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Schering - Plough CEO Cures Host of Ills
 
 
  By THE ASSOCIATED PRESS
Published: September 17, 2006
 
KENILWORTH, N.J. (AP -- Fred Hassan calls running Schering-Plough Corp. the toughest job he's ever had: taking a drug company in critical condition, treating its ills simultaneously and restoring health.
 
But within 3 1/2 years, the chief executive has managed to put Schering-Plough back in the black, nudge up its stock price and cure most of the disorders he inherited from prior management. Those included slumping sales with little prospect of lucrative new drugs, a demoralized work force and multiple government probes of corporate wrongdoing and manufacturing violations.
 
Hassan is so well regarded as a turnaround specialist that speculation surfaced Friday Schering-Plough might try to merge with New York-based Bristol-Myers Squibb Co., which booted its CEO Tuesday. Neither company would comment on that possibility.
 
Schering-Plough makes prescription respiratory, cholesterol and hepatitis drugs and consumer items such as Coppertone sun care lotions, Claritin allergy pills and Dr. Scholl's foot care products. The company has been on the rebound since Hassan, a Harvard-trained MBA from Pakistan, took over.
 
''We have made enormous progress,'' Hassan, 60, told The Associated Press in a recent interview in his office overlooking the sprawling Schering-Plough headquarters in northern New Jersey.
 
Last year, revenue and operating profit were up in all three divisions -- prescription drugs, consumer and animal health -- and the company had its first profit in three years, $269 million. The stock now trades above $21, up nearly 20 percent under Hassan.
 
''He has come in and done a spectacular job in stabilizing what was a hemorrhaging company and then moving into a growth mode,'' said Deutsche Bank North America pharmaceuticals analyst Barbara Ryan. ''I would say that he was the right man, because he's done the job.''
 
''That doesn't mean that they are out of the woods,'' she added, noting the company hasn't been giving profit forecasts and has no new blockbuster drugs likely to hit the market before 2009.
 
With a fairly fixed cost base, Schering-Plough can't improve its bottom line without finding some high-revenue drugs, possibly through licensing or acquisitions, and it would be hard to outbid bigger rivals, Ryan said.
 
Hassan's latest success is resolving a federal probe, begun in 2001, into marketing of some drugs for unapproved uses and overcharging Medicaid. Under an agreement last month with the U.S. Attorney's Office in Boston, the company will pay $435 million in criminal and civil fines to end the case. Two years earlier, Schering-Plough agreed to pay $346 million to resolve charges it paid a big health insurer a kickback to protect sales of Claritin, then a blockbuster allergy drug.
 
In his prior job, Hassan turned the dysfunctional union of U.S. drugmaker Upjohn Co. and Sweden's Pharmacia AB into a real marriage, renamed Pharmacia Corp. He helped it grow into the world's No. 9 pharmaceutical company and shepherded it through acquisition by Pfizer Inc.
 
Hassan then nabbed Schering-Plough's top job after CEO Richard Jay Kogan, under pressure, announced plans to retire with a $50 million severance package. Hassan took over in April 2003 to face a meeting of shareholders fuming over Kogan's golden parachute, a share price down from $60.75 in 1999 to below $18 and new generic competition decimating sales of Claritin, which had brought in $3 billion a year.
 
The prior May, Schering-Plough had been hit by the Food and Drug Administration with a $500 million fine for sloppy manufacturing practices that had gone on for years despite warnings.
 
The FDA required Schering-Plough to make costly upgrades and endure scrutiny under a consent decree. It also delayed approval of Clarinex, Claritin's successor, costing Schering-Plough market share.
 
Hassan said he has restored trust with FDA officials and thinks the consent decree could be lifted next spring. He also had to win over shareholders, stock analysts, employees and customers with his ambitious five-year plan, rather than sell the company.
 
''I was able to show the board that this was a clear strategy that we could make happen,'' Hassan recalled.
 
It wasn't easy. Revenues had plunged nearly 20 percent in 2003 and were flat in 2004. Schering-Plough posted losses both years -- almost $1 billion in 2004 -- as its crucial prescription drug division saw operating profit plunge from $2.6 billion in 2002 to just $13 million in 2004.
 
Hassan hand-picked a new executive team, including a research and development head with a strong record of getting new drugs approved, and installed a compliance officer to resolve problems with regulators. He stunned shareholders by slashing their dividend 68 percent and cut bonuses, eliminating his own, then wiped out profit sharing, another taboo.
 
Frugal by nature, he didn't even spend a dime on decorating his office, instead taking the relatively small office of the ex-chief operating officer after he eliminated that job. The few personal touches include photos of his children, one in a ''For the World's Greatest Dad'' frame.
 
''People will get behind and really work hard for someone like that because they feel that he's one of them,'' Ryan said, noting a ''very loyal following'' of Pharmacia executives followed him to Schering.
 
Hassan built enthusiasm for his turnaround initiatives among the staff remaining after retirement buyouts, layoffs and defections. But sales representatives left in droves after he switched their reimbursement formula to primarily salary to discourage the hard sell and encourage closer relationships with doctors. ''They bring me more information that's worthwhile'' and are knowledgeable about more drugs, said Dr. Marc Siegel, an internist at NYU Medical Center. ''But the culture of ramming information down doctors' throats is not changing with a single company mandate.''
 
Hassan also built on Schering-Plough's nascent joint venture with Merck & Co., which now sells two blockbuster cholesterol drugs, Zetia and Vytorin, that equal roughly one-quarter of Schering sales. Another compound combining Claritin with Merck's asthma and allergy drug Singulair is in late-stage human testing.
 
But the company is heavily dependent on revenues from Zetia and Vytorin, and it still has not cut costs enough to compensate for lost Claritin revenues, said Raymond James & Associates analyst Mike Krensavage.
 
But Hassan has been building the business in key emerging markets such as Russia, China and Brazil, and has boosted research spending steadily to $1.8 billion last year rather than take the expected slash-and-burn approach.
 
Currently, drugs for bacterial and fungal infections are awaiting U.S. approval, and there are 17 compounds in human testing, including promising ones for Parkinson's disease, hepatitis C, AIDS and heart attack prevention, said Catherine Strader, the company's chief scientific officer.
 
''There's a rich pipeline behind this'' of drugs in lab testing, she added.
 
Krensavage noted the company has licensed rights to sell or co-promote a few drugs from other companies. However, Schering-Plough has no clear blockbusters coming to market soon.
 
''They're pretty much in the same boat as the other drug companies,'' Krensavage said.
 
 
 
 
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