A quick take on the technicals, before moving on to the story. Clearly, this is a broken stock, and not typical of my fare. But this is one of those few times you get to buy a quality franchise at a major discount (of course it is not without risk). While the stock did temporarily drop to $17 for a moment, it bottomed out roughly around $19, and now has added $3 with earnings behind it. Clearly the stock is below both its 50 ($24) and 200 day ($27) moving averages so it has some rough times ahead. I think, over time a move back to the $26-27 range should be in order. We'll take it from there.
I have been watching this stock for a while - and almost bought it a few months ago (even though I try to avoid drug/biotech stocks due to FDA risk), but this has always been on my radar since it has a lot more patent protection than peers, and solid long term growth. Even better, due to an issue with Vytorin (not a safety issue but an effectiveness issue), the stock has lost a serious amount of value, so much of the near side risk should be out of the name.
We just had earnings in this name Tuesday and it was "better than expected", and this is a CEO Cramer has always raved about - so I took the time out to watch him on Mad Money last night and I was very impressed. I was even more impressed the guy puts his money where his mouth is (unlike the bank executives) and bought $4M worth of shares already after this stock fallout, and will buy another $2M the next time he can. You can see the whole video interview here; it is worth a look if you are interested in the name. I wouldn't buy just on a video but I have been looking at this name on and off over the years so I was already familiar with the story. The main of the text is below:
- When a study released in mid-January showed that Vytorin – a combination of the drugs Zocor and Zetia – may be no more effective at reducing arterial plaque buildup than just taking Zocor alone, shares of SGP took a nosedive. But the company reported earnings with a narrower loss than expected Tuesday morning, a move that shocked analysts who had been expecting Schering to disappoint on the Vytorin news.
- Hassan told Cramer the company pulled off such a surprising quarter because it was able to convince people that its business extends beyond Vytorin. Also, Hassan said that analysts seemed to be so distracted by Vytorin that they forgot about Schering’s huge overseas business. It was its strong international growth that Hassan said accounted for the earnings upside surprise.
- But Hassan didn’t downplay the Vytorin issue. He threw his full support behind the drug, which is a joint-venture between Schering and Merck, telling Cramer that studies prove Vytorin can reduce LDL (bad) cholesterol. The particular study that brought on the skepticism was small and concentrated on a special population with very high cholesterol, Hassan said. Even then, the drug’s safety and tolerability profiles – two of the biggest indicator’s of a drug’s efficacy – remained normal.
- Hassan also spoke about Schering’s recent acquisition of Organon BioSciences from Dutch chemical giant Akzo Nobel. Organon is best known for its NuvaRing contraceptive – the first new birth control product to be released in almost 50 years. Organon also develops Sugammadex, a drug used to help patients rapidly recover from anesthesia that is gaining traction in hospitals and with anesthesiologists, according to Hassan. These drugs herald the type of innovation that Schering hopes will guide its business model going forward.
- These new drugs, in addition to some of Schering’s flagships like Nasonex and Claritin, give the company a long-term baseline for growth, Hassan said. And while most other pharmas must prepare for their major drugs to come off patent within the next few years, Schering enjoys patent protection well into the future. Cramer thinks this is sure to give the company and its shareholders an advantage over the rest of the sector, which is already suffering from bone-dry pipelines.
- When Hassan took the helm of a struggling Schering-Plough in 2003, he bought back stock as a way to calm the nerves of those who thought the company was headed toward a downward spiral. To reassure analysts and shareholders, Hassan told Cramer that at the next legal opportunity he gets to buy back more stock, he plans on picking up $2 million in additional SGP shares “whatever the price may be.”
- The choice is clear, Cramer said. Vytorin is not Schering’s only shtick. With a global footprint and a commitment to growth and innovation, SGP under the leadership of Fred Hassan is the only pharmaceutical stock he thinks is worth owning.
- Shares of drug maker Schering-Plough Corp. rose Tuesday after the company said its sales jumped 40 percent in the fourth quarter, exceeding Wall Street expectations. The Kenilworth, N.J., company reported $3.72 billion in revenue, surpassing expectations by more than $600 million. Its adjusted profit of 27 cents per share was also better than expected.
- Goldman Sachs analyst James Kelly said sales of most of Schering-Plough's key drugs were better than he expected. Cholesterol drugs Vytorin and Zetia topped his estimates, as did arthritis drug Remicade and the interferon franchise, which includes drugs targeting hepatitis C and melanoma.
- Prescriptions of the cholesterol drugs have fallen in recent weeks after a clinical study indicated that Vytorin is no better at reducing cholesterol buildup than Schering-Plough's Zocor, which is now available as a generic drug.
- A Banc of America analyst upgraded shares of drug maker Schering-Plough Corp. Wednesday, saying investors have overreacted to concerns about the effectiveness of Schering-Plough's cholesterol drugs.
- Chris Schott says it appears that sales of the drugs, Vytorin and Zetia, have decreased about 10 percent over the last month, since clinical data cast doubt on their ability to slow plaque buildup compared to older products. The stock is down 21.8 percent since Jan. 14. Schott says the decline decreases the value of the drugs too much.
- Schering-Plough markets Vytorin and Zetia through a joint venture with Merck & Co. The joint venture was responsible for 60 percent of the company's profit in 2007, he said, and there are no questions about the safety of the drugs.
- Schott said the company's recent buyout of Organon Biosciences bolsters its pipeline making it less dependent on its cholesterol franchise. He added that Schering-Plough is posting more rapid profit growth than its peers, and faces no major generic drug threats until 2015.
Long Schering-Plough, Illumina in fund; no personal position
