Schering-Plough Corporation is a global healthcare company that offers both prescription and over the counter OTC products. The company specializes in anti-infective, anticancer, allergy/respiratory and cardiovascular products such as Temodar brain cancer, Clarinex allergy relief, Nasonex allergy relief, Remicade anti-inflammatory and Zetia cholesterol inhibitor. Besides Afrin nasal spray, its prescription drug Claritin is also available over the counter. In addition, the company makes foot-care products under the Dr. Scholls brand and sun-care products under the Coppertone label. Through a joint venture, Merck and Schering-Plough co-developed and now co-market the cholesterol-lowering combination drug Zocor/Zetia called Vytorin. The companys major divisions include Prescription Pharmaceuticals, Animal Health and Consumer Health Care. The revenues from the three segments in 2008 were $14,253 million, $2,973 million and $1,276 million respectively. In 2008, 70% of Scherings revenues came from overseas. Its products are marketed in about 140 countries.

Schering-Plough was founded in 1928 and is headquartered in Kenilworth, New Jersey. At December 31, 2008, the company had 51,000 employees worldwide.

REASONS TO BUY

On March 9, 2009, Schering-Plough and Merck entered into a merger agreement valued at about $41.1 billion. The acquisition, which is expected to close in the fourth quarter of 2009, will be paid for with a combination of cash and stock. The companies expect the deal to produce $3.5 billion in annual cost savings and expect it to be slightly accretive to earnings in the first-full year and significantly accretive afterwards. The combined company will have a more diverse portfolio across important therapeutic areas, including cardiovascular, respiratory, oncology, neuroscience, infectious disease, immunology, womens health and other areas. Products of both the companies, which drive growth, will come under one roof following the merger. The merger should enable the combined entity to become one of the top five drugmakers in the world. Schering-Plough shareholders will receive 0.5767 Merck shares and $10.50 in cash for each share of Schering-Plough. The current dividend of $1.52 is expected to be maintained following the closing of the deal. It represents a significant increase for Schering-Plough shareholders. We view this deal as beneficial to Schering-Plough shareholders who have recently approved the deal.

Schering-Plough boasts of a diversified product portfolio with growth being driven by global brands like Remicade, Nasonex, and Temodar, which target rheumatoid arthritis, allergy and brain cancer respectively. Scherings diversified product base coupled with its rich geographic diversity helped it achieve operational growth in most regions worldwide in the most recent quarter. We remain very bullish on the future prospects of the rich portfolio.

The company has a number of interesting pipeline candidates that we believe are the future growth engines for Schering-Plough. The pipeline boasts of candidates like vicriviroc for the treatment of HIV/AIDS, boceprevir for hepatitis C virus, Simponi for rheumatoid arthritis, psoriatic arthritis and ankylosing spondylitis and preladenant for the treatment of Parkinsons disease.

REASONS TO SELL

Although we believe that the merger between Schering-Plough and Merck is positive for both the companies, the merger has integration risks, which may expose its operating results to volatility. This will prevent the company from achieving the anticipated benefits of the merger.

Schering-Plough operates in a highly competitive industry and competes with a large number of multinational pharmaceutical companies, biotechnology companies and generic pharmaceutical companies like Pfizer Inc. and Abbott Laboratories. Many of Schering-Ploughs competitors are engaged in research and development in areas, which are also served by Schering-Plough. We feel technological advances of competitors, patents granted to them or their ability to develop new products will impact Schering-Plough.

Even though the company has an interesting pipeline, any pipeline development has attendant risks. If there is a failure in any late-stage candidate the funds invested by Schering-Plough in research programs for its development could go waste and fail to generate financial returns.

Schering-Plough Corporation (SGP) is a global healthcare company that offers both prescription and over-the counter (OTC) products. The company specializes in anti-infective, anticancer, allergy/respiratory and cardiovascular products such as Temodar (brain cancer), Clarinex (allergy relief), Nasonex (allergy relief), Remicade (anti-inflammatory), and Zetia (cholesterol inhibitor). Besides, its prescription drug Claritin used to treat allergies is also available over the counter. Through a joint venture, Merck and Schering-Plough co-developed and now co-market the cholesterol-lowering combination drug Vytorin (Zocor + Zetia). Schering-Plough is in the process of a massive restructuring and reorganization program called the Value Enhancement Initiative (VEI) initiated in 2003 to cut costs and reduce its dependency on the now OTC-available Claritin franchise. In April 2008, SGP also initiated the Productivity Transformation Initiative in response to the expected substantial decline in cholesterol franchise sales.

The company has for some time now entered the Build the Base phase, in which the company plans to build the business through acquisitions. The acquisition of Organon is an important part of the company’s Build the Base phase. Most analysts believe the fundamentals of SGP are solid on the basis of the expected margin leverage and though the SEAS and ENHANCE trials are an overhang for the cholesterol franchise they believe the Organon integration will drive greater-than-expected EPS leverage. Other products, like Remicade and Zetia, continue to show strong growth. SGP is also less exposed than many of its industry peers to major patent cliffs over the next few years.

The company is intensifying its focus on China, Russia, Turkey, and Central and Eastern Europe, with new commercial operations in Korea, Pakistan, and Vietnam. Management believes these actions will allow it to better meet the needs of customers, and build a competitive edge in these increasingly important markets.

Agreement with Valeant Pharmaceuticals

On June 1, 2009, SGP and Valeant Pharmaceuticals (VRX) entered into an exclusive option agreement for developing and selling Valeant's hepatitis C drug Taribavirin in Japan. In exchange for the exclusive option, Schering-Plough agreed to waive and release its last right of refusal under a previous agreement with Valeant. Under the terms of agreement, Schering-Plough would make an upfront payment of $2 million to Valeant and pay mid-single-digit royalties on net sales of Taribavirin in Japan.

Acquisition

On March 9, 2009, Merck & Co. announced that it will buy Schering-Plough for $41.1 billion in cash and shares. Under the terms of the deal, Schering-Plough shareholders will receive $10.50 in cash and 0.5767 Merck shares for each Schering-Plough share. The deal is expected to close in 4Q09.

The deal will be done via a complex reverse takeover in which the much smaller SGP will technically acquire Merck.
 

2009 Anticipated launch of Vicriviroc
2009 Filing for Nomac/e2
2009 Filing for Aspenine for schizophrenia and bipolar indications in Europe.
2009 Filing for MFF for the asthma indication
2009/10 Anticipated launch of Golimumab
Mid 2010 Completion of the two Phase III studies of Boceprevir - RESPOND-2 and SPRINT-2
September 2010 Conclusion of the TRA 2P-TIMI 50 trial of SCH 530348
July 2011 Conclusion of the TRA-CER trial of SCH 530348
2010-2011 Expected launch of SCH 530348
2011-2012 Filing for Boceprevir