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JUNE 11, 2003
By Amy Tsao Schering-Plough: Drugmaker, Heal Thyself [Page 2 of 2] PILL PARTNERS. The two-pronged method of lowering cholesterol represents a "new way of thinking," says Dr. Matthew Sorrentino, associate professor of medicine at the University of Chicago. Zocor, which is a statin, works by stopping the liver from turning fat into cholesterol, while Zetia inhibits cholesterol from being absorbed in the intestine. If priced competitively, the single pill could be popular, Sorrentino figures, since patients who have to take more than one anticholesterol drug would find it more convenient. Some analysts project at least $2 billion in peak annual sales for the combined pill, but Mehta Partners' Tong figures sales could reach $4 billion to $5 billion in 2007. That compares to $8 billion in 2002 sales of Pfizer's Lipitor, now the biggest anticholesterol drug on the market. Steve Paspal, senior research analyst at Sovereign Asset Management, sees Schering's stock as "pretty intriguing," based on Zetia's long-term prospects. (Sovereign is a subsidiary of John Hancock Funds. Paspal says Sovereign doesn't own the stock.) Merck and Schering, which would split revenues from the combo, can be expected to devote considerable resources to convincing doctors that the Zetia-Zocor cocktail represents an improvement over statins alone. That, however, could be a tall order, as most patients haven't had significant problems with existing therapies. "Clinically, dosing is not a big issue, given that people have been pretty satisfied with currently available statins," says Tong, who is quick to add: "We think Merck will do everything it can to convert Zocor users to the combo." Since the drug is critical for both Schering and Merck, such a promotional effort is all but certain. For Schering, it would make up for Claritin's plunging sales. For Merck, the new pill could help extend patent life for Zocor, a $5.6 billion product. HEPATITIS C PRESSURE. To persuade doctors, the prospective partners might cite recent history. The amount of Zocor will be lower in the combined pill -- something that may well persuade doctors to switch their patients, given that, in 2001, a statin made by German drugmaker Bayer (BAY ) and sold under the name Baycol was linked to several deaths. Other patients experienced severe muscle problems, a more common problem associated with higher doses of all statins. Schering is also seeing pressure on its hepatitis C franchise, its largest revenue generator. Sales of combo therapy ribavirin and Peg-intron fell 7% in the first quarter, to $516 million, as a competing product by Roche Holding gained market share. Generic-drug makers are another looming threat, and Schering's 2003 sales will be hurt by competition, says Tong, who nevertheless expects long-term demand for hepatitis C treatments to remain strong. He expects Schering's slice of the market to remain "a cash cow," even though, by 2008, he anticipates sales will amount to only $2.5 billion, down from the $2.7 billion they achieved in 2002. Still, many continue to see Schering is a high-risk prospect. More cautious investors probably will want to wait for the stock to retreat further, to $17 or below, wrote CIBC World Markets analyst Mara Goldstein in a May 30 research note. "The shares can be compelling for investors with high risk-reward profiles and longer-term investment horizons," she wrote. (CIBC received banking fees from Schering in the past year.) Given the current uncertainties, the stock's current price reflects the hope that Schering's foray into the $16 billion-and-growing cholesterol market will pan out. Investors who can stomach the near-term uncertainties should listen closely to CEO Hassan's progress reports at upcoming analyst and investor meetings. While Schering isn't without risks, it has a decent shot at a comeback.
 Tsao covers financial markets for BusinessWeek Online in New York Edited by Beth Belton Get BusinessWeek directly on your desktop with our RSS feeds.  Add BusinessWeek news to your Web site with our headline feed. Click to buy an e-print or reprint of a BusinessWeek or BusinessWeek Online story or video. To subscribe online to BusinessWeek magazine, please click here. Learn more, go to the BusinessWeekOnline home page  | | |
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