This has bothered me for quite a while [This very same language appeared in the Schering Second Quarter 2008 SEC Form 10-Q, on page 27]. It is thus high-time to make my concerns plain.
This sentence appears on page 28 of the just-filed Third Quarter Schering-Plough SEC Form 10-Q, for the quarter ended September 30, 2008. That means this sentence portends the possibility of federal civil and criminal liability for intentional, and material ommissions, or inaccuracies, and misstatements — under the applicable ’34 Act SEC rules and releases:
. . . .Media reaction to the release of the results of the ENHANCE clinical trial in early 2008 led some commentators to call for the use of other products, rather than VYTORIN and ZETIA. Continued reductions in the sales and/or market share of Schering-Plough’s cholesterol franchise would have a significant impact on Schering-Plough’s consolidated results of operations and cash flows. . . .
I have supplied the emphasis in the first sentence.
How do CEO Hassan, CFO Bertolini, and General Counsel Sabatino know it was a “media reaction” that led “some commentators” to call for the use of other products (like statins, as a first-line therapy)?
Did these so-far anonymous “commentators” actually ever say they were calling for the use of other products — due to the “media’s reaction“? No. Attributing causal relationships in SEC filings is supposed to be based on empirical evidence. Let us examine the empirical evidence, then.
Oops. There appears to be. . . none. No evidence. Zip. Nada.
I submit that the “commentators” to whom Hassan, Bertolini and Sabatino here refer are, in fact, the members of the March 31, 2008, Society of American Cardiologists Conference Expert Panel Discussion — including Dr. Harlan Krumholz,
and Dr. Allen Taylor [Note: Edited/corrected 11.07.08 — under the ever-helpful, and keen-eyes of PM]. I have now reviewed every public statement by these commentators, and not one of them ever cited “media reaction” as the cause of their opinion that Vytorin and Zetia ought to be the “last line” of cholesterol management therapy. Not one.
No, these comentators cite the results — the outcome — of the ENHANCE (and now SEAS) study as the reason for their opinions. As do most cardiologist, and family doctors.
Thus, these Schering officers, are in my opinion, very close to the line — the line that demarks intentional mis-statements in SEC filings (or alternatively, the line that demarks material omissions, in SEC filings) — as sanctionable statements.
It is simply no longer plausible to assert (effectively under oath, to the SEC!) — after ten straight monthly-declines in actual 2008 IMS scrip trends (see data-graphic, above, right) — that some ill-defined “media reaction” caused this continuous, and now-acclerating decline in the United States. I do hope the SEC’s enforcement lawyers are still reading this blog.
The time has come to end these falsehoods.
Elsewhere in its Form 10-Q filing, Schering candidly admits that it is experiencing increased price competition, and increased pressure from Medicare, Medicaid and third party reimbursement plans — to discount the prices charged on its drug products. Somehow missing is the concept — the connecting concept — that at least part of that pressure is due to the fact that ENHANCE and SEAS may suggest Vytorin and Zetia may be no more effective than placebos.
Allowing affirmatively misleading statements in SEC-filed documents is not the “usual course of business” at the SEC. I trust Schering will receive a comment letter from the SEC’s Corp. Fin. staff about these less-than candid characterizations.
At a minimum, if Schering contends there actually are widely-recognized medical “commentators” in the United States relying on “media reactions” to make specific patient treatment decisions — Schering ought to name them. Clearly, the nation’s “best and brightest” cardiologists (at ACC, for example) — in the field of cardiology are not among them.
We shall see.