Vytorin puts a CEO in a pinch
Fred Hassan rode to the rescue of a foundering Schering-Plough Corp. in 2003, and by 2006, with a remarkable turnaround declared complete, the company was back on a growth trajectory.
But the highly regarded chief executive unexpectedly finds himself at the center of a firestorm involving the cholesterol drug that fueled the company’s reversal of fortune. The furor over Vytorin threatens the reputation of the drug industry’s golden boy and, some say, his job.
Schering-Plough and Merck & Co., partners on Vytorin, have been on the defensive since mid-January, when preliminary data of a long-completed study were finally released.
The mixed results and the time lag led to accusations that the companies hid or intentionally delayed them to protect the cash cow that accounts for about 70% of Schering’s profit.
Though the study turned up no safety issues, Vytorin’s failure to prevent plaque buildup led some experts to question the value of the expensive medicine, even though it did lower “bad” cholesterol more than the generic it was tested against.
The companies are facing investigations from state attorneys general and Congress, a slew of lawsuits and a promise by the Food and Drug Administration to review the controversial study. In addition, shares of both companies have fallen about 20%, and prescriptions for the medicine have dropped significantly.
As a result, not only has Hassan’s previously unblemished image taken a hit, but some industry watchers are questioning whether he will or should survive as CEO.
“This definitely tarnished his image,” said Ben Halliburton, chief investment officer of Tradition Capital Management, which holds 454,000 Schering-Plough shares. “This was the worst PR disaster I think I ever recall and he’s got to take part of the blame.”
“The actual study should have been a minor event. There was not a very good press release clarifying the nature of the study and clarifying that it was not relevant for most of the population,” Halliburton added, noting that the joint venture set-up may have complicated how the fallout was handled.
The study tested Vytorin against Zocor in a patient population with genetically extremely high cholesterol. Zocor, which is now available in cheap generic form, is one of Vytorin’s two components.
“Scientifically, when full results are published, I do think you’re going to end up seeing that this may in fact be a fairly meaningless study. But commercially it’s turned into quite a mess,” said Tim Anderson, a Sanford C. Bernstein analyst.
“Unless something really sinister surfaces I think it will slowly get put into more balanced perspective and Fred will survive,” he said.
Ironically, the mess comes at a time when Hassan, 62, should have been able to take a breath and enjoy the fruits of his labors, with the company boasting its strongest lineup of developmental drugs in many years, helped by the recent $14.4-billion acquisition of Organon Biosciences.
Hassan, a native of Pakistan who studied at the University of London and Harvard University, earned his sterling reputation as the go-to guy for troubled drug companies and one of the first names to surface in virtually every high-profile CEO search in the industry.
After heading drug operations for Switzerland’s Sandoz Pharmaceuticals and American Home Products (now Wyeth), Hassan in 1997 became CEO of Pharmacia & Upjohn, then a Sweden-based company struggling with anemic earnings and internal strife.
Under his stewardship, Pharmacia moved to New Jersey, a hot spot of pharmaceutical research. Hassan then engineered a major acquisition that transformed Pharmacia into a fast-growing company as he oversaw the extremely successful launch of the pain killer Celebrex, and the company’s eventual purchase by Pfizer Inc. for $60 billion.
Not content to play second fiddle at a post-merger Pfizer, Hassan became Schering-Plough’s white knight.
Goran Ando, who worked closely with Hassan as head of research at Pharmacia, believes he will come through this.
“I know him, and I know his ability to get out of complicated situations,” said Ando, now a vice chairman on the board of Denmark’s Novo Nordisk.
“I actually believe that he has a lot of credibility with a lot of people because he’s built it over time,” Ando said. “When the panic slows down . . . I think people will give him the benefit of the doubt.”
When Hassan took the helm at Schering-Plough, the dire situation he faced included the evaporation of revenue from its flagship product Claritin as the allergy drug lost patent protection, and major quality control problems at plants that were holding up drug approvals.
Whether Hassan’s reputation will help him and his company weather the storm will likely be determined over the next few months.
“If they can keep moving more aggressively in fixing the PR problem and not letting the prescription decline become a permanent issue, that would help his image and solidify his staying as CEO of Schering-Plough,” Halliburton said.
“But if they cannot turn the prescriptions back around over a three- to four-month time frame, I think you should question whether his stewardship is warranted.”
