Richard Jay Kogan
1941–



Former chairman and chief executive officer, Schering-Plough Corporation

Nationality: American.

Born: June 6, 1941, in Bronx, New York.

Education: City College of the City University of New York, BA, 1963; Stern School of Business at New York University, MBA, 1968.

Family: Son of Benjamin Kogan (bar-and-grill owner) and Ida (maiden name unknown); married Susan Linda Scher (chemist).

Career: Ciba-Geigy, 1975–1976, vice president of planning and administration for pharmaceuticals division; 1976–1979, president of Canadian pharmaceutical operations; 1979–1982, president of U.S. pharmaceutical division; Schering-Plough Corporation, 1982–1986, executive vice president of pharmaceutical operations; 1986–1995, president and COO; 1996–1998, CEO and president; 1998–2003, chairman and CEO.

■ Richard Jay Kogan worked his way up through the ranks of the pharmaceutical industry to become the president, CEO, and chairman of Schering-Plough Corporation (SP). Under his guidance SP evolved from a small company with a niche market into an industry leader, its market value increasing almost fivefold between 1996 and 2000. Kogan was viewed as the consummate drug-company executive, understanding the complex political and marketing challenges of the industry as well as the sophisticated science that supported it. His massive advertising campaign transformed SP's prescription allergy medicine Claritin (loratadine) into one of the best-known and best-selling drugs in the world. For years Kogan met and exceeded SP's earnings forecasts; he was known as a tight-fisted cost cutter and a feisty and stubborn opponent with a talent for behind-the-scenes deal making.

Ironically some of the same qualities that led to Kogan's success eventually contributed to his downfall. He invested heavily in research and development while allowing SP's manufacturing infrastructure and quality control to deteriorate. Kogan alienated the U.S. Congress, the U.S. Food and Drug Administration (FDA), and finally the U.S. Securities and Exchange Commission (SEC). As SP's financial standing eroded, Kogan announced his retirement. Shortly afterward he became the first individual ever to be fined under the SEC's fair-disclosure regulation.

FROM THE STREETS TO THE TOP

Kogan grew up in New York City, working in his father's bar and grill in the Hell's Kitchen district of Manhattan. In an incident that foreshadowed his future maneuverings at Schering-Plough, he refused to join the vendors' union while selling peanuts at Yankee Stadium, relenting only after being physically beaten by other vendors. Kogan graduated from City College of the City University of New York in 1963. He later dropped out of a doctoral program at Rutgers University and joined the U.S. Army Reserves; he eventually earned his MBA from the Stern School of Business of New York University.

The pharmaceutical industry first took notice of Kogan in 1975 when he was named vice president of planning and administration for the pharmaceuticals division of Ciba-Geigy (later Novartis). The following year he was promoted to president of the company's Canadian pharmaceutical operations. In 1979 he became president of Ciba-Geigy's U.S. pharmaceutical division.

Kogan moved to Schering-Plough in April 1982 as executive vice president for pharmaceutical operations. In January 1986 he was elected president and COO; in 1996 he succeeded Robert P. Luciano as CEO and president. For two decades Luciano had built SP into a worldwide research-based pharmaceutical company that developed, manufactured, and marketed prescription and over-the-counter products. When Luciano retired as board chairman on November 1, 1998, Kogan was elected to succeed him while remaining CEO.

A BRIGHT FUTURE FOR SCHERING-PLOUGH

When Kogan took control of SP, he announced that he would continue to expand the company's operations and prosper against the competition. He promised to attract talented employees, develop their skills, and challenge and reward them. He would remain committed to research and development, focusing on innovative products that prevented, treated, and cured life-threatening diseases. He would also maintain SP's strong financial position by tightly controlling costs, thus enabling SP's resources to grow and providing high returns for its shareholders. Finally Kogan vowed to uphold the highest standards of ethics, business conduct, and compliance throughout the company's worldwide operations.

A great marketer, Kogan directed the ad campaign that turned Claritin, a moderately effective antihistamine, into the best-selling allergy medicine in the United States and one of the world's most profitable drugs. SP was soon selling $3 billion worth of Claritin's five formulations annually. During the spring allergy season of 1999, Claritin accounted for 54 percent of all prescription-drug sales in the United States, as well as for one-third of SP's sales and 40 percent of its profits. That year SP experienced its 14th consecutive year of double-digit growth. Between 1996 and 2000 Kogan doubled the company's annual net income to $2.4 billion and increased sales 73 percent to $9.8 billion. SP became an industry favorite among analysts.

Kogan kept manufacturing costs down while gradually doubling spending for research and development, which resulted in the development of promising new drugs for the treatment of cancer and hepatitis C. As a leader of the Pharmaceutical Research and Manufacturers of America, a trade organization, Kogan helped defeat the Clinton administration's efforts to impose price controls on drugs.

By 1999 mergers were becoming a trend among large pharmaceutical companies; SP was an exception. Although SP was smaller than many of its competitors, Kogan insisted that the company was in strong financial shape and had no need to merge. Kogan himself became one of the best-paid CEOs in the pharmaceutical industry; from 1998 through 2000 he earned $86.8 million in salary, bonuses, and stock options. However, with trouble brewing at SP, the board cut his 2000 bonus by $300,000, to $1.87 million.

MANUFACTURING AND PATENT CRISES

Kogan's stringent reductions in manufacturing costs led to near disaster when, in late 1999 and 2000, SP was forced to recall 59 million asthma inhalers that lacked the active ingredient. Soon afterward the AAC Consulting Group of Rockville, Maryland, conducted an audit of SP's Kenilworth, New Jersey, plant. Their report, which was leaked to the consumer-advocacy group Public Citizen, was scathing. According to BusinessWeek , the report stated that managers felt "a continual push for increased production and decreased downtime, sometimes at the expense of high-quality work" (July 16, 2001). Supervisors questioned whether SP management had a long-term commitment to high-quality products.

To add to difficulties, SP's patent on Claritin would expire in 2002 and the FDA was pressuring SP to market the drug over-the-counter, which would further erode profits. In his efforts to extend Claritin's patent Kogan alienated the FDA. He led a massive and very expensive congressional-lobbying campaign to weaken the FDA's control over patent issues; when his efforts failed, Kogan publicly denounced the FDA for its lengthy reviews of new-drug applications.

Kogan placed his hopes on Clarinex, a Claritin spin-off. However, the FDA became increasingly frustrated with Kogan's meager attempts to improve quality control and the testing of drug ingredients. In February 2001 the FDA told Kogan that Clarinex would not be approved until he fixed problems with his plants in New Jersey and Puerto Rico. As such SP would have significantly less time before the patent expiration to switch loyal consumers from Claritin to Clarinex. Investors began selling SP stock.

MORE TROUBLES FOR SCHERING-PLOUGH

In the spring of 2001 Kogan finally yielded to the FDA's demands, spending $60 million on manufacturing improvements and hiring five hundred new quality-control and production employees. On June 22, 2001, SP admitted publicly that it had failed the latest FDA inspections. Five days later SP's president—and Kogan's presumed successor—Raul E. Cesan resigned. Observers were unclear as to whether Cesan was taking the blame—he had been directly responsible for plant operations—or believed that SP would be sold and he would be out of a job. The following day, according to BusinessWeek , Kogan told analysts that quality control "is my number-one priority and the FDA is my number-one customer" (July 16, 2001).

As expected Claritin's market share declined and SP's stock price fell. As a relatively small player in a rapidly consolidating industry, no competitor stepped forward to bail the company out. SP's drug pipeline was one of the slimmest in the industry, and its most promising new product, the cholesterol-lowering drug Zetia, was tied up in a marketing partnership with Merck & Company. If a large competitor wanted to buy out SP, Merck had the right to buy out SP's share of Zetia, making such a buyout unattractive to any company other than Merck—and Merck was well known for avoiding mergers.

Next SP came under investigation by the U.S. Justice Department due to questionable sales and marketing practices and clinical trials. A U.S. attorney in New Jersey was investigating certain SP products made in Puerto Rico. On November 13, 2002, SP announced that Kogan would retire by April 2003. A BusinessWeek story quoted an industry investment banker as saying, "This is a crippled company" (December 2, 2002).

CHARGED WITH VIOLATING FAIR DISCLOSURE

On March 12, 2003, the SEC notified Kogan and SP that it was recommending civil action under the fair-disclosure regulation, which had been enacted in October 2000 to prevent selective disclosure of sensitive market information. On September 30, 2002, SP shares had closed at $21.32. According to the SEC, that evening and the following day Kogan had held private meetings with executives from four investment firms. As quoted in Chemistry and Industry , the SEC charged that in those meetings, "through a combination of spoken language, tone, emphasis, and demeanor, Kogan disclosed negative, material, nonpublic information about SP's earnings prospects" (October 6, 2003). Kogan had apparently implied that analysts' estimates of SP's third-quarter 2002 results were too high and that sales would fall significantly in 2003.

Following those first meetings, although Wellington Management's drug analyst maintained her "buy" recommendation for SP, several Wellington portfolio managers sold off large chunks of SP stock. Massachusetts Financial Services, a division of Sun Life Financial, owned very few SP shares because their analyst had already been worried about the company. Meanwhile analysts from Fidelity Investments and Putnam Investments immediately issued "underperform" or "sell" recommendations. Within three days Fidelity and Putnam had each sold more than 10 million shares of SP—about 30 percent of the trading volume—saving their investors many millions of dollars.

On October 3, 2002, according to the SEC, Kogan held a private meeting for 25 additional analysts and portfolio managers. He told them that SP's earnings in 2003 would be "terrible" ( New York Times , September 10, 2003). That evening SP issued a press release announcing that 2002 and 2003 projections would be far below analysts' consensus estimates as well as earnings from previous years. The next day SP's shares opened at $16.10.

Neither Kogan nor SP either confirmed or denied the SEC's charges and findings. Kogan agreed to pay a $50,000 fine, and the company agreed to a $1 million civil penalty. For the first time the SEC had fined an individual for fair-disclosure violations; the company fine issued was the largest possible.

See also entry on Schering-Plough Corporation in International Directory of Company Histories .

sources for further information

Barrett, Amy, "Needed: A New Chief—and Intensive Care," BusinessWeek , December 2, 2002, p. 52.

"Ex-CEO Kogan Fined Heavily for Earning Prospects 'Implications,'" Chemistry and Industry , October 6, 2003, p. 9.

Norris, Floyd, "SEC Penalizes Schering-Plough over a Fair Disclosure Violation," New York Times , September 10, 2003.

"Schering-Plough Board of Directors Elects Richard Jay Kogan Chairman of Board and CEO, Raul E. Cesan as President and Chief Operating Officer," PR Newswire, September 25, 1998, p. 7788.

Weber, Joseph, "Is Kogan in a Corner?" BusinessWeek , July 16, 2001, pp. 68–69.

—Margaret Alic



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