got a look at the final phase III data.

    “Pfizer’s decision to discontinue its participation in the asenapine development program is an outcome of a commercial analysis of the compound as a part of its overall portfolio.

    The interim assessment of the Phase III trial results made available in October led to the caution that the results might not be sufficiently conclusive to warrant an NDA filing with the FDA in 2007. This has not changed.

    Toon Wilderbeek, the Akzo Nobel Board member responsible for Pharma, who is also President of Organon, said today: “The satisfactory results of the final Phase III clinical trial – in the context of the complete Phase III clinical trial data set for asenapine – is an important milestone in the development of asenapine. We have now completed a crucial phase of the program and we will assess if further trials might still be required in order to be able to submit a strong NDA file.”

    He continued: “We are pleased to now have the opportunity to pursue a go-to-market strategy for asenapine which is more closely aligned with our planning and positioning for this product candidate. We will evaluate whether we need a partner to commercialize asenapine in selected geographic areas in due course. Although Organon is disappointed with the withdrawal, the company appreciates the positive contribution Pfizer has made to the development of asenapine.” 29 Nov 2006 – http://www.medicalnewstoday.com/articles/57683.php

    Schering made the following statement in a press release at the May 8, 2008 APA Meeting in Washington DC
    “Olympia Data: Schizophrenia
    The schizophrenia program includes four placebo- and active-controlled, six-week trials involving more than 1,300 patients with schizophrenia. In two of the trials involving almost 700 patients, asenapine produced 19- to 20-point reductions in Positive and Negative Syndrome Scale (PANSS) total score and was significantly superior to placebo. PANSS total score is a measure of positive symptoms (e.g., hallucinations and delusions), negative symptoms (such as lack of emotional expression), and general psychopathology symptoms (such as anxiety and depression).
    The third study in approximately 260 patients was considered a failed trial as neither asenapine nor the active control olanzapine differentiated from placebo. A fourth trial of approximately 400 patients with acute schizophrenia was considered a negative trial, as the active-control (olanzapine) differentiated from placebo whereas asenapine did not.” http://findarticles.com/p/articles/mi_m4PRN/is_2008_May_8/ai_n25401275
    In addition the glgroup called one of these a failed study as the active control didn’t work and they pointed out that the only reason one study showed an effect for asenapine was because the baseline score in the asenapine group was 4 points higher. http://www.glgroup.com/News/Does-The-FDA-Acceptance-of-The-NDA-for-Asenapine-Signal-A-Good-Outlook-for-Schering-Plough-(NYSE–SGP)–19717.html (N.B. this link no longer works).

    More info on the first 4 phase II studies are available in slides that are available on the akzonobel website. (now who knows for how much longer) One of these 4 studies shows a graph of change in the total PANSS score by week for asenapine, placebo, and the active control, and based on the baseline scores appears to be the study referred to by the glgroup.


    Also soon after the announcement of the Organon deal Businessweek ran an article on the deal that’s available online. What’s really interesting is a comment that indicates asenapine is extremely hepatotoxic.

    “Helen Ge Mar 13, 2007 2:46 PM GMT I had an interview with Pfizer last summer for the safety evaluation of Asenapine. Pfizer was considering of filing a white paper to the FDA for the hepatotoxicity of Asenapine. I asked a question during the interview, which was that if we knew the hepatotoxicity was too high, and the patient had to take this pill for at least 6 months, why would we still invest on this? In my HO, a product with such a high hepatotoxicity, I am not sure 1) The FDA would approve it; 2) the risk vs. benefit. I was not hired for the position, because Pfizer was not sure that they wanted to continue to invest into this product, which I think that Pfizer did a right thing for their shareholders. I worked for Schering-Plough as well, and I think that the reason they want to take such a risk, because they had no products in the pipeline. It would be sad for Schering-Plough. Helen Ge


    It looks to me as though asenapine which was supposed to bring in 4 x as much as Suggamadex was dropped by Pfizer not because of hepatotoxicity but because it didn’t work in schizophrenia. Who wants a drug that doesn’t work plus has a lot of hepatotoxicity.

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