Randomly Noted

Novartis is paying Nestle $180 a share for the chocolate company’s stake in Alcon; the drug maker is offering a measly $153 a share to Alcon shareholders for the remaining 23% it won’t own. Can they conjure up a winnable legal case against Novartis’s gambit to force a higher price? Perhaps. With 25% of Alcon already in hand, Novartis’s deal with Nestle will bring its stake to 77%. CEO Daniel Vasella, cites Swiss law (all three players are incorporated in Switzerland) in maintaining he doesn’t need the approval of Alcon shareholders to secure dominant ownership of the eye-health company. He’s probably right on the legal details – but here’s guessing he’ll boost his offer to Alcon shareholders a tad, if only to avoid making too many enemies among institutional investors.

Sanofi-Aventis’ $1.9 billion acquisition of Chattem, a maker of over-the-counter lotions and potions, is the latest move by a big drug maker to embrace the steady returns of low-tech medications. It’s quite a switch from the conventional wisdom of just a few years ago, which posited that drug makers should run, not walk, away from everyday drugstore staples. One after another sold off their anti-bacterial mouthwashes and diaper rash creams. They did so  in order to focus on science-based discoveries to fill their new-product pipelines and thereby prove to investors they could deliver so-called blockbuster cures for dread diseases that afflicted many. The times have changed. To be sure, from a scientific standpoint, the Golden Age of Biology continues as researchers the world over revolutionize our understanding of – for want of a better word – life. But in the mundane world of balance sheets and market valuations, drug makers simply can’t afford to bet big on science because it’s expensive and risky, and too many recent discoveries have either failed or have been too similar to existing drugs to warrant hefty price tags. To be sure, CEOs such as Novartis’s Daniel Vasella still speak eloquently about breakthrough drugs, yet they’re increasingly gravitating to safe ventures. Novartis itself has long been a champion of generic-drug production. For many years, it was just about the only major pharma company which produced generic versions of its off-patent prescription medications. Now, some of its competitors, such as Pfizer and GlaxoSmithKline, are diving into generics to reap their safe, steady revenue stream. Just last year, Pfizer set up a unit specifically to focus on the business for the first time. The Sanofi-Chattem deal speaks volumes about the current state of affairs in the pharmaceutical industry: Chattem brings to the Paris-based drug maker a number of products it acquired when giant Pfizer sold its cupboard of staples to Johnson & Johnson, which then had to divest of certain items to meet anti-trust concerns. As Pfizer subsequently encountered difficulties generating high-tech blockbusters to replace those losing patent protection, it came under fire for having walked away from those very same steady-earning staples. The recent Pfizer-Wyeth deal brought a number of over-the-counter products back to the Pfizer medicine cabinet. Ironic, eh? (My colleague Jacob Goldstein has a nice blog on this subject; have a look.)

The world economy is going to remain fragile for a few years, says Groupe Danone, so the yogurt maker is warning investors to brace for a spate of lousy financial results. Danone’s spin reminds me of another European company – a maker of multi-vitamins – which, long after Sept. 11, 2001, was still blaming the terrorist attacks for its lousy earnings. In Danone’s case, the fact is that its portfolio of products is too slim. As DJN colleague William Horobin writes, “Danone has spent the last decade narrowing its portfolio of products as it slimmed down to become what it describes as the only food group to totally focus on health.” If penny-pinching shoppers are migrating away from probiotic Actimel for store-brand equivalents – or junk food, for that matter – the company simply must have other brands to sustain it. But there’s another cloud looming over Danone: In the U.S. and Europe, courts and regulators have taken a hard look at the company’s positioning of some of its products as healthier than they may be. This has led to some marketing changes for Activia and DanActive (Actimel in Europe) in the U.S. In Europe, the food safety regulator is weighing whether science supports Danone’s claims for the products. These issues would seem to be more relevant to Danone’s near-term results than the state of the global economy.

In the 1990s, drug maker Novartis AG introduced a potent cancer drug named Gleevec; its powers have been chronicled by grateful patients ever since. Now comes further evidence that Novartis has a successor drug which may even be superior to the original. Called Tasigna, it worked better than Gleevec in a clinical trial. A reticent Novartis says only that Tasigna produced “faster and deeper responses” than Gleevec in adult patients newly diagnosed with chronic myeloid leukaemia. The drug maker’s No. 2 best-selling medication, it’s likely to generate $4 billion in sales this year; revenues are still rising at around 10% annually. The problem for Novartis is Gleevec will lose patent protection in 2015, at which time it will face competition from low-cost knock-offs. This may seem far into the future but for a pharmaceutical company it’s tantamount to tomorrow. Replacing billions of dollars in lost revenues requires many, many years of new-drug development. Tasigna would therefore appear to be a knight in shining armour – both for Novartis and for patients.

Allergan would seem to have a compelling free-speech case in its suit against the U.S. federal government. In essence, Botox is approved for certain uses, including smoothing facial wrinkles. But off-label uses include treating migraines and easing spasticity. Allergan claims Food and Drug Administration rules barring it from talking about unapproved potential uses of Botox violate its constitutional free-speech rights. As DJN colleague Tom Gryta writes,  the regulator lets drug makers “distribute reprints of medical-journal articles that discuss certain off-label uses of drugs, but generally bars company representatives from proactively discussing the material further.” An Allergan executive tells Tom the company isn’t pursuing the case on any other firm’s behalf. Still, if it prevails “drug companies inclined to push the envelope on off-label marketing may feel emboldened,” Tom writes. My father, who died in June 2008, was treated with Botox for spasticity – his hands had become rigid and clawlike as a result of his Parkinson’s or Multiple Myeloma or both. He couldn’t move his fingers at all. A physician prescribed Botox injections to loosen the muscles, so to speak. The FDA allows doctors to prescribe drugs as they see fit, even for unapproved treatments. In my Dad’s case, the Botox didn’t work particularly well – but that might have been because his illness was so far gone or he didn’t pursue the injections long enough. The issue of non-approved uses of prescription drugs is an enormously important one. The Allergan case is certainly one to watch.

The CEO of Whole Foods has come out and said that “Food is Health” – not “Food as Pleasure” – will be the retailer’s new focus for the future. (Check out the headlines on DJN!) Here’s a retailer whose stores are full of the most delectable confections imagineable telling us: “Tsk, Tsk! You shouldn’t be indulging.” It strikes me that this sudden new tilt toward austerity could harm Whole Foods and what it has come to stand for. Over the past several years, it worked mighty hard to imprint itself on customers’ minds as THE place to find the yummiest foods – fresh and packaged alike. Want a full-fat cheese cake topped with glazed fruits? Go to Whole Foods’ extensive bakery section. Want a thick steaming slab of homemade pizza with the dreamiest of toppings and cheese oozing off the sides? Try Whole Foods’s prepared food area. Broke but hungry for lunch? Drop by Whole Foods and try the free cheese-and-cracker samples, or the upscale tortilla chips and fancy salsa dip scattered around the store. No need for lunch now! But no – the chief executive officer, John Mackey, now tells us this is all wrong. We should be eating healthy. Food’s not fun, it keeps us alive. We’ll wait and see if Whole Foods actually changes its tempting food line-up, scuttling the tasty stuff in favor of actual whole foods. If the profit motive prevails, it will simply drape its normal inventory in a health-food marketing message. A genuine and dramatic inventory shift could send customers running back to old-fashioned supermarkets. Yeah, we eat because we have to – but we eat delicious food because we want to. And let’s not forget that good food is an affordable luxury of the sort Americans just might not want to forego as the economy recovers.

"Smoking Causes Ageing Of The Skin"

When it comes to delivering health messages in the United States, we tend to be very straightforward – perhaps too straightforward. We hear about obesity and being overweight and the message is how it leads to high-blood pressure and heart disease. Same goes with smoking: The message for years was that smoking was hazardous to your health. Or that is could cause complications for pregnant women. If we really want to get the health message to sink in, perhaps we need to think of it in terms of how it makes you look? That’s the approach taken in London, where I can across this discarded pack of cigarettes with the message: “Smoking Causes Ageing Of The Skin.” People might be more inclined to table smoking if they think about their skin becoming wrinkled and discolored…

In the wake of news about Steve Jobs’s liver transplant, colleague David Bird recounts his own liver transplant and recovery on the Dow Jones Newswires and WSJ.com. It’s a must-read: http://blogs.wsj.com/digits/

I agree with what my colleague and fellow blogger Gabriella Stern wrote here about the disclosure obligations of the Apple Inc. board of directors and the illness of the company’s leader, Steve Jobs. Despite already being on medical leave, shareholders did indeed deserve to know that Jobs, the man widely viewed as Apple’s innovator-in-chief, had a liver transplant about two months ago.

It sheds light on an interesting and ongoing issue in U.S. corporate disclosure. In simplistic terms I describe it as the difference between material and merely important. To reach the level of materiality, and thus obligate a publicly traded U.S. company to report it, new information has to be of a level to change the mix of an investor’s thinking about the company.

The definition of what is material is not written down anywhere. It is developed in case law and so open to some, usually lawyerly, interpretation. A few years back in a court case, the Securities and Exchange Commission said something is material if “there is a substantial likelihood that a reasonable shareholder would consider it important” in making an investment decision. Also, if there was a substantial likelihood a reasonable investor would think the information ”significantly altered the total mix of information available” about a company.

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Apple Inc. shareholders deserved to know about Steve Jobs’ liver transplant – from Apple’s board of directors, not from The Wall Street Journal. Kudos to the WSJ’s Yukari Iwatani Kane and Joann S. Lublin for digging up the news, which will be closely watched by Apple shareholders (and competitors) today. (Here’s the WSJ story: http://online.wsj.com/article/SB124546193182433491.html) Given Jobs’s absolute centrality to Apple – in many investors’ minds, Jobs IS Apple – the board should have seen to it that the information was disseminated widely after the transplant if not before, when he took the decision to undergo the surgery. This is the type of relevant information investors need to have when evaluating whether to put their money into a company – or keep it there. The secrecy Apple has maintained over Jobs’ health issues in recent years is understandable, given their natural desire to protect the boss’s privacy. But it’s wrong-headed from a governance standpoint. The fig leaf that Jobs was already on medical leave, and so Apple didn’t have to disclose the liver transplant violates the spirit of corporate transparency. It’s simply not in the interest of the company’s stakeholders. The WSJ quotes John Olson of Gibson, Dunn & Crutcher as saying, “You can’t expect the company to give a blow-by-blow account of Steve Jobs’s health.” Indeed, we don’t need to know about the small medical hiccups. But an organ transplant ranks as a major health event, in anyone’s life much less the innovator-in-chief of Apple Inc.