Wednesday June 27 6:23 PM ET

Schering-Plough President Resigns By Ransdell Pierson and Jed Seltzer

NEW YORK (Reuters) - Drug maker Schering-Plough Corp. (NYSE:SGP - news), beset by quality-control problems at its pharmaceutical plants, on Wednesday announced the resignation of President and Chief Operating Officer Raul Cesan.

The company gave no reason for Cesan's resignation and did not name a successor, adding that senior managers would take over his duties. Cesan, 53, has been president and chief operating officer since Nov. 1, 1998, and joined Schering-Plough in 1977.

Cesan's resignation is effective July 15, the company said. He also resigned from the board of directors.

News of his planned departure came five days after a new warning about manufacturing problems. The company's stock closed down $1.67, or 4.3 percent, to $36.98 on Wednesday on the New York Stock Exchange, close to a 52-week low of $33.90.

In February, the company said it was cited by the U.S. Food and Drug Administration for failing to comply with federal Good Manufacturing Practices at plants in New Jersey and Puerto Rico. Analysts said the FDA has been complaining for several years about the problems, which the company has declined to identify.

The production disruptions hurt first-quarter earnings as sales of some drugs, including respiratory-system medicines, declined.

On June 22, the Kenilworth, New Jersey-based company said the FDA had cited additional manufacturing deficiencies at its plants. Schering-Plough added that it could not predict the outcome or the timing of any resolution to the FDA's concerns.

It did not give details of the latest FDA citations, but said it has moved ``aggressively and deliberately'' to fix the manufacturing problems.

``His (Cesan's) many accomplishments are not overshadowed by the company's current challenges,'' Schering-Plough Chairman and Chief Executive Richard Jay Kogan said in a statement.

Mike Krensavage, a drug analyst at Raymond James, said Kogan and Cesan share the blame for unresolved manufacturing deficiencies.

``Certainly, Cesan was responsible for the factory problems, but ultimately, the responsibility is Kogan's. Kogan needs to solve the problems, or he and Cesan will be working together on their resumes,'' Krensavage said.

``Cesan is the fall guy for Schering-Plough's problems. I believe his resignation indicates that Schering-Plough's problems run deep,'' Krensavage said.

A Schering-Plough spokeswoman said Kogan would not comment on speculation Cesan was taking the heat for the quality-control issues. Cesan could not be reached for comment.

Kogan, who joined Schering-Plough in 1982 and has been CEO since late 1998, presides over a company known as perhaps the most tight-lipped in the industry with the media as well as with industry analysts.

One analyst, who asked not to be named, said Kogan takes pride in being a tough executive. ``One time at an analysts' meeting, Kogan explained in detail how he fired an underling because he didn't respond to a customer complaint.''

The analyst said that Kogan himself can now expect some rough treatment, from Wall Street.

The announcement of Cesan's resignation came a day ahead of Schering-Plough's planned meeting with analysts in New York. Kogan was expected to explain how the firm intends to extricate itself from its plant woes.

Schering-Plough's first-quarter profits fell 10 percent, a sudden decline for a company that has prided itself on 15 years of consistent double-digit earnings growth. The company's stock dropped nearly 15 percent when the plant problems were disclosed in mid-February and has continued to decline.

Wall Street has been especially concerned about the fate of Clarinex, an experimental allergy treatment meant to be the successor to Schering-Plough's best-selling product, the antihistamine Claritin, which brings in $3 billion a year in sales. The U.S. patent on Claritin expires in late 2002.

Analysts expected Clarinex to be approved as early as last October, in time for the spring 2001 allergy season. But the FDA has said it will not approve the treatment until the quality-control issues are resolved, creating uncertainty about just when the product will finally reach store shelves.

Schering-Plough's manufacturing problems have refueled speculation the firm may need to merge with another drug maker, such as Merck & Co (NYSE:MRK - news), which has formed alliances with Schering-Plough over the development of cholesterol and allergy drugs, analysts said.

Cesan, a certified public accountant, joined the company in 1977 as director of finance and administration for its Latin American region. In 1988, he was put in charge of its international pharmaceutical operations.

Schering-Plough, which had global revenues in the first quarter of $2.3 billion, also sells blockbuster Hepatitis C drug Rebetron, anti-clotting treatment Integrilin and Remicade for rheumatoid arthritis. http://dailynews.yahoo.com/htx/nm/20010627/bs/health_scheringplough_dc_11.html

-- Carl Jenkins (somewherepress@aol.com), June 27, 2001

Answers

It appears the main man is accepting the finger of guilt being pointed at him.

-- Nancy7 (nancy7@hotmail.com), June 27, 2001.

What's wrong with this picture? Wouldn't you think that if a quality control problem is sufficiently severe to send the president out the door that the consuming public should be given at least a clue? Isn't that one of the things the FDA sucks up public funds to do, inform the public if there are problems?

-- Warren Ketler (wrkttl@earthlink.net), June 28, 2001.

Warren, your question/comment is certainly reasonable -- but as has been noted before on this forum, the oversight process by FDA for the pharmaceutical companies is notably opaque. It's never clear why things are happening, and whether one should be worried about other products from the company.

The basic justification (by FDA) is probably that companies are more likely to cooperate if the FDA keeps strict secrecy as to what is going on: pharmaceutical companies maintain that the industry is particularly competitive (although surely that could be said about many other industries!).

Whatever the cause, this type of problem in this industry by a major player, & being chalked up leading to manufacturing problems, & leading to executive departures, is *highly* unusual.

-- Andre Weltman, M.D. (aweltman@state.pa.us), July 02, 2001.

Andre, thanks for your insights. As co-founder of a small company some years ago which was engaged in the application of mathimatical statistics, we had the experience of working for a pharmaceutical company during the double blind tests of the acceptance of a new drug. It was evident then, and possibly even more so now, that facts and science are less important than opinions and politics. Is the claim of "the competition bogey" just another cover? If the quality control problem is serious, the consumer should be advised. If it isn't, FDA should stay out of the company's internal affairs.

Of course, you'll only see this sort of thing discussed on a web site like this, not in the popular press. Long live the net - unfettered!

-- Warren Ketler (wrkttl@earthlink.net), July 02, 2001.