Schering-Plough's Hassan Made Stock Gains as Price Tumbled and Layoffs Grew

About 1,000 sales reps are being let go from Schering-Plough this week. That’s on top of 60 animal health reps also being fired. Roughly 5,500 employees in general are being axed in Schering-Plough’s cost-cutting drive.

If you’re one of those people, comfort yourself with the fact that CEO Fred Hassan’s stewardship hasn’t been bad for everyone — especially if your name is Fred Hassan. Despite SGP’s list of troubles –

• the FDA refusing to approve sugammedex
• the collapse of the allergy-asthma joint venture with Merck (because that was also not approvable)
• and the ongoing Vytorin crisis

– Hassan has still managed to make money by buying and selling* in SGP stock. Amazingly, he has pulled off this feat even though the stock has tumbled from its 2007 high of $33.14 and now trades at half that, $18.40.

The way Hassan achieved this is a case study for investors: When it comes to CEOs, do what they do, not what they say. Here’s how Hassan did it:

In January, Hassan put out a press release saying that he wanted to buy $2 million in SGP common stock to prove his faith in the company, which was already being battered by media reports over the ineffectiveness of Vytorin for certain conditions. He said:

This investment in Schering-Plough reflects my long-term confidence in the company, its products (including ZETIA and VYTORIN), and our late-stage pipeline … The media interpretations of the top-line ENHANCE trial results, and the resulting stock price reaction, have been deeply troubling. I firmly believe in VYTORIN and ZETIA.

The stock at the time was priced at about $21.62 a share. But Hassan didn’t actually buy the stock at that time. As his statement said:

It was determined that, under the federal securities laws, it would be better to defer the purchase until earnings for the fourth quarter and the full year 2007 are announced, scheduled for Feb. 12, 2008, and the full results of the ENHANCE trial are discussed in a scientific forum, anticipated for the American College of Cardiology meeting in late March.

March came and went. SGP tumbled all through the month, closing at $14.41 on the last day. Hassan’s $2 million stayed under his figurative mattress.

Then, in April, Hassan pounced. On the 24th — nearly a month after he said he would — Hassan bought $2 million of SGP common stock with his own money. He said:

As I said when I announced my intention to purchase these shares in January, this investment in Schering-Plough reflects my long-term confidence in the company, its products — including ZETIA and VYTORIN — and our late- stage pipeline.

The price on the day was about $18.26.

Yesterday, before the layoff announcement, SGP closed at around $18.40. On paper, Hassan had made about $15,334 from his April purchase — not much, but enough to buy your spouse something nice, as long as you have $2 million to play with.

Of course, that was Hassan. If you had been an investor who was listening to what Hassan said, not observing what he did, you’d have gotten into the market back in January, and by now you’d have lost about 16 percent of your stake. (Hassan would have lost $297,872 on the $2 million he didn’t bet at the time.)

In his January release, Hassan also reminded us that he bet big on SGP before:

As was the case in November 2003 when I purchased $4.68 million in Schering-Plough Common Shares at an average price of $15.42  … this investment in Schering-Plough reflects my long-term confidence in the company.

Clearly, that stake is well in the money if he is still holding it. He could have sold that at almost any time since and made a handsome profit.

Lastly, bear in mind that Hassan’s purchases are better publicized than his sales divestments. I searched through the SEC filings for this year to see if he had sold any part of his $2 million stake. He appears to have kept most of it, although on April 25 he acquired 200,000 shares but sold gave up the rights to 92,700.*

* See notes in the comments section.