Schering-Plough Now in the Feds' Crosshairs

The Vytorin scandal just got serious. Well, heck, it was already serious. Make this really serious:

Investigation and Inquiries. Through the date of filing this 10-Q, Schering-Plough, the joint venture and/or its joint venture partner, Merck, have received a number of governmental inquiries and have been the subject of a number of investigations. These include several letters from Congress, including the House Committee on Energy and Commerce, the House Subcommittee on Oversight and Investigations, and the ranking minority member of the Senate Finance Committee, collectively seeking a combination of witness interviews, documents and information on a variety of issues related to the Merck/Schering-Plough cholesterol joint venture's ENHANCE clinical trial, the companies' sale and promotion of VYTORIN, as well as sales of stock by the companies' corporate officers (including one executive of Schering-Plough who was named in one of the letters, Carrie Cox) since April 2006. These also include several subpoenas from state officials, including State Attorneys General, and requests for information from U.S. Attorneys seeking similar information and documents.

As Ed Silverman notes over at Pharmalot, it's unclear exactly what the feds are looking into at this point. Potential criminal securities violations might be one possibility, although Schering hasn't disclosed any civil inquiries from the SEC, which usually (although not always) precede criminal investigations. Delaying release of Vytorin trial data that showed it to be largely ineffective might conceivably count as Medicare fraud, since Vytorin and its cousin drug Zetia were pulling in $5 billion in annual sales last year, much of that no doubt picked up by the Medicare prescription-drug benefit.

And, of course, there's always the unexplained comments by Schering CEO Fred Hassan during the company's last conference call, in which he denied the existence of any model that would project how the collapse in Vytorin and Zetia sales might affect Schering -- even though the company's Vytorin partner, Merck, had no trouble doing so itself.

Fans of Internet-detective work may also appreciate the contribution of "Condor," the pseudonymous author of the Schearlings Got Plowed blog, whose visitor-log sleuthing turned up the apparent interest of Robert Kirsch, an Assistant U.S. Attorney in the Securities and Health Fraud Unit in Newark, N.J., in Schering's recent activities. To add to the intrigue, Condor noted that he'd embargoed his item on the matter until yesterday afternoon -- at the request of the U.S. Attorney's office.

Oddly enough, Merck so far appears to be in the clear, at least insofar as anyone can tell from its SEC disclosures. More grist for the mystery, so to speak.