Schering pays $165m to settle GMP allegations

By Nick Taylor

- Last updated on GMT

Related tags Schering Schering-plough

Schering-Plough has agreed to pay $165m to settle a class action lawsuit that claims the company’s failure to disclose manufacturing deficiencies defrauded investors.

Although Schering has denied any wrongdoing, claiming it settled “to avoid further protracted and expensive litigation​”, the case highlights the risks companies face when investors believe information is being withheld.

The lawsuit relates to the US Food and Drug Administration’s (FDA) decision to delay approval of Clarinex (desloratadine) in February 2001, which resulted in Schering’s share price plummeting by 15 per cent.

Clarinex’s approval was delayed by the FDA until quality control issues were resolved at Schering’s facilities in Puerto Rico and New Jersey. Following the delay investors claimed that the FDA had told Schering almost 12 months earlier that it was “at serious risk of a significant regulatory action​” because of good manufacturing practice (GMP) deficiencies.

Consequently investors have alleged that some officers at Schering violated the Securities and Exchange Act of 1934 by making “materially false and misleading information and omitting material facts concerning the severity of the company’s manufacturing problems​”.

Furthermore its is alleged that prior to the announcement of Clarinex’s delay Schering’s senior management sold substantial amounts of the company’s stock, “reaping proceeds of over $41m from insider sales​”.

These sales are alleged to have been made between May 9 2000 and February 15 2001, which is the period covered by the lawsuit. Schering’s decision to settle the case means that investors who bought the company’s stock between these dates could be eligible to receive a payment.

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