A possible violation of the Employee Retirement Income Security Act of 1974 (as amended) is being investigated surrounding the selection and promotion of Wyeth common stock for investment within the Employee 401(k) Plans when it may not have been prudent to do so.
Judging from the events of the past year, and this latest round of cuts that will see upwards of 1200 sales reps losing their jobs, it seems apparent that the company has hit a rocky patch. In this environment, it may not have been prudent to invest employee savings plans and 401(k) plans in company stock, if there was any expectation that the company might fall on hard times, resulting in a drop in the stock price, and a reduction of savings and retirement plan value.Plan administrators have the fiduciary responsibility to prudently manage the Plans in the best interests of the investor. Any investment in Wyeth common stock, given the recent fortunes of the company, could be interpreted as an imprudent investment, and thereby a breach in ERISA fiduciary duty.
Wyeth appears to have been in a state of flux since 2005, when the company reduced its sales force by 15 percent. Last year, Wyeth suffered a drop in stock value after the US Food and Drug Administration (FDA) refused to approve a new anti-depressant drug, Pristiq, for use with post-menopausal women due to safety concerns.
Pristiq is the planned successor to Effexor, which loses patent protection in 2010. Effexor represents $3.8 billion in annual revenue for Wyeth, but that figure is sure to tumble once new generics come in to challenge Effexor at the beginning of the next decade.
As it was, approval for Pristiq as an anti-depressant was delayed when Wyeth had to ditch the original formulation over concerns of nausea. Although the FDA finally approved Pristiq for depression, Wyeth is not expected to win approval for the Pristiq indication for post-menopausal women for at least a year while tests are still being conducted.
Such delays do little to assure investors, and could hurt the ramping-up of a new product requiring time to establish a niche before competition intensifies.
While the layoffs announced Sunday, and the announcement of a sweeping reorganization dubbed 'Project Impact' suggest that the company has all hands firmly on the management rudder, it also could be interpreted as instability.
In late January, Wyeth told their managers that up to 10 percent of the company's 50,000-strong global workforce could lose their jobs by 2011.Yesterday, the latest round of cuts commenced with 1,200 let go. Affected employees will receive severance and keep their benefits.
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In 2007 the company reported a rise in revenue and net income of 10 percent. However, Wyeth doesn't see that happening in 2008, partly due to new generic competition for Protonix, the drug maker's severe heartburn med that brought in $1.9 billion last year. Together with delays in getting both indications for Pristiq off the ground, Wyeth expects total revenue to be flat for the coming year, when compared with last.Such sweeping changes and re-organizations are hardly an overnight consideration. Thus, it can be assumed that trending over the last few years has demonstrated to the company that such alterations were in order.
And therefore, such volatility would be interpreted by some as a lousy time to be investing current, and former employee (401)k retirement savings and savings plans into Wyeth common stock, given the chance for reduced returns—the kind of reduction that was seen when Wyeth stock dropped once the safety concerns over their new drug, Pristiq, were made public.
Any Wyeth Plan member who may have experienced losses in plan value as a result of the Pristiq misstep, might be wise to consult a lawyer.
