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CNBC Exclusive: Jim Cramer's Speaks Exclusively to Fred Hassan, Chairman & CEO, Schering-Plough on "Mad Money" (Transcript Included)

When: Thursday, February 12th at 6:00PM ET
Where: "Mad Money w/Jim Cramer"

Following is the unofficial transcript of a CNBC exclusive interview with Fred Hassan, Chairman & CEO, Schering-Plough, on CNBC's "Mad Money w/Jim Cramer."

All references must be sourced to CNBC.

JIM CRAMER, HOST: Fred, the news comes over 6:40 this morning. I have rarely seen a consensus that said that you were going to disappoint, do some bad numbers, the numbers would have to come down. Instead, it was the best upside surprise I've seen in the pharma industry.

Why were you able to pull this off in a moment when the analysts had pretty much given up on you again? Given up on this company again?

FRED HASSAN, CHAIRMAN AND CEO, SCHERING-PLOUGH: I think we were able to convince people that this is a broad company, it's a strong company. It's a very changed company. And this acquisition of Organon makes us even stronger.

And people also realize that we have a lot of business outside the U.S. Sometimes...

CRAMER: The most of any pharma.

HASSAN: Yes. And being a U.S.-based company -- this is a problem with many other industries as well -- the analysts tend to get very obsessive about the U.S. business without understanding the global business here.

And when we showed the strong growth of the company on a broad front, a lot of -- many, many products and many, many regions around the world, I people felt a lot better.

CRAMER: Right.

Now, one of the things on the conference call, there were no punches pulled. You came out swinging. Analysts basically, along with owners, panicked.

The stock goes from 34 to 17 all on one issue, which is your joint product with Merck. Zetia -- Vytorian is what our viewers know it as.

You had some strong things to say, that this drug is not going away. It was your first real strong stance.

Tell us why you have confidence that this is a drug that will be used for many, many years.

HASSAN: The reason I believe in this drug is because it lowers the bad cholesterol, the LDL cholesterol. And I've been in this business for more than two decades. And I have grown up learning and understanding that if you can reduce the bad cholesterol, that's going to be good for you.

CRAMER: But this enhanced study, everyone basically said that, therefore, the questions are going to be raised -- of course, the heart associations didn't -- but that there were going to be questions that would make it so that one day this drug could be pulled from the market.

Was that a vicious overreaction?

HASSAN: Normally when you talk about a drug having a problem, you start talking about safety matters or tolerability matters. In this small study, where we studied this very special population that has very high cholesterol -- so we use the highest possible dose -- in fact, the safety and tolerability profile came through the way it is in the package insert.

So, this was really a small scientific study that had been started a long time ago, many, many years ago, and was of some scientific value. But the most important thing was that the mainstream market lowering LDL, that proposition is the same before the study results read, it's the same now.

CRAMER: Well, then let's talk about it. The fact is, the truth is, is that the scripts -- I know it's early, and you said it was early -- but the scripts -- the people prescribing it, it's not dropped nearly as dramatically as the stock price.

HASSAN: The scripts down in response to the reports that came out. And that happens. But we have been very strong on the ground. And the doctors understand the science. They know that lower LDL is better.

And we gave the doctors support. The doctors gave their patients a lot of good advice. And we have managed to stabilize it. It's not a trend yet, but we managed to stabilize it.

CRAMER: No, but I get the dailies. And the dailies are showing -- of course you write this is not a trend, but the dailies are showing a leveling out.

HASSAN: It's...

CRAMER: Could this be -- could this be -- and I saw this before with another stock I got behind. Could this be like Crestor? Is that the proxy? Now, that was a media frenzy. This was obviously some scientific frenzy.

But the prescriptions went down 15 percent temporarily. Two to three months later, they were back. Is that too optimistic?

HASSAN: It's hard to have a direct analogy, because that was a safety-driven situation. Here, this is -- there are basically two questions that are both raised.

One was, do you need to drop LDL cholesterol in the first place? Which, in my opinion, is ridiculous, because...

CRAMER: Yes. My heart guy -- what are you kidding me? This is the most important breakthrough we have to save hearts.

HASSAN: Yes. And the other one was, well, these newer products, do they really work as well as the older products?

But they do drop the LDL. So our product gets used for a lot of patients where the other products are not allowing the patients to get to their goals. They need our products to get these...

CRAMER: All right. Then why are you -- or when are you going to get back on air with DTC ads to promote this product, perhaps approved by the FDA?

HASSAN: We are working on it...

CRAMER: You are?

HASSAN: ... with our partner. Absolutely, because we stand behind our product.

We just want to find the right time to come back on. Right now our focus is on supporting the doctors.

CRAMER: Food colorings, (INAUDIBLE), pretty big brand identity, could we see that campaign again?

HASSAN: We look forward to showing it to you.

CRAMER: OK. That's very important, because when you pulled the campaign, that was another one, 21, down to 17.

More panic. And I want to see the panic stem, because it's irrational. Nobody ever made a dime panicking.

HASSAN: We stand behind our product. And we're very pleased also that the other associations came forward to support the concept of...

CRAMER: Right.

HASSAN: ... lower LDL is better. And even the FDA came forward to calm the patients and ask them to stay with their medicines.

CRAMER: Yes, it is interesting. There were some doctors who I think have -- would walk a mile for a camera who were very quick to protest. And I think that the public may not have known -- but I'm sure you do -- that some of the doctors just like to speak to the newspapers and say scary things.

HASSAN: Well, it's very important that the doctors who are in charge of their own patients, they are the real doctors. They are the ones who know what the patient needs. And what you've got -- the advice you get on television is only advice. The real action occurs in the doctor's office.

CRAMER: All right. You mentioned that there was a perception that created a bargain, an opportunity. Most of the time I have seen CEOs when their stock's under pressure, they might come in, they buy $2,500 worth of stock, or maybe 500 -- 400, 500 shares.

Talk about your purchase in the open market.

HASSAN: So, when I came here in '03, people were thinking this company was not going to be able to make it.

CRAMER: Well, not everybody.

HASSAN: Yes. And thank you for your faith in the company at that time.

CRAMER: Right.

HASSAN: But at the first opportunity I got my legal clearance, I went there and bought a lot of the stock at about $15.

CRAMER: Right.

HASSAN: About $4 million.

CRAMER: The chart looks pretty convincing down (ph) at the bottom.

HASSAN: And then when the stock went down to the $21 range, I said I've got to make a statement. And I could not buy the stock at that time because I did not have legal clearance.

CRAMER: Right.

HASSAN: So I did make the statement, "The first opportunity I get, I'm going to buy $2 million worth of stock at whatever the price it might be."

CRAMER: Sure.

HASSAN: Because I do believe in this company, I have a lot of faith in our products.

CRAMER: I don't think people -- generally, $2 million, it's still $2 million. Real money.

HASSAN: Well, I already am heavily invested in the company.

CRAMER: Good. I know you are.

HASSAN: It's on top of that.

CRAMER: OK. Now, one of the things that I think people -- and it's somewhat impenetrable, but you have a different kind of accounting -- I'm not going to go into specifics -- with this particular drug. I'm spending -- and this will be my last question on it. I don't want to be like the conference call, where the predominant -- people should listen or read the conference call if they want to know more, because it's quite detailed.

The number that every analyst bandies about -- and I think it's simplistic because they don't take into account the expenses -- is that Vytorin is 70 percent of your profits. And if you took Vytorin away, you're finished.

Is either of those statements correct?

HASSAN: The 70 percent number is what's called GAP (ph) profit.

CRAMER: Right.

HASSAN: We are a joint venture, so we do joint venture accounting.

CRAMER: Right.

HASSAN: And it's very hard to take that number and then apply that against our profit before a tax number because that -- these products are very much a part of our company.

CRAMER: Right.

HASSAN: I don't allocate my time against that 70 percent. You've got to allocate a lot of time and money and resources in marketing the products, selling the products, and also the overhead against these products.

CRAMER: Right.

HASSAN: Plus, we have to remember that any product on the margin is very important, because the gross profits are high in our business. We understand that. But we're very confident that these products are very sound products and we're going to make them grown.

CRAMER: Well, but how about this? When you put together -- and we're going to spend some time on the gigantic acquisition, $18 billion acquisition -- when you merge Organon with your company, there's no way that that 70 percent figure can possibly be current. There's too much revenue and earnings coming from your new company.

HASSAN: There will be other impacts, and those will start to surface once we get a full quarter under our belt. And then even more quarters.

But, yes, that was one of the strategies that I came in with in '03 to diversify. So we are not in any way so focused on just one product, the way we got focused on Claritin in the old days.

CRAMER: Right.

HASSAN: And that was the reason why we did the Organon transaction.

CRAMER: Now, you have been adamant that -- and you've done many turnarounds, which is why I bank with you first and then I bank with the company that you're with. You've made a lot of acquisitions. And often, you have said that if you can acquire a drug company within a larger company that may not be focused or may even been starving the drug company, you've got a bargain.

Akzo Nobel, Organon -- an example?

HASSAN: Well, the Sugammadex product for anesthesia, which is hopefully going to revolutionize the field, when we announced that deal in March of last year, very few people knew about the drug because the chemical analysts that were following Akzo Nobel had not understood the value of the drug. Also, the animal health business of Organon is very, very good. Excellent science, great growth. That business was not very well known.

CRAMER: But let's talk about this Sugammadex. What will make that different?

I know when you go to the hospital, the anesthesia -- that's where all the money is made, in the emergency room. But I also know that one -- that people die from anesthesia. That's just how -- a very terrible way that people die.

Why will this change that?

HASSAN: Well, when you go under and you go into this deep block so the doctor can do surgery, like abdominal surgery...

CRAMER: Right.

HASSAN: ... and you shouldn't be moving when the doctor's doing the surgery, the anesthesiologist wants to pull you out of that deep block as soon as possible, because you've got a breathing tube helping you at that point.

CRAMER: Right.

HASSAN: The surgeon wants the maximum time possible so the surgeon can be doing the job very well. This product will help both of them.

This product will allow the anesthesiologist to put the patient under deep block. The surgeon does a great job. And once the surgeon is done, he can then -- the anesthesiologist can then use our new drug, Sugammadex, and rapidly reverse the anesthesia so that you can get rid of the breathing tube and the patient can come back. It's...

CRAMER: That's big. That's big.

HASSAN: It's a very...

CRAMER: And I know that because of the nature of the business, any fatality can ruin a hospital. So this could -- so anything that ratchets that down is positive.

Now, the company was known as a birth control company. That is really just a cash cow, isn't it?

HASSAN: It's a very valuable area. It's -- they have a very innovative product in this NuvaRing, which is the alternative to The Pill.

CRAMER: Right. That is the new -- I understand that the NuvaRing is, in terms of safety -- the safety profile and the stopping of pregnancy -- is remarkable.

HASSAN: Once a month, you don't have to remember your pill every day. The hormones are released uniformly throughout the month, so you don't have the ups and downs.

CRAMER: Right.

HASSAN: And it's a very convenient, modern method of birth control. It's the first new thing that happened in the field since The Pill came out in 1960.

CRAMER: Can you put money behind that? Can people learn more about it?

HASSAN: We are going to make that brand grow.

CRAMER: OK.

HASSAN: This was, again, being run in a chemical company environment, in a pharmaceutical company environment.

CRAMER: Right.

HASSAN: We have a great opportunity.

The one under -- under -- the one area that's not well understood is that a lot of these products that we're talking about have long patent life. That's the one thing that makes...

CRAMER: Right.

HASSAN: ... Schering...

CRAMER: Right. One of the reasons why I've been so adamant that people should own Schering-Plough is I look at the drug companies out there. Almost everybody is going to lose their biggest drug by 2012, except for you guys. You're the only one that has long-term patent protection.

HASSAN: We go on and on with many of our large drugs. This NuvaRing goes on for many, many years. Nasonex goes on.

CRAMER: Right.

HASSAN: Pegintron, our cholesterol product.

CRAMER: Right.

HASSAN: Long time.

CRAMER: Now, how about this Asenapine for under-marketed business?

HASSAN: It's a very interesting area. People had thought that this (INAUDIBLE) drug was not going to be able to make it because Pfizer had walked away from it in October of '06.

CRAMER: Right.

HASSAN: We saw this opportunity. Again, we saw something that others didn't see. And the NDA (ph) was fired (ph) and has been accepted by the FDA for filing. And it's at the FDA at this time.

And drugs in this category do get used because it's a very unsatisfied category. And there's no way to identify which drug is going to work on which patient.

CRAMER: OK. Given all these -- and I'm not sure exactly the time frame of FDA approval. I know you have a big March meeting for one of your drugs. But I'm trying to build a model myself for our viewers, and it would like that even if you have a small decline in '08 for joint venture income on Vytorin, you can still have an up year.

Am I being too optimistic?

HASSAN: We haven't given those...

CRAMER: I know you don't give guidance.

HASSAN: ... forecasts and guidance.

CRAMER: You don't give it.

HASSAN: But the one thing I did say...

(CROSSTALK)

CRAMER: We're better than those other places.

HASSAN: The one thing I did say at the call is that we will take tough actions if tough actions are needed.

CRAMER: OK.

Just speaking in general to wrap things up, because I know that -- you know, first of all, I'm thrilled that you're giving me so much time on this.

HASSAN: My pleasure.

CRAMER: But the environment -- the drug stocks have all been hammered. There's a perception that if the Democrats get in, it has to hurt the drug companies. The Medicare Advantage program, the drug program from the federal program, is a much-loved, much-loved program by the elderly.

Is there any one that you see -- and you know the landscape -- that would actually in the Democratic Party make you feel like that you have to sell pharmaceuticals (INAUDIBLE)?

HASSAN: I think sometimes the rhetoric you hear is not really what's going to happen. Let's just talk about Medicare Advantage...

CRAMER: Right.

HASSAN: ... the Medicare drug benefits.

CRAMER: Right.

HASSAN: Great program. Over 80 percent of the people using it are satisfied. The costs have come in a lot lower than -- than what was planned. And it makes a lot of sense. So, why interfere with a program when the costs are coming in below what the -- what the -- what the plans were?

I also think that people want new drugs and innovations. And whether you have a Democrat or a Republican there, they are going to have to listen to what the patients are looking for. We're trying to look for new drugs for cancer, Alzheimer's.

CRAMER:

Right.

HASSAN: Why would you want to deprive patients of new drugs by interfering?

CRAMER: And one last question. And it's philosophical.

Why is the pharmaceutical industry rated lower in people's minds than the oil industry in terms of trust?

HASSAN: I think our numbers have actually gotten a little better. We have managed to separate ourselves, but we're still seen as being very (INAUDIBLE).

CRAMER: Right.

HASSAN: And sometimes, you know, the kinds of money people sometimes spend, they are not happy spending money on health care. We have to do a better job explaining to people that if you want to live longer, live better, you have to also spend some money on health care. Because without spending money on health care, you're not going to get new innovations.

CRAMER: But you've got congressmen writing letters to you about the enhanced study that maybe you hid data, that you're just part of the great -- I call it the Dr. Richard Kimble problem in "The Fugitive," where they -- you know, they had the liver toxicity that they hid, and Dr. Kimble exploded.

I mean, you can understand that the Provasik problem -- and "The New York Times" criticized me for thinking that that was a real drug -- but there is a notion among you that there are -- that Devlin McGregor are actors that are trying to -- again, a fictional company, "New York Times," I know that -- that are really basically trying to hide bad stuff.

That wasn't the case here, was it?

HASSAN: Well, we've heard about these anonymous bloggers who were saying something. This is on a sales force type Web site.

CRAMER: Right.

HASSAN: Very hard to do much with anonymous blogs. We're going to work on this -- on the...

CRAMER: But you didn't know. You didn't know that...

HASSAN: The data was blinded until December 31 of last year, and I found out at 8:00 a.m. on the 10th of January this year.

CRAMER: Why is everyone so sure that you found out six months ago, before that? I mean, why would congressmen write that? Why don't they -- what's the matter with the truth? It doesn't fit the pieces?

HASSAN: They'll have to go through their own inquiry, but it's hard to do much with anonymous blogs.

CRAMER: Right.

Now, am I missing anything for our viewers, who all know that I am telling people and have been pounding the table since 17, on this decline, on MAD MONEY, to buy your stock? Am I missing anything?

HASSAN: This is a good long-term story. If you go back to the time when I came, a lot of people didn't see much here. And we've done very well.

CRAMER: Right.

HASSAN: So I would just say, keep an eye on the long term. This is a good business. Good industry.

CRAMER: But you have made -- at my old hedge fund we made a fortune because you turned around Pharmacia & Upjohn, and then you sold it. I guess you could say anything can happen like that, too.

HASSAN: Well, we always like to say that we're going to do it on our own. And that's the plan. But we will also keep other options in mind. But right now we're focused on doing the right thing for our shareholders, long-term PSR (ph), (INAUDIBLE) shareholder return.

CRAMER: Total -- I like that.

OK. Fred Hassan...

HASSAN: Thank you very much.

CRAMER: ... thank you so much. Good to talk to you.

HASSAN: Thank you. Thank you.




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