Pharmacia II? Schering’s Hassan Brings In Former Colleagues; Zahn Leaves

Schering-Plough CEO Fred Hassan is bringing in three more former Pharmacia employees under a restructuring plan intended to globalize operations and eliminate several levels of management.

Hassan's latest Pharmacia colleagues to join Schering are Global Business Operations Head Bruce Reid; Strategic Communications Consultant Ken Banta; and Europe, Canada, Middle East & Africa Head Apet Iskenderian. The appointments are effective Aug. 1.

The three individuals join Global Pharmaceuticals President Carrie Cox, who came to Schering from Pharmacia on May 15 (¹ (Also see "Schering Global Pharma President Cox To Tackle Flagging Allergy Sales" - Pink Sheet, 19 May, 2003.) p. 21). All four held the same positions under Hassan at Pharmacia.

Hassan was tapped to succeed Schering CEO Richard Kogan in April. Hassan, the former Pharmacia chief executive, left that post following the completion of the Pfizer/Pharmacia merger (² p. 19). He quickly hired Cox, who had co-headed Pharmacia's global prescriptions business.

The four appointments attest to Hassan's high comfort level in working with a familiar team of executives.

Cox, for example, was brought to Pharmacia from Wyeth (where Hassan had been exec VP), and her counterpart at Pharmacia, Tim Rothwell, had worked with Hassan at Sandoz. Rothwell is now Sanofi-Synthelabo North America CEO (³ (Also see "Pharmacia Farms Out CEOs: Rothwell To Head Sanofi North America" - Pink Sheet, 28 Apr, 2003.) p. 21).

The Schering appointments are part of a restructuring effort designed to globalize the company's pharmaceutical brands and combine previously decentralized operations. As a result, Schering's structure more closely resembles that of Pharmacia.

The restructuring effort - which was announced in a flurry of press releases July 7 - is the second step in Hassan's realignment of Schering's operations. The first was Cox' appointment: U.S. and international pharmaceutical heads Richard Zahn and Tom Lauda, respectively, have been reporting to Cox since May.

While Lauda will remain at Schering, the reshuffling splits the U.S. business into two business units - primary and specialty care - and leaves out Schering Laboratories President Zahn. He will retire from Schering following a transition period.

Zahn, 52, is the most prominent executive to leave Schering following Hassan's arrival. Zahn has headed Schering's U.S. pharmaceutical arm since 1996. He joined Schering in late 1992 from Johnson & Johnson, where he was Ortho Biotech VP-marketing and sales.

In a press release, Schering thanked Zahn for his 11 years of service, noting that he "pioneered efforts in direct-to-patient advertising that helped catalyze the growth of Schering-Plough into a leading pharmaceutical company."

Two other execs will depart: Europe, Canada, Middle East & Africa Chairman Hans-Jorg Kummer is leaving after 34 years with the company. Senior VP-Investor Relations Geraldine Foster will retire March 1, 2004; a search for her successor is underway.

The primary focus of the restructuring is to globalize operations, and not necessarily to save money, Schering said. While a number of well-paid execs (including Zahn) are leaving, Hassan has created a number of new high-level positions (such as Cox').

Building a "superior top team" is part of Hassan's five-point "Action Agenda": "stabilize," "repair," "turnaround," "build the base," and "break out." The plan was announced during Schering's annual meeting; Hassan will discuss its early progress during a conference call July 23.

Hassan is using the agenda to grow the business post- Claritin and build back investor confidence after investigations by the Boston and Philadelphia U.S. Attorney's Offices, and, more importantly, an SEC inquiry into a meeting between Kogan and certain analysts days before Schering issued a profit warning (⁴ p. 15).

"Through changes in strategy, structure, people and processes, we are establishing the foundation for a top-tier, cohesive business organization designed to operate with greater shared accountability and transparency while delivering excellence in execution," Schering said.

Schering's new strategic communications post reflects Hassan's goal for a more open policy with investors, and will likely smooth out the transition into the new structure. Banta will work closely with Hassan and other members of the executive management team on internal and external communications.

Banta is well-versed in public relations, having served at Pharmacia and as a senior executive at Burson-Marsteller's London office. He also handled employment discussions between Hassan and Schering in the months leading up to the completion of the Pfizer/Pharmacia merger.

One area for improved external relations is investor frustration over the number of earnings restatements over the past year. As its fourth restatement since October 2002, Schering said second quarter earnings-per-share is now expected to be flat at 12¢, and earnings in the second half may be lower than the first.

The guidance indicates that full-year EPS could be roughly half the 75¢-85¢ issued in March (⁵ (Also see "Schering PEG-Intron Supply Constraints Resolved; Earnings Forecast Cloudy" - Pink Sheet, 10 Mar, 2003.) p. 23). Hassan had cautioned investors in May that he did not want to be "constrained" by guidance given by Kogan.

The restructuring gives Cox purview over seven operating areas: the two U.S. groups, two international groups, the newly formed Global Business Operations unit, the new Global Scientific Research & Health Outcomes unit and the Zetia cholesterol drug collaboration with Merck.

Schering's Global Primary Care and Global Specialty Customer Groups "sharpen the company's focus on key products in major markets," the company said. The groups will replace Schering's global marketing team, and will oversee U.S. sales and marketing, as well as collaborate on overseas marketing activities.

The Global Primary Care Customer Group will be divided into three areas: products (such as allergy/asthma drugs Clarinex , Nasonex and Asmanex ); U.S. sales; and customer communications. Former Novartis VP-Oncology Sales Chuck Ziakas will oversee sales activities; the heads of the other primary care units have not yet been announced.

Addressing weak allergy sales is one of Cox' priorities: Clarinex and Nasonex have faced tough competition, both by other branded products and OTC Claritin. The situation is made more onerous as private payors set up barriers to prescription allergy products.

Schering's Global Specialty Customer Group will be organized by "key specialty growth drivers": the PEG-Intron hepatitis C franchise; glycoprotein IIb/IIIa inhibitor Integrilin ; arthritis agent Remicade and Schering's oncology products, including Temodar .

Schering's PEG-Intron/ Rebetol combination has been experiencing greater-than-anticipated competition from Roche's pegylated interferon brand Pegasys , as well as a threat of generic competition for Rebetol (ribavirin).

International operations will be split between former Pharmacia exec Iskenderian (Europe, Canada, Middle East and Africa) and Schering's Lauda (Japan, Latin America and the Far East). Lauda has been acting head of Schering's overseas business.

The restructuring also combines operational activities into a single unit, Global Business Operations, which will be headed by former Pharmacia exec Reid. The group will oversee sales, distribution, global planning, product development, market research, finance, information technology and pricing/contracting.

Schering is also creating a new function under the unit, commercial development, to "provide commercial input on compounds and products in the pipeline, and to work jointly with R&D on portfolio assessment and management." The unit will also have responsibility for the Warrick Pharmaceuticals generics business.

Cox will also oversee the newly formed Global Scientific Research & Health Outcomes Group. The group will be led by Uli Goldmann, MD, on an interim basis. Goldmann previously oversaw Phase IV studies, pharmacoeconomic studies and international labeling.

Outside of Rx pharmaceuticals, Schering has named former American Home Products Senior VP Stanley Barshay as chairman of a reorganized consumer health division. Barshay's appointment reunites him with Hassan; the execs served as senior VPs at AHP (now Wyeth) at the same time.

Schering also announced a few structural changes to the R&D side of the organization, which is led by S-P Research Institute President Cecil Pickett, PhD. The changes clarify and streamline oversight for Schering's wholly owned subsidiaries DNAX Research (Palo Alto, Calif.) and Canji (San Diego).

DNAX Research CEO John Curnutte, MD/PhD, will report to S-P Research Institute Exec VP-Discovery Research Catherine Strader, PhD. Curnutte will assume responsibility for all discovery activities in California; Canji Chief Scientific Officer Stephen Chang, PhD, will report to him.