Should We Be Surprised That Schering-Plough Execs Are "Surprised" By Sugammadex Rejection?

Last Updated Aug 1, 2008 4:13 PM EDT

Yet another setback for Schering-Plough seems to have taken top management by surprise. Schering's shares slid nearly four percent by midafternoon on the news that its sugammadex anesthesia-recovery drug would not be approved by the FDA.

In a statement, Schering VP Thomas Koestler said he was "surprised and disappointed" at the decision.

He wasn't the only one. In CEO Fred Hassan's second quarter earnings call on July 21, he told analysts that he fully expected sugammadex to be approved:

We are pleased with the positive opinion from the European Authorities on sugammadex and with the unanimous positive recommendation from the FDA panel.
Remember, that conference call was the one that was unexpectedly pushed back a few hours as Schering waited for new data on Vytorin, the troubled anti-cholesterol drug. In that call, Schering admitted that new data unexpectedly showed that more patients got cancer on Vytorin than on a placebo.

The company was waiting for that study because it was hoping for good news to correct a previous unexpected event, the study that showed back in March that Vytorin did not reduce plaque buildup in arteries. So now that Hassan has (temporarily) lost control of events surrounding his company, what might his corporate strategy be?

By examining his 2Q conference call, we can see that Hassan is long on rhetoric and short on specifics. Sure, he was tapdancing around the Vytorin mess, but what was happening with the rest of the company? On page 2 of the call transcript, note that Hassan used the word "diversity" nine times, and at one points offered the Zen-like observation, "We have diversity from diversity in our products."

He gave a few details -- touting the recent tie-up of Organon BioSciences, for instance -- but then concluded by saying the word "diversity" again without revealing any hard numbers. Also note that Hassan tells us that 70 percent of Schering's revenues come from abroad.

Good news? Uh, possibly. With the dollar in such a weak state, that's real money but it isn't real business. Sooner or later U.S. interest rates will rise, dragging the dollar up with them, and those revenue gains will disappear. How big a hit to revenues will Schering take if that happens? It says right here in the company press release: 7.6 percent. Not an insignificant number.

Also note that sugammedex is approved in Europe. Good news? Well -- let's just say that getting your drugs approved in half the world's markets isn't as good a strategy as getting them approved in all the world's markets.

So, what other unexpected events will be shocking Hassan and his team over the next few months or years? Here's my guess: Some nasty publicity about Organon's contraceptive NuvaRing might be coming down the pike.

NuvaRing is inserted directly into the vagina, and it then excretes an estrogen equivalent through the wearer's body into her bloodstream. Does this mechanism sound familiar? It should. Johnson & Johnson tried it a few years ago, only their device -- the Otho Evra birth control patch -- was worn on the skin. J&J stopped promoting that device after it caused the death of at least 40 young women who experienced blood clots, pulmonary embolisms and strokes.

A direct transfer of estrogen into the blood delivers a high continuous dose, raising the odds of fatal blood clots. The pill, by contrast, goes in through the stomach and liver, during which the body digests away a significant portion of the medicine. Lawyers are already gearing up class action suits against NuvaRing, just the way they did for the patch.

(Bonus points if you know the side effect that triggered the FDA into not approving sugammadex: It was hypersensitivity, which suggests that if you'd had surgery under anesthesia and been given sugammadex, you might end up hypersensitive to whatever pain the surgery had caused you. Nice!)