BrandweekNRX: Schering-Plough CEO refuses to state his innocence

On January 30, BrandweekNRX reported to story "New evidence indicates Schering-Plough insiders knew the Vytorin trial was "a bust" on March 13, 2007." In that article we revealed that detailed insider information about the botched trial had been available on Schering-Plough's message board on CafePharma as early as March 13, 2007.

The House Energy & Commerce Committee this week wrote to Fred Hassan at Schering-Plough and Richard Clark at Merck: "These Web site entries are obviously troubling and raise again the question of whether anyone within Merck or Schering-Plough knew the results of the ENHANCE trial prior to the official release of the data."

Now, in an amazing interview with Jim Cramer on Mad Money Fred Hassan was asked about what he knew about the ENHANCE trial and when (about 11 minutes into the clip).

What is surprising is not that Jim Cramer is fawning all over Fred Hassan, or that Jim literally leads Fred by the hand through the entire interview . . . what is amazing is what Fred refuses to say:

Jim: You've got congressmen writing letters to you about the ENHANCE study, that maybe you hid data . . . There is a notion among you that . . . are basically trying to hide the bad stuff, that wasn't the case here, was it? (Jim is sounding incredulous, really trying to help Fred along.)

Fred: Well, we've heard about the anonymous bloggers, who were saying something, this is on a sales force type web site. It is very hard to do much with anonymous blogs. We're gonna work on this eh . . . eh (Please note that Fred, most likely coached before this interview by the best lawyers money can buy, refuses to say he was not trying to hide the bad stuff. Instead he says he is going to deal with the bloggers.)

Jim: But you didn't know, you didn't know anything did you? (Jim is trying a second time to help Fred say that he didn't know anything.)

Fred: The data was blinded until December 31 of last year and I found out at 8 am on the 10th of January. (Fred again doesn't answer the question. Instead he responds with a factual statement, aimed at giving the appearance of innocence; the timing of the unblinding may be immaterial if there were other ways to determine the results by looking at the aggregate data, as described in a letter this week from Senator Grassley to Hassan.)

Jim: Why is everyone so sure you found out six months before that? I mean why would congressmen write that, why don't they, whats the matter, is it the truth doesn't fit the thesis? (Jim is trying a third and final time to get Fred to simply say he didn't know anything.)

Fred: They will have to go through their own inquiry. It's hard to do much with anonymous blogs. (And for the third time Fred refuses to respond! Instead he talks about the anonymous blogs on CafePharma.)

So what is going on here? Why didn't Fred just come out and say "I had no idea about the trial results before they were unblinded" or said "I knew nooooothing about the ENHANCE results in 2007"?

One logical explanation may be that Fred did, indeed, know quite a bit about the ENHANCE trial data before the trial was unblinded, during a time period when his closest executives dumped massive amounts of their stock options.

Fred may also have known that if it was later proven, in a Congressional inquiry or other investigation, that he did know something, and that he had denied that publicly, he could be in a heap of legal problems for misleading the securities market.

There are two types of securities fraud: The first is material misrepresentations, and the second is material omissions. Material misrepresentations are statements that are false. Material omissions occur where the statements made are true, but the failure to state other facts gives a misleading impression. "Material" means important to a reasonable investor.

Fred may have tried to avoid making untrue statements. But if the statements he made omit facts in such a way as to create misleading impression, that could be seen as fraudulent anyway, assuming he was aware of those facts.

Based on the transcript Fred Hassan avoided responding not just once, but three times, which makes BrandweekNRX wonder - exactly what did Fred know about the ENHANCE trial in 2007?

Dr. Rost is a litigation consultant and pharmaceutical marketing expert. He is also the author of Killer Drug and The Whistleblower.