Did Schering-Plough Properly Review Organon Deal?
7 CommentsBy Ed Silverman // June 30th, 2008 // 8:54 am
That’s the question raised in a motion filed by the drugmaker’s lawyers in a whistleblower lawsuit in federal court in New Jersey. The case, which has actually been kicking around a few years, was recently unsealed and centers on the fatal side effects associated with a neuromuscular blocking agent known as Raplon that Organon withdrew in 2001. (Here’s the background).
A former Organon employee alleges that Organon failed to disclose to the FDA concerns about serious bronchospasm that were cited by Raplon clinical trial investigators prior to the drug’s launch in 1999. And the employee, Jeff Feldstein, has added Schering-Plough as a defendant since the drugmaker recently paid $14.3 billion to acquire Organon. Here is the Schering-Plough motion.
In arguing the suit should get booted, Schering-Plough’s lawyers say he could have learned about Raplon problems from product-liability lawsuits or news reports, which means he doesn’t have the right to file suit. (UPDATE: Although as reported previously, Feldstein claims Organon didn’t disclose serious adverse events - as opposed to adverse events - prior to approval). They also maintain he doesn’t satisfy rule 9b, a provision of the False Claims Act that requires a whistleblower to provide specific info about false claims submitted to government programs for payment.
This is standard stuff. But toward the end, the motion gets interesting, because the lawyers then charge that Feldstein also failed to prove the “successor (company) had notice of the claim before the acquisition.” In other words, Schering-Plough’s lawyers suggest the drugmaker may not have known about the lawsuit, despite the potential for a sizeable liability. Or did it?
This, of course, raises several troubling issues. What, if anything, did Schering-Plough and its reps know about the lawsuit when conducting due diligence prior to the Organon acquisition? Did Organon and its reps not disclose the lawsuit fully and properly to Schering-Plough and its reps? As Shearling Gets Plowed points out, this is likely to upset the investment bankers who helped the drugmaker raise money for the Organon deal. After all, what were they told about the lawsuit? And at the end of the day, who will take the heat if due diligence wasn’t performed properly?
No Mercy
Let’s see, Schering-Plough wasn’t fully aware of the liability they were assuming with the purchase of Organon. That’s really too bad, but not uncommon as it appears some lawyers fell asleep at the wheel in a rush to get it done. This rings similar to the situation when Pfizer bought Pharmacia and assumed the HGH liability. What goes around comes around! It couldn’t happen to a more-deserving top management team than the group that used to head Pharmacia and now heads Schering-Plough.
Condor
As ever — thanks for the mention, Ed!
You are a gentleman and a scholar!
Now, in answer to “No Mercy” — I am all but CERTAIN that Schering DID know of all these Organon skeletons (then still in the closet), when it closed the acquisition in November 2007.
To be more precise, I think this was a “throw-away” argument by Arent Fox, slapped onto the end of its motion on behalf of Schering.
And I believe it has done more harm to Schering’s overall chances, than improved them — by opening the door to EARLY scrutiny of all the players’ diligence files.
And that will lead straight to ENHANCE — certainly, in the files of the various investment bankers that raised,collectively, around $4 billion in equity for Schering to buy Organon in August and September of 2007.
Yikes! What goes around — REALLY goes around.
SP MD
Given how they seem to do evrything else, I doubt it! They appear to like flying by the seat of their pants.
Former SP
Seems to be a little incompetent management going on at Schering-Plough, but not to worry. The big dogs will simply cut, cut, cut the workforce until they can justify their own pay. Greed rules!
Gretta
So do you think the Schering Plough Board and/ or the large investors are paying any attention to the continual mismanagement at this company.
SP 2
Obviously not. It appears that the BOD is the puppet of management rather than protecting the interest of the shareholders. As for the large investors, they have been silent.
Condor
This one is simply offered in the interest of completeness:
It seems Arent, Fox (the firm discussed in Ed’s, above) has turned in its walking papers on this case — Lowenstein Sandler, the firm handling almost all of Schering’s current-scandal and older-scandal (Clarinex launch) related securities-fraud class actions, has been substituted as counsel on the Organon Qui Tam/False Claims Act matter. That consent was entered into the federal court records on July 10, 2008.
Far be it from me to suggest the two events were in any way related. . . .
http://shearlingsplowed.blogspot.com/2008/07/far-be-it-for-me-to-suggest-these-two.html
Namaste