|
|
ONLINE FEATURES
Book Reviews
BW Video
Columnists
Interactive Gallery
Newsletters
Past Covers
Philanthropy
Podcasts
Special Reports
BLOGS
Auto Beat
Bangalore Tigers
Blogspotting
Brand New Day
Byte of the Apple
Economics Unbound
Eye on Asia
Fine On Media
Green Biz
Hot Property
Investing Insights
Management IQ
NEXT: Innovation
NussbaumOnDesign
Tech Beat
Working Parents
TECHNOLOGY
J.D. Power Ratings
Product Reviews
Tech Stats
Wildstrom: Tech Maven
AUTOS
Home Page
Auto Reviews
Classic Cars
Car Care & Safety
Hybrids
INNOVATION
& DESIGN Home Page Architecture Brand Equity Auto Design Game Room SMALLBIZ Smart Answers Success Stories Today's Tip INVESTING Investing: Europe Annual Reports BW 50 S&P Picks & Pans Stock Screeners Free S&P Stock Report SCOREBOARDS Hot Growth 100 Mutual Funds Info Tech 100 S&P 500 B-SCHOOLS Undergrad Programs MBA Blogs MBA Profiles MBA Rankings Who's Hiring Grads | |
JUNE 11, 2003
By Amy Tsao Schering-Plough: Drugmaker, Heal Thyself It has a potential blockbuster and a savvy new CEO. With federal probers and Claritin's expired patent to deal with, it will need both These days, investors are wondering what's next at Schering-Plough (SGP ) -- and not without reason. So far in 2003, sales of allergy drug Claritin have dropped to less than $200 million, way down from almost $2 billion that they achieved in 2002, when patent protection expired in December. The outfit must also contend with pricing pressure on its money-spinning hepatitis C drug, regulatory probes into marketing practices, and federal regulators' demands that it clean up manufacturing procedures at a number of plants. "It's a can of worms," say Paul Abel, portfolio manager of Kinetics Medical Fund (MEDRX ), who sold his stock nine months ago. Many share Abel's view, and the share price reflects that disaffection. While pharmaceutical stocks have been flat over the past 12 months, Schering has declined 20% in the same period, to around $19. Nor is it cheap next to its peers, with a forward price-earnings ratio of 23, vs. Pfizer's 17. Meanwhile, 21 of 27 Wall Street analysts rate the stock neutral or lower. Yet value investors are undeterred. They point out that Schering has a new CEO and a potential blockbuster drug on the horizon. "We like the strong free cash flow, and it's in an industry with growth prospects," says Rick Jones, director of value equity management at BB&T Asset Management. He admits that Schering, with $10.2 billion in 2002 sales, is expensive when judged by earnings. But he also points out that this year's dividend return of 68 cents helps to offset the high p-e. (Schering is a holding in BB&T's value portfolio.) A VETERAN'S EXPERIENCE. Schering isn't for the faint of heart. And it also demands that investors believe industry veteran Fred Hassan, Pharmacia's former chief, can turn the drugmaker around. Hassan is credited with steering his former employer into a sea of black ink by increasing sales of drugs for glaucoma, incontinence, and arthritis. That turnaround was so successful that Pfizer (PFE ) last summer bought Pharmacia for $60 billion. Now, Hassan is CEO at Schering. In April, his first month on the job, he repudiated former earnings-per-share guidance for 2003 of 75 cents to 85 cents, declining to nominate a specific figure. He plans to update investors on his turnaround strategy on July 23, when Schering will announce second-quarter earnings. Says Jones: "That will give a pretty decent road map. He'll have a chance to get out all the bad news he knows about." A prime focus for Hassan's attention will be clearing up Schering's legal uncertainties. Settling with federal and state investigators is a must if he's to assure investors. On May 30, the company announced that the U.S. Attorney's office in Boston had notified it of a federal grand jury looking into Schering's alleged sales of unapproved drugs and for allegedly paying doctors and insurers to steer patients toward its medications. And on May 14, Schering said it would bring into compliance four plants where the Food & Drug Administration (FDA) found "significant and widespread" production deficiencies. CHOLESTEROL COCKTAIL. Shaojing Tong, drug analyst at Mehta Partners, figures the investigations can be resolved. And he's optimistic that fixing quality-control shortfalls at those manufacturing facilities could convince the FDA to approve Asmanex, an inhaled asthma medication that has been delayed for several years. Analysts believe Asmanex could be a $1 billion-a-year drug. Better yet, Schering's cholesterol treatment, Zetia, which was approved by the FDA late in 2002, could be a winner. The approval cleared it as an add-on treatment for patients who either can't tolerate the so-called statins, the standard therapy, or who have failed to achieve the desired results from high doses. By itself, Zetia is no blockbuster, however. In its first full quarter on the market, worldwide sales totaled just $46 million. While that figure is insignificant in itself, a pill comprising Merck's (MRK ) Zocor and Zetia has Wall Street excited. The combined medication, which will be filed for FDA review later this year, has the "potential to be bigger than Claritin ever was," says Schering spokesman Bob Consalvo. If approved, the combo might begin to add some needed heft to the top line sometime in 2004.
  | | |
 Copyright 2003, by The McGraw-Hill Companies Inc. All rights reserved.Terms of Use | Privacy Policy |
Printer-Friendly Version
