QUOTE AND NEWS
DailyFinance  Mar 17  Comment 
LOS ANGELES, CA -- (Marketwired) -- 03/17/14 -- Sammi Girl Productions is very excited to announce that a special SGP Chat with Award Winning, Critically Acclaimed Director and Screenwriter, Richard Linklater, is now available to view on the...
Financial Times  Feb 3  Comment 
Reckitt shares rose 2.2% on talk it was in the running to buy Merck Consumer Care, the maker of Coppertone sun cream and Claritin hayfever tablets
FierceBiotech  Nov 25  Comment 
The key to launching Redwood City, CA-based ARMO, says CEO Peter Van Vlasselaer, was in-licensing the cytokine IL-10 program from Merck, which had wound up with the anti-inflammatory therapy after it swallowed Schering-Plough's pipeline whole.
MedPage Today  Oct 13  Comment 
(MedPage Today) -- Intensified chemoradiation with temozolomide for newly diagnosed glioblastoma failed to improve survival or slow disease progression, according to results of a randomized trial.
Red Orbit  Oct 2  Comment 
Lawrence LeBlond for redOrbit.com - Your Universe Online A large multi-institutional research team working with the Sasquatch Genome Project (SGP) say they have evidence that will prove Bigfoot is the real deal. Roger Patterson’s 1967...
Forbes  Sep 17  Comment 
A few years ago, the New York subway system was plastered with ads for a drug called Claritin.  Mostly, these were photos of lush, green landscapes and pretty models having some kind of 'moment of clarity'. I had no idea what Claritin did, but...
Benzinga  Sep 10  Comment 
Carl Icahn today issued the following statement regarding Forest Laboratories, Inc. (NYSE: FRX): We applaud Forest Labs' search committee and its board of directors in their selection of Brent Saunders as chief executive officer. We believe...
Benzinga  Aug 12  Comment 
Teva Pharmaceutical Industries Ltd. (NYSE: TEVA) and Perrigo Company (NYSE: PRGO) today announced the launch of the generic equivalent to Temodar® (temozolomide). Teva will manufacture, market and distribute the product in the U.S. and both...
Benzinga  Jun 1  Comment 
Genentech, a member of the Roche Group (OTC: RHHBY), today announced final results from the Phase III AVAglio study in people with newly diagnosed glioblastoma, the most common and aggressive form of primary brain cancer....
Benzinga  Jan 25  Comment 
Dr. Reddy's Laboratories (NYSE: RDY) announced today that it has launched Desloratadine ODT (2.5 mg & 5 mg), a bioequivalent generic version of Clarinex® Reditabs® (desloratadine) in the US market on January 24, 2013. Dr....
The Hindu Business Line  Jan 25  Comment 




 

Schering-Plough (NYSE: SGP) is one of the medium-sized players in the pharmaceutical industry, with sales of $18.5 billion in 2008. Its two largest products are autoimmune medication Remicade, sold internationally, and Zetia & Vytorin, a joint venture taken with Merck (MRK) that fights cholesterol. While growth of Remicade has been strong, Vytorin has taken a hit after studies questioned its efficacy compared to the older drug it is based on and in treating blockage of the heart valve.[1]

Like most companies in the industry, Schering-Plough faces challenges to developing new medications, patent expiration, federal regulation, and changes to insurance plans. Schering-Plough has a particularly small pipeline, with very few drugs currently in development. In the near term, it does however have one of the safest profiles in the industry, with very few major patents coming up for expiration in the coming years.

In Q1 2009, Merck (MRK) announced it would acquire Schering-Plough for $41 billion in cash and stock, the company's first major acquisition in decades. Merck feels the acquisition will help diversify its portfolio of drugs, increase its number of late-stage compounds, and create major cost synergies ($3.5B in savings expected per year after 2011, partially due to a 15% downsizing the the companies' combined workforce). The merger has been approved by SGP shareholders, as of August 2009, and is expected to close in Q4 2009. [2] [3] The deal officially closed on November 3, 2009 and shares of SGP ceased trading.[4]

Corporate Overview

Schering-Plough began initially as the U.S. subsidiary of a German pharmaceutical and chemical company, Schering AG. In the 1970’s, the company merged with Plough Inc., and by 1980 the company’s revenues had grown significantly. Schering-Plough focused heavily on pharmaceuticals, developing antihistamines, corticosteroids, antibiotics, anti-infectives and antiviral products. Schering-Plough's most successful years followed the release of Claritin, a prescription allergy medication. Following Claritin's transition to over-the-counter distribution, Schering-Plough experienced a large down-turn. After several rough years, Fred Hassan was appointed as Schering-Plough’s CEO in 2003, and the company began a restructuring process aimed at increasing revenues and cutting costs. Hassan is known in the industry for rejuvenating troubled companies.

Schering-Plough's headquarters are located in New Jersey. The company posted net sales of $18.5 billion in 2008, with its highest selling product Remicade, an arthritis treatment, bringing in $2.12 billion. Schering-Plough employs 55,000 individuals with locations and sales all over the globe. $3.5 billion was spent on research in 2008 in such areas as cardiovascular and metabolic diseases, central nervous system disorders, infectious diseases, inflammatory diseases, oncology, and respiratory diseases. [5]

Business Growth

Schering Plough posted strong 2009 Q2 profits of $633 million, up 49% from $462 million last year. Revenues actually decreased from $4.92B to $4.65B, partially due to an unfavorable change in exchange rates (10% impact for the quarter). The company is optimistic for the future, particularly with regards to its product diversity and pipeline. Sales of Remicade were particularly strong, growing 19% in operational terms (offset by 17% unfavorable foreign exchange impact) to $565 million in the second quarter of 2009. [6]

There has been controversy over the recently released study about the cholesterol drug Vytorin, which Schering-Plough develops jointly with Merck. Vytorin is a combination of Merck's best-selling Zocor, which had lost patent protection in 2006, and Zetia, a newer drug. While sales of the drug are strong, Vytorin has faced controversy over its comparative efficacy and marketing techniques. As a combination drug, Vytorin enjoys patent protection, which allows Merck and Schering-Plough to charge significantly higher prices than its Zocor counterpart. However, the two companies recently released the results of a study that showed Vytorin may not be any more effective than Zocor alone. While the clinical trial was completed in April 2006, the two companies did not release the results of the study until January 2008. During that time, Merck and Schering-Plough had aggressively advertised Vytorin as a better alternative to Zocor. Merck and Schering-Plough are currently defendants in about 50 civil suits related to Vytorin's potentially misleading marketing. U.S. Vytorin sales fell by 5 percent after this result was announced, and may continue to decline as doctors are advised to reconsider prescribing the combination drug. Combined prescriptions of Vytorin and Zetia fell by 23 percent from January to May, but there are indications that the drop may be slowing down. US prescriptions fell by 1.1% to 2.5 month from April to May.

Vytorin took another hit in July of 2008 after a study showed that it was not effective in treating aortic stenosis, or blockage of the heart valves.[1]

Products and Revenue

Pharmaceuticals ($10.2 Billion)

Pharmaceuticals make up the bulk of Schering-Plough's business, accounting for 84% of revenue in 2007. Over the past several years, Schering-Plough has actually been losing money on its pharmaceutical products, with more going into research, clinical trials, and marketing than was coming back in revenue. Here are some of the company's most important pharmaceutical products:

  • Remicade (16.2% of pharmaceutical revenue): Schering-Plough owns the international rights to Johnson and Johnson's Remicade, an autoimmune drug. Remicade is use to treat conditions such as rheumatoid arthritis, psoriatic arthritis, ulcerative colitis and moderate to severe Crohn’s Disease. It has recently been approved for several other autoimmune conditions, and so has seen increasing sales, especially in the first quarter of 2007. Remicade does not cure these conditions, but rather reduces inflammation. Though Schering-Plough does not have the rights to sell Remicade in the US, it has been sold to nearly 1 million people internationally. An aging population could boost sales of the drug in two senses. First, arthritis and other autoimmune disorders are likely to develop later in life. Secondly, as Remicade does not cure these disorders but merely reduces inflammation, longer-living patients will use the medication for a longer period of time.
  • Prescription allergy medication (10.1% of pharmaceutical revenue): Schering has two major prescription products for allergy treatment, Nasonex, an inhaled steroid, and Clarinex, a once-a-day pill. Nasonex has an enormous share of the inhaled steroid market (47%), and has actually increased its hold by 5% since last year. It also has the broadest set of indications of any nasal steroid. In addition, Schering-Plough has several versions of Claritin, an over-the-counter medication similar to Clarinex. Sales of these medications are highest during peak allergy seasons, the spring and fall, and so increases in company revenue occur during these times.
  • PEG-Intron (9.0% of pharmaceutical revenue): A hepatitis therapy, PEG-Intron accounts for a sizable portion of Schering-Plough's pharmaceutical revenue. It has seen growth over the last year in the US and Europe but a slight decline in Japanese sales. PEG-Intron was approved for treatment of hepatitis B in China in April, and so the product could launch there within the next several months. This expanded market provides many new opportunities for sales.
  • Foradil: an asthma drug co-developed with Novartis AG (NVS), foradil is part of a class of as asthma drugs linked by the FDA to an increase in serious long-term asthma-related side effects. Similar drugs of the same class from other major drug manufacturers were also implicated, making any regulatory action likely unilateral. [7]

Cholesterol Joint Venture ($5.2 Billion)

Schering-Plough joined forces with Merck (MRK) to produce a medication to combat high cholesterol. This joint venture yielded Zetia (ezetimibe) and Vytorin (ezetimibe/simvastatin), two very successful medications with combined net sales of $5.2 billion in 2007. An aging population and increasing obesity in Europe and the United States would lead to higher demand for these medications. Despite the high sales of both drugs, there could be trouble from competitors. In February 2007, a generic drug company filed an Abbreviated New Drug Application (ANDA) for Zetia, an action that is the first step to registering a generic drug. Additionally, the company is challenging Schering-Plough and Merck's U.S patents for Zetia. As of late February, Schering-Plough has yet to respond to the patent challenges. If the company is successful, Schering-Plough could lose market share for high cholesterol drugs as cheaper versions of Zetia are made available. Vytorin would be "safe" from generic competition despite the challenge.

Consumer Health Care ($1.3 Billion)

In addition to its pharmaceutical business, Schering-Plough also produces consumer health products. One of the most well known is the Coppertone line of products, a variety of sun-block and insect repellent creams and sprays. Schering-Plough also markets the Dr. Scholl's line of foot care products, including shoe inserts, wart remover, and odor neutralizers for shoes. Schering-Plough's consumer health care sales have remained relatively stable over the past several years; there are no stellar products slated to appear in the next few years, and there is no reason why demand for sunscreen would change drastically in the near future as well.

Animal Health ($1.3 Billion)

Schering-Plough's final business unit, animal health products, brings in $1.3 billion a year. Like consumer health, sales of animal care products have remained generally stable over the past several years. Products include pet care, livestock care, and poultry health. A change in trade laws (e.g. tariffs or barriers) on livestock could affect Schering-Plough's sale of livestock growth products. Additionally, an outbreak of mad cow disease in a specific region, resulting in a large decrease in livestock supply, would likely increase Schering-Plough's sale of its livestock growth and health products. Neither of these events appears imminent, but investors should keep an eye out for these as they would likely effect sales of animal health products.

Organon Acquisition

The company's board of directors has approved the acquisition of Organon BioSciences for $14.4 billion. This represents a major transaction and may very well determine the company's future financial health. Organon BioSciences produces several pharmaceutical and animal health products, with total annual sales of $5 billion. Schering-Plough expects that the merger will result in annual savings of $500 million.

Organon has five products in Phase III development, which may bolster Schering-Plough's struggling product pipeline. The division's largest potential new drug is asenapine, which is used to treat bipolar disorder and schizophrenia. Schering-Plough has filed a New Drug Application to the FDA for the drug. If approved, asenapine will compete against Eli Lilly's Zyprexa and Johnson & Johnson's Risperdal. In recent clinical trials, it has shown promising results, performing similarly well but causing less side effects such as weight gain.

Trends and Forces

Research and Development

One of the biggest driving forces in the pharmaceutical industry is the product pipeline. Drug companies must continuously come up with new drugs in order to remain highly profitable and competitive in the market. Currently, Schering-Plough has many different products in development. These include a thrombin receptor antagonist for acute coronary syndrome, Vicriviroc, an HIV treatment, several new allergy medications, new treatments for autoimmune disorders and inflammation, and two new hepatitis treatments. However, in total, Schering-Plough has only 20 drugs in early-stage development (Phase I), and historically only about 20% of drugs in this stage reach the market. This means that in the future only around four new medications would be released, a very low number when compared to other companies' projected releases. Schering-Plough did recently purchase Organon, but Organon's largest potential new drug, asenapine, did not unambiguously pass its latest round of clinical trials.

Prospects for new medications are similarly low for late stage development drugs (Phase II & Phase III}. Only 16 new products are in these final development stages, which means in the next 5-7 years less than 16 new drugs will be launched. Most of Schering-Plough's energy is focused on gaining new markets and indications for existing medications, such as Remicade, which it hopes to win approval for treatment of Pediatric Chron's disease. Thus, Schering-Plough does not have many new treatments likely to hit the market in the next 5-12 years, which means it will have to rely more heavily on existing treatments.

Patent expirations

For a detailed discussion of brand name vs. generic medication, see also Generic drugs.
nlkjkmlkm Due to Food and Drug Administration (FDA) regulations, pharmaceutical patents last 17 years, during which a pharmaceutical company has an exclusive right to manufacture a particular drug. The patent period begins when the company begins researching the drug and files a patent with the patent office. After clinical trials, the average patent is only in effect for an additional 11-12 years. After the patent expires, generic versions of the product can be produced and sold by competitors. Generic medication is cheaper than brand medication, and the lower cost is often a strong incentive for consumers to choose generic over brands. In addition, the presence of a generic alternative may prompt a decrease in the brand name medication price.

Schering-Plough faces very few patent expirations in the next few years, especially in comparison to some of its competitors. Additionally, re-releases of "old" medications, such as the Clarinex/Claritin pair and joint ventures, such as combining Zetia with Merck's statin to produce Vytorin help to extend "real" patent life and maintain market share.

Politics and Insurance

Like other global pharmaceutical companies, Schering-Plough faces constant pressure from governments and activist organizations to increase access to medications by either lowering prices substantially or granting generic licenses. While sales would likely increase as a result, prices would decrease along with revenues. Schering-Plough continues to lobby for favorable regulation and access policies.

Additionally, changes in health insurance plans would impact sales and revenue. If an insurance program changes its policies and removes coverage for a certain treatment, sales are likely to decrease. In general, insurance programs are more likely to cover essential expenses, such as heart disease medication, and less likely to cover nonessential expenses. Many of Schering-Plough's medications are for pain and symptom management (e.g. Nasonex) and so fall right on the cusp of insurance coverage. Changes in policies or legislation by the federal government could shift the balance and could either result in higher or lower sales depending on the direction.

Medicare policies also have an important impact on Schering-Plough's sales. Medicare is the government's health subsidy plan for poor individuals. Policies allow the government to bargain for lower prices; essentially the government caps prices for a large number of plans. This lowers revenues while increasing the amount of medications sold. Over the past few years, many states and the federal government have begun suing multiple pharmaceutical companies because of alleged price fraud. The states are suing based on alleged defrauding of the state health care assistance programs, Medicaid. If the the states win, the pharmaceutical companies will be forced to pay hundreds of millions of dollars and change pricing schemes. While the first trial will not be finished for at least another year, this litigation could easily effect Schering-Plough. Additionally, changes in Medicare legislation could cut into revenues even more in the future, especially if nationalized or cheaper health care advocates come into office.

Comparison to Competitors

Schering-Plough is one of the smaller companies in the pharmaceutical industry, especially when compared to giants such as Pfizer (PFE) and Novartis AG (NVS). Competition in the health care industry occurs on a codition by condition bases. For example, cholesterol drugs compete with other drugs in the same category. Schering-Plough's Zetia competes directly with Pfizer's Lipitor, and many other companies are developing hypertension and cholesterol medications.

Schering-Plough's major competitors include Pfizer, Merck (MRK), and Novartis. As seen in the chart below Schering's profit margins were well below its competitors. This is in part do several years of lost revenue due to lost of Clarinex patent protection. Schering has also suffered from excess production capacity. In 2006 it cut 1,100 jobs and closed a plant in Puerto Rico in order to streamline its operations.

Schering-Plough's margins are lower than its competitors largely because it is a smaller company than the others. Net revenue is lower because it has spent much money reorganizing and in clinical testing over the past few years, but once these costs are covered this number could rise. The most significant metric, is, as mentioned above, the very low number of pipeline drugs Schering-Plough has compared to its competitors.

Competition in the pharmaceutical industry lies mostly in specific drug markets. For example, a new diabetes drug is not going to have any effect on an existing cholesterol drug, no matter how successful it is. As a result, financial data on the pharmaceutical companies do not tell the whole story. Instead, it may be more appropriate to analyze Pfizer's competitors by each drug market (See section on Major Drugs and Industry Trends).

Note that Eli Lilly's net income is negative largely due to its acquisition of ImClone for $6.5 billion in October of 2008.[9]


Pharmaceutical and Biotech Industry — Competitive Operating Metrics (2008)

 

Sanofi-Aventis SA (SNY)

Johnson & Johnson (JNJ)

Pfizer (PFE)

Novartis (NVS)

Abbott Laboratories (ABT)

Merck (MRK)

Bristol-Meyers Squibb (BMY)

Eli Lilly (LLY)

Amgen (AMGN)

Schering-Plough (SGP)

AstraZeneca (AZN)

Roche (RHHBY)

Revenue (in billions of USD)

Total Revenue

$35.8

$63.75

$48.30

$42.58

$29.53

$23.85

$20.60

$20.38

$15.00

$18.50

$31.60

$45.62

Gross Profit

$26.3

$45.24

$40.18

$30.02

$16.92

$18.27

$14.20

$16.00

$12.71

$11.20

$25.41

$31.96

Revenue Growth from 2007

(-1.7%)

4.34%

0.00%

9.34%

13.94%

(-1.44%)

13.21%

9.41%

1.55%

45.80%

6.90%

(-0.01%)

Income

Net Income

$3.85

$12.95

$8.10

$8.20

$4.88

$7.81

$4.15

(-$2.07)

$4.20

$1.90

$6.10

$8.97

Net Profit Margin

10.7%

20.3%

16.8%

19.2%

16.5%

32.7%

20.2%

NA

28.0%

10.3%

19.3%

19.7%

Operating Income

$5.71

$16.93

$9.69

$8.80

$5.69

$9.81

$5.47

(-$1.31)

$5.21

$2.05

-$9.14

$13.76

Earnings Per Share (EPS)

$4.25

$4.63

$2.03

$3.58

$3.10

$4.02

$1.87

$3.70

$4.19

$1.07

$4.63

$10.23

Other

R&D Spending

$5.95

$7.58

$7.95

$7.22

$2.69

$4.81

$3.59

$3.84

$3.03

$3.53

$5.01

$8.85




References

  1. 1.0 1.1 Results From the SEAS (Simvastatin and Ezetimibe in Aortic Stenosis) Study.
  2. The Wall Street Journal. "Merck to buy rival for $41 billion." 10 March 2009.
  3. Reuters. 10 August 2009
  4. Merck and Schering-Plough to Complete Merger Today
  5. SGP 2008 10-K
  6. PR Newswire. "Schering-Plough Reports Financial Results for 2009 Second Quarter." 21 July 2009
  7. Dow Jones. "FDA: Long-Acting Asthma Drugs Boost Asthma Risk." 5 December 2008.
  8. Reuters. "Schering wins U.S. approval for antipsychotic." 14 Aug 2009
  9. Lilly to Acquire ImClone Systems in $6.5 Billion Transaction
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