Originally Posted March 3, 2008 — "What is SGP’s margin on all other products?"

April 6, 2008 · Leave a Comment

Okay — I spent some time last night [March 2, 2008], thinking about where SGP’s profitability really comes from, and here’s what I was able to deduce. But, first these are all simply my estimates, taken directly from the SGP Form 10-K figures, just filed (on pages 61, and 124 to 127).

LINK:

http://www.sec.gov/Archives/edgar/data/3

So, what would SGP’s average 2007 gross margin be, if the Vytorin J/V profits were NOT included?

That is the question I have set out to answer, below. And, please, one and all, correct me if you see errors in my approach.

A few observations, as we start: per SGP’s Form 10-K, J/V sales are NOT included in the $12.69 billion 2007 SGP net sales total (and that turns out to be very useful, as will be explained in a moment). But the “equity income” from the J/V IS included in SGP’s net results — that was $2.049 billion in 2007. However, for the year, SGP reported a loss of $1.473 billion (due to Organon deal). So, we need to know what income would be, in a year with no Organon “one-time” write-offs.

Okay, SGP took a $3.754 billion write-off in 2007 related to Organon in-process R&D (plus $51 million in acquisition costs), so we will need to add those amounts back to the 2007 results, to figure out what post-Organon, “ongoing operating income” will look like.

So, ($1.473) plus $3.754 plus $0.051 equals $2.332 billion in “would be” total income, post-Organon for 2007.

Next, we know that the J/V accounted for $2.049 billion in 2007 income. So, let’s take that out (to find “all other” income), and we see that $2.281 minus $2.049 leaves SGP with only $232 million in income, on over $12.69 billion in 2007 sales. [This is where the fact that the $12 billion in sales does NOT include the J/V sales becomes very useful!]

Okay, but we know SGP would save on some expenses, if it didn’t have the SG&A, and other costs, it picks up from the J/V — so let’s give SGP credit for those (detailed on page 124) — those costs were $1.523 billion in 2007. Let’s assume that SGP would be able to avoid paying 20 percent of those amounts (SGP’s own half of the partnership, plus another one-fifth of its expenses — seems reasonable): We can add back another 609 million to 2007 “all other” SGP
income. [$1.523 billion divided by 2, times .8 = $0.609]

So, $232 plus $609 million equals $841 million in “all other” SGP income, on $12.69 billion in 2007 sales. Thus, SGP’s average margin on all other products is likely to be 6.6 percent [I had previously guessed it to be about 10 percent.] $0.841 / $12.69 = 6.6 percent.

That means the average margin on all the “other” SGP products (post Organon, but WITHOUT the J/V’s 70 percent margins!) is about 6.6 percent. So, SGP makes, on average, six and six-tenths cents on every dollar of all of its non-Vytorin J/V product sales.

That means, in order for SGP to replace $1 of lost J/V sales (which correspondingly, results in $0.70 of lost profits, for each dollar!), SGP needs the REST of its businesses
to generate, on average, $10.60 of NEW sales, for every $1 of lost Vytorin script sales. [$0.70 / $0.066 = $10.60].

That will never happen. No way, no how. So, is the low-estimate of $1.35 per share of 2008 EPS really so unbelievable, now? I’d say $1.35 looks positively optimistic.

Finally, remember that $510 million of SGP’s “operating” income in 2007 came from a one-time speculation on currencies during the pendency of the Organon transaction. It will not, and cannot, be repeated. If we back out the one-time $510 million gain on currencies, the rest of SGP, ex the J/V, actually has far worse margins. [$841 -$510 = $331 on all other products -- leads us to $331/$1269 = 2.6 percent margins -- or, $27 of NEW sales needed, for every lost dollar of Vytorin J/V sales!]

So, either $10.60 to one, or perhaps, $27 to one, wow — I wouldn’t like to be on the wrong side of those odds.

Cheers!

Categories: SGP Gross Margins on all other Products ex-Vytorin/Zeti

Originally Posted March 3, 2008 — "What is SGP’s margin on all other products?"

April 6, 2008 · Leave a Comment

Okay — I spent some time last night [March 2, 2008], thinking about where SGP’s profitability really comes from, and here’s what I was able to deduce. But, first these are all simply my estimates, taken directly from the SGP Form 10-K figures, just filed (on pages 61, and 124 to 127).

LINK:

http://www.sec.gov/Archives/edgar/data/3

So, what would SGP’s average 2007 gross margin be, if the Vytorin J/V profits were NOT included?

That is the question I have set out to answer, below. And, please, one and all, correct me if you see errors in my approach.

A few observations, as we start: per SGP’s Form 10-K, J/V sales are NOT included in the $12.69 billion 2007 SGP net sales total (and that turns out to be very useful, as will be explained in a moment). But the “equity income” from the J/V IS included in SGP’s net results — that was $2.049 billion in 2007. However, for the year, SGP reported a loss of $1.473 billion (due to Organon deal). So, we need to know what income would be, in a year with no Organon “one-time” write-offs.

Okay, SGP took a $3.754 billion write-off in 2007 related to Organon in-process R&D (plus $51 million in acquisition costs), so we will need to add those amounts back to the 2007 results, to figure out what post-Organon, “ongoing operating income” will look like.

So, ($1.473) plus $3.754 plus $0.051 equals $2.332 billion in “would be” total income, post-Organon for 2007.

Next, we know that the J/V accounted for $2.049 billion in 2007 income. So, let’s take that out (to find “all other” income), and we see that $2.281 minus $2.049 leaves SGP with only $232 million in income, on over $12.69 billion in 2007 sales. [This is where the fact that the $12 billion in sales does NOT include the J/V sales becomes very useful!]

Okay, but we know SGP would save on some expenses, if it didn’t have the SG&A, and other costs, it picks up from the J/V — so let’s give SGP credit for those (detailed on page 124) — those costs were $1.523 billion in 2007. Let’s assume that SGP would be able to avoid paying 20 percent of those amounts (SGP’s own half of the partnership, plus another one-fifth of its expenses — seems reasonable): We can add back another 609 million to 2007 “all other” SGP
income. [$1.523 billion divided by 2, times .8 = $0.609]

So, $232 plus $609 million equals $841 million in “all other” SGP income, on $12.69 billion in 2007 sales. Thus, SGP’s average margin on all other products is likely to be 6.6 percent [I had previously guessed it to be about 10 percent.] $0.841 / $12.69 = 6.6 percent.

That means the average margin on all the “other” SGP products (post Organon, but WITHOUT the J/V’s 70 percent margins!) is about 6.6 percent. So, SGP makes, on average, six and six-tenths cents on every dollar of all of its non-Vytorin J/V product sales.

That means, in order for SGP to replace $1 of lost J/V sales (which correspondingly, results in $0.70 of lost profits, for each dollar!), SGP needs the REST of its businesses
to generate, on average, $10.60 of NEW sales, for every $1 of lost Vytorin script sales. [$0.70 / $0.066 = $10.60].

That will never happen. No way, no how. So, is the low-estimate of $1.35 per share of 2008 EPS really so unbelievable, now? I’d say $1.35 looks positively optimistic.

Finally, remember that $510 million of SGP’s “operating” income in 2007 came from a one-time speculation on currencies during the pendency of the Organon transaction. It will not, and cannot, be repeated. If we back out the one-time $510 million gain on currencies, the rest of SGP, ex the J/V, actually has far worse margins. [$841 -$510 = $331 on all other products -- leads us to $331/$1269 = 2.6 percent margins -- or, $27 of NEW sales needed, for every lost dollar of Vytorin J/V sales!]

So, either $10.60 to one, or perhaps, $27 to one, wow — I wouldn’t like to be on the wrong side of those odds.

Cheers!

Categories: SGP Gross Margins on all other Products ex-Vytorin/Zeti

Originally Posted March 3, 2008 — "What is SGP’s margin on all other products?"

April 6, 2008 · Leave a Comment

Okay — I spent some time last night [March 2, 2008], thinking about where SGP’s profitability really comes from, and here’s what I was able to deduce. But, first these are all simply my estimates, taken directly from the SGP Form 10-K figures, just filed (on pages 61, and 124 to 127).

LINK:

http://www.sec.gov/Archives/edgar/data/3

So, what would SGP’s average 2007 gross margin be, if the Vytorin J/V profits were NOT included?

That is the question I have set out to answer, below. And, please, one and all, correct me if you see errors in my approach.

A few observations, as we start: per SGP’s Form 10-K, J/V sales are NOT included in the $12.69 billion 2007 SGP net sales total (and that turns out to be very useful, as will be explained in a moment). But the “equity income” from the J/V IS included in SGP’s net results — that was $2.049 billion in 2007. However, for the year, SGP reported a loss of $1.473 billion (due to Organon deal). So, we need to know what income would be, in a year with no Organon “one-time” write-offs.

Okay, SGP took a $3.754 billion write-off in 2007 related to Organon in-process R&D (plus $51 million in acquisition costs), so we will need to add those amounts back to the 2007 results, to figure out what post-Organon, “ongoing operating income” will look like.

So, ($1.473) plus $3.754 plus $0.051 equals $2.332 billion in “would be” total income, post-Organon for 2007.

Next, we know that the J/V accounted for $2.049 billion in 2007 income. So, let’s take that out (to find “all other” income), and we see that $2.281 minus $2.049 leaves SGP with only $232 million in income, on over $12.69 billion in 2007 sales. [This is where the fact that the $12 billion in sales does NOT include the J/V sales becomes very useful!]

Okay, but we know SGP would save on some expenses, if it didn’t have the SG&A, and other costs, it picks up from the J/V — so let’s give SGP credit for those (detailed on page 124) — those costs were $1.523 billion in 2007. Let’s assume that SGP would be able to avoid paying 20 percent of those amounts (SGP’s own half of the partnership, plus another one-fifth of its expenses — seems reasonable): We can add back another 609 million to 2007 “all other” SGP
income. [$1.523 billion divided by 2, times .8 = $0.609]

So, $232 plus $609 million equals $841 million in “all other” SGP income, on $12.69 billion in 2007 sales. Thus, SGP’s average margin on all other products is likely to be 6.6 percent [I had previously guessed it to be about 10 percent.] $0.841 / $12.69 = 6.6 percent.

That means the average margin on all the “other” SGP products (post Organon, but WITHOUT the J/V’s 70 percent margins!) is about 6.6 percent. So, SGP makes, on average, six and six-tenths cents on every dollar of all of its non-Vytorin J/V product sales.

That means, in order for SGP to replace $1 of lost J/V sales (which correspondingly, results in $0.70 of lost profits, for each dollar!), SGP needs the REST of its businesses
to generate, on average, $10.60 of NEW sales, for every $1 of lost Vytorin script sales. [$0.70 / $0.066 = $10.60].

That will never happen. No way, no how. So, is the low-estimate of $1.35 per share of 2008 EPS really so unbelievable, now? I’d say $1.35 looks positively optimistic.

Finally, remember that $510 million of SGP’s “operating” income in 2007 came from a one-time speculation on currencies during the pendency of the Organon transaction. It will not, and cannot, be repeated. If we back out the one-time $510 million gain on currencies, the rest of SGP, ex the J/V, actually has far worse margins. [$841 -$510 = $331 on all other products -- leads us to $331/$1269 = 2.6 percent margins -- or, $27 of NEW sales needed, for every lost dollar of Vytorin J/V sales!]

So, either $10.60 to one, or perhaps, $27 to one, wow — I wouldn’t like to be on the wrong side of those odds.

Cheers!

Categories: SGP Gross Margins on all other Products ex-Vytorin/Zeti

Originally Posted March 3, 2008 — "What is SGP’s margin on all other products?"

April 6, 2008 · Leave a Comment

Okay — I spent some time last night [March 2, 2008], thinking about where SGP’s profitability really comes from, and here’s what I was able to deduce. But, first these are all simply my estimates, taken directly from the SGP Form 10-K figures, just filed (on pages 61, and 124 to 127).

LINK:

http://www.sec.gov/Archives/edgar/data/3

So, what would SGP’s average 2007 gross margin be, if the Vytorin J/V profits were NOT included?

That is the question I have set out to answer, below. And, please, one and all, correct me if you see errors in my approach.

A few observations, as we start: per SGP’s Form 10-K, J/V sales are NOT included in the $12.69 billion 2007 SGP net sales total (and that turns out to be very useful, as will be explained in a moment). But the “equity income” from the J/V IS included in SGP’s net results — that was $2.049 billion in 2007. However, for the year, SGP reported a loss of $1.473 billion (due to Organon deal). So, we need to know what income would be, in a year with no Organon “one-time” write-offs.

Okay, SGP took a $3.754 billion write-off in 2007 related to Organon in-process R&D (plus $51 million in acquisition costs), so we will need to add those amounts back to the 2007 results, to figure out what post-Organon, “ongoing operating income” will look like.

So, ($1.473) plus $3.754 plus $0.051 equals $2.332 billion in “would be” total income, post-Organon for 2007.

Next, we know that the J/V accounted for $2.049 billion in 2007 income. So, let’s take that out (to find “all other” income), and we see that $2.281 minus $2.049 leaves SGP with only $232 million in income, on over $12.69 billion in 2007 sales. [This is where the fact that the $12 billion in sales does NOT include the J/V sales becomes very useful!]

Okay, but we know SGP would save on some expenses, if it didn’t have the SG&A, and other costs, it picks up from the J/V — so let’s give SGP credit for those (detailed on page 124) — those costs were $1.523 billion in 2007. Let’s assume that SGP would be able to avoid paying 20 percent of those amounts (SGP’s own half of the partnership, plus another one-fifth of its expenses — seems reasonable): We can add back another 609 million to 2007 “all other” SGP
income. [$1.523 billion divided by 2, times .8 = $0.609]

So, $232 plus $609 million equals $841 million in “all other” SGP income, on $12.69 billion in 2007 sales. Thus, SGP’s average margin on all other products is likely to be 6.6 percent [I had previously guessed it to be about 10 percent.] $0.841 / $12.69 = 6.6 percent.

That means the average margin on all the “other” SGP products (post Organon, but WITHOUT the J/V’s 70 percent margins!) is about 6.6 percent. So, SGP makes, on average, six and six-tenths cents on every dollar of all of its non-Vytorin J/V product sales.

That means, in order for SGP to replace $1 of lost J/V sales (which correspondingly, results in $0.70 of lost profits, for each dollar!), SGP needs the REST of its businesses
to generate, on average, $10.60 of NEW sales, for every $1 of lost Vytorin script sales. [$0.70 / $0.066 = $10.60].

That will never happen. No way, no how. So, is the low-estimate of $1.35 per share of 2008 EPS really so unbelievable, now? I’d say $1.35 looks positively optimistic.

Finally, remember that $510 million of SGP’s “operating” income in 2007 came from a one-time speculation on currencies during the pendency of the Organon transaction. It will not, and cannot, be repeated. If we back out the one-time $510 million gain on currencies, the rest of SGP, ex the J/V, actually has far worse margins. [$841 -$510 = $331 on all other products -- leads us to $331/$1269 = 2.6 percent margins -- or, $27 of NEW sales needed, for every lost dollar of Vytorin J/V sales!]

So, either $10.60 to one, or perhaps, $27 to one, wow — I wouldn’t like to be on the wrong side of those odds.

Cheers!

Categories: SGP Gross Margins on all other Products ex-Vytorin/Zeti

Originally Posted March 3, 2008 — "What is SGP’s margin on all other products?"

April 6, 2008 · Leave a Comment

Okay — I spent some time last night [March 2, 2008], thinking about where SGP’s profitability really comes from, and here’s what I was able to deduce. But, first these are all simply my estimates, taken directly from the SGP Form 10-K figures, just filed (on pages 61, and 124 to 127).

LINK:

http://www.sec.gov/Archives/edgar/data/3

So, what would SGP’s average 2007 gross margin be, if the Vytorin J/V profits were NOT included?

That is the question I have set out to answer, below. And, please, one and all, correct me if you see errors in my approach.

A few observations, as we start: per SGP’s Form 10-K, J/V sales are NOT included in the $12.69 billion 2007 SGP net sales total (and that turns out to be very useful, as will be explained in a moment). But the “equity income” from the J/V IS included in SGP’s net results — that was $2.049 billion in 2007. However, for the year, SGP reported a loss of $1.473 billion (due to Organon deal). So, we need to know what income would be, in a year with no Organon “one-time” write-offs.

Okay, SGP took a $3.754 billion write-off in 2007 related to Organon in-process R&D (plus $51 million in acquisition costs), so we will need to add those amounts back to the 2007 results, to figure out what post-Organon, “ongoing operating income” will look like.

So, ($1.473) plus $3.754 plus $0.051 equals $2.332 billion in “would be” total income, post-Organon for 2007.

Next, we know that the J/V accounted for $2.049 billion in 2007 income. So, let’s take that out (to find “all other” income), and we see that $2.281 minus $2.049 leaves SGP with only $232 million in income, on over $12.69 billion in 2007 sales. [This is where the fact that the $12 billion in sales does NOT include the J/V sales becomes very useful!]

Okay, but we know SGP would save on some expenses, if it didn’t have the SG&A, and other costs, it picks up from the J/V — so let’s give SGP credit for those (detailed on page 124) — those costs were $1.523 billion in 2007. Let’s assume that SGP would be able to avoid paying 20 percent of those amounts (SGP’s own half of the partnership, plus another one-fifth of its expenses — seems reasonable): We can add back another 609 million to 2007 “all other” SGP
income. [$1.523 billion divided by 2, times .8 = $0.609]

So, $232 plus $609 million equals $841 million in “all other” SGP income, on $12.69 billion in 2007 sales. Thus, SGP’s average margin on all other products is likely to be 6.6 percent [I had previously guessed it to be about 10 percent.] $0.841 / $12.69 = 6.6 percent.

That means the average margin on all the “other” SGP products (post Organon, but WITHOUT the J/V’s 70 percent margins!) is about 6.6 percent. So, SGP makes, on average, six and six-tenths cents on every dollar of all of its non-Vytorin J/V product sales.

That means, in order for SGP to replace $1 of lost J/V sales (which correspondingly, results in $0.70 of lost profits, for each dollar!), SGP needs the REST of its businesses
to generate, on average, $10.60 of NEW sales, for every $1 of lost Vytorin script sales. [$0.70 / $0.066 = $10.60].

That will never happen. No way, no how. So, is the low-estimate of $1.35 per share of 2008 EPS really so unbelievable, now? I’d say $1.35 looks positively optimistic.

Finally, remember that $510 million of SGP’s “operating” income in 2007 came from a one-time speculation on currencies during the pendency of the Organon transaction. It will not, and cannot, be repeated. If we back out the one-time $510 million gain on currencies, the rest of SGP, ex the J/V, actually has far worse margins. [$841 -$510 = $331 on all other products -- leads us to $331/$1269 = 2.6 percent margins -- or, $27 of NEW sales needed, for every lost dollar of Vytorin J/V sales!]

So, either $10.60 to one, or perhaps, $27 to one, wow — I wouldn’t like to be on the wrong side of those odds.

Cheers!

Categories: SGP Gross Margins on all other Products ex-Vytorin/Zeti

Detail from the RICO complaint against Schering-Plough

April 6, 2008 · Leave a Comment

Here are some more selected portions of the above-RICO-complaint — I found this very educational:


. . . .High Cholesterol – Medical Complications

20. A high LDL cholesterol level is one of the leading risk factors for heart disease. The higher the blood cholesterol level, the greater the risk for developing coronary heart disease (CHD) or having a heart attack. CHD afflicts over 60 million Americans and is the number one killer of women and men in the United States, responsible for about 38% of the nation’s overall mortality. Each year, more than one million Americans suffer heart attacks and about a half-million more die from heart disease. Other risk factors for heart disease include family history, diabetes, high blood pressure, smoking and excess weight.

21. Heart disease is an umbrella term for a number of disorders that adversely affect the functioning of the human heart. “Arteriosclerosis” and “atherosclerosis” are two types of heart disease. Atherosclerosis is a specific type of arteriosclerosis, but the terms are often used interchangeably. Atherosclerosis occurs when cholesterol and other substances build up in the walls of arteries and form hard substances called plaque. Arteries are blood vessels that carry oxygen and nutrients from the heart to the rest of the body.

22. Healthy arteries are flexible, strong and elastic. However, plaque deposits can make the artery narrow, hard and less flexible. Over time, this process, called arteriosclerosis or “hardening of the arteries,” makes it more difficult for blood to flow through the affected artery. Organs and tissues served by hardened or narrowed arteries do not receive an adequate supply of blood.

23. Special arteries, called coronary arteries, bring blood to the heart. Atherosclerosis due to plaque can slow the flow of blood to the heart, causing chest pain (stable angina,) shortness of breath and other symptoms. If the blood supply to a portion of the heart is completely stopped by a blockage, the result is a heart attack. Further, a general decrease in the amount of oxygen-rich blood caused by narrowing of the arteries may lead to coronary artery disease (CAD).

24. Although atherosclerosis is often considered a heart problem, it can affect arteries anywhere in the body. For example, persons with atherosclerosis in arteries leading to the limbs may develop circulation problems in the arms and legs called peripheral arterial disease. Persons with atherosclerosis in arteries supplying blood to the head are at risk for transient ischemic attack (TIA) or stroke. Atherosclerosis can also lead to a bulge in the wall of your artery (aneurysm).

25. Animal and human studies have established the role of LDL cholesterol in the development and progression of atherosclerosis. Animal studies suggest a protective effect of low LDL cholesterol against atherosclerosis.

26. Epidemiological studies have directly implicated LDL cholesterol to the development of atherosclerosis and CHD. Multiple human trials examining the relationship of LDL cholesterol lowering in primary and secondary prevention of CHD have demonstrated the impact of reducing LDL-C levels on decreasing CHD and CHD-related mortality.

27. Apart from atherosclerosis, plaque caused by high levels of LDL cholesterol is highly dangerous. Pieces of plaque built up in the arteries can break apart and move through the bloodstream. This is a common cause of heart attack and stroke. Blood clots can form around the plaque deposits and block blood flow. If a clot moves into the heart, lungs, or brain, it can cause a stroke, heart attack, or pulmonary embolism.

Treating High Cholesterol to Reduce Related Medical Complications

28. Treatment for high cholesterol is typically undertaken to attempt to bring a high overall level down into a range as close to normal as possible. Reducing one’s cholesterol levels is not done simply for that sake alone; the point of reducing LDL is to reduce plaque accumulation and the related dangers, which in turn reduces ones risk for heart disease, heart attack, and stroke. In other words, the aim of treating high cholesterol is to reduce the risk of serious health problems caused by the adverse effects high cholesterol levels over time.

29. Treatment for high cholesterol includes both simple lifestyle changes and drug therapy. For example, if a person has high cholesterol levels but does not have non-controllable risk factors such as family history, then a doctor may suggest lifestyle changes such as modifications to diet and exercise habits.

30. If lifestyle changes do not bring cholesterol levels to an acceptable level or if other risks become apparent, cholesterol-reducing medication may be started.

31. Drugs called “statins” have for years dominated drug therapy for high cholesterol.

32. Statins are defined as “any drugs in a class of lipid-lowering drugs that reduce serum cholesterol levels by inhibiting a key enzyme involved in the synthesis of cholesterol”. Specifically, statins inhibit HMG- CoA reductase, the enzyme which controls cholesterol production. By inhibiting this enzyme, statins slow down cholesterol production and increase the ability of the liver to remove LDL-cholesterol from the blood.

33. There are several different statin drugs on the market, including simvastatin, which is produced and marketed by Defendants by its brand name, Zocor. Simvastatin is one of the most effective drugs for lowering cholesterol levels. Simvastatin has also been shown to increase HDL cholesterol (good cholesterol) more than other statins.

34. The cost of different statin drug therapy depends on the specific drug prescribed. Some of the statins have generic versions available, including lovastatin (brand name Mevacor), pravastatin (Pravachol) and simvastatin (Zocor). There are also non-generic statins such as fluvastatin (Lescol), rosuvastatin (Crestor), and atorvastatin (Lipitor), which is one of the most expensive types of statin drugs. Generic drugs are cheaper than branded drugs. For example, generic versions of Zocor sell for 75 cents to $1 a day at most retail pharmacies, and as little as 10 cents a day at discount pharmacies like Costco’s. Generic versions of at least two other statins—lovastatin and pravastatin—are only $4 per month’s supply at Wal-Mart and Target. Prescriptions for Vytorin and Zetia, on the other hand, each cost roughly $3 per day.

35. Most of the landmark heart disease prevention trials have involved the use of statin medications. The beneficial effects of statins include lower LDL, increased HDL, and decreased C-reactive protein (inflammation). High-doses of Lipitor have been associated with a slowing of plaque progression in several randomized trials.

36. More recently, new cholesterol drugs called cholesterol absorption inhibitors have emerged with a different mechanism of action than statins. These drugs primarily focus on preventing the body from absorbing cholesterol introduced through digested food as opposed to statins, which primarily impact the amount of cholesterol naturally occurring in the body. Cholesterol absorption inhibitors are designed and intended to reduce LDL cholesterol levels, decrease triglycerides and increase HDL cholesterol levels by impairing the intestinal reabsorption of both dietary and hepatically excreted biliary cholesterol.

37. The United States Food and Drug Administration (FDA) approved this new drug class of cholesterol absorption inhibitors in late 2002.

38. Merck and Schering-Plough have developed and marketed their own cholesterol absorption inhibitor, Zetia, through their joint venture MSP. Another MSP product, Vytorin, combines the two types of cholesterol drugs, Merck and Schering-Plough’s new cholesterol absorption inhibitor Zetia, and Merck’s previously existing statin, Zocor. . . .

68. Before and throughout the Class Period, Defendants’ express, implied and unmistakable message relative to Vytorin and Zetia was that high cholesterol was bad for one’s health because it caused increased plaque formation, which in turn has been associated with an increased risk for heart disease, heart attack, and stroke.

69. The equally unmistakable corollary message in Defendants’ ads was that Vytorin, by combining Zetia and Zocor, was a superior medication to statins in the treatment of high cholesterol, increased plaque formation, and the associated risk for heart disease, heart attack, and stroke. In one advertisement, Defendants compared Vytorin to “regular” statins and claimed to be superior at reducing LDL cholesterol and the “[r]isk for heart disease, heart attack or stroke”. . . .

70. Defendants’ marketing advertisements also purported to help patients taking Vytorin to “stay on track”. One advertisement was called “Staying on Track” and repeated the message that “[h]igh LDL (bad) cholesterol can lead to heart disease, heart attack, or stroke” and that “Cholesterol builds up in your bloodstream silently.” The ad contained information and terms chosen by Defendants. . . .

71. Finally, Defendants made sure each and every prescription filled contained its message regarding LDL cholesterol and the impact of LDL cholesterol on arterial plaque. Specifically, Vytorin’s Patient Insert, included with each original and refill prescription of Vytorin, instructs and educates patients to: “Read this information carefully before you start taking VYTORIN. Review this information each time you refill your prescription for VYTORIN as there may be new information.” The Patient Information goes on to state plainly that “VYTORIN is a medicine used to lower levels of total cholesterol, LDL (bad) cholesterol, and fatty substances called triglycerides in the blood.” The Patient Information goes on to clarify and states, “LDL cholesterol is called ‘bad’ cholesterol because it can build up in the wall of your arteries and form plaque. Over time, plaque build-up can cause a narrowing of the arteries. This narrowing can slow or block blood flow to your heart, brain or other organs. High LDL cholesterol is a major cause of heart disease and stroke.”

72. In addition to marketing Vytorin directly to consumers and payors, Defendants indirectly marketed them to consumers and payors via direct marketing to physicians, which encouraged physicians to prescribe Vytorin or Zetia instead of other drugs.

73. Defendants used several methods to market Vytorin to physicians including having sales representatives visit physicians and provide them with free samples of these drugs and purchasing lunches and dinners for physicians and their staffs.

74. An article published in the New York Times on July 24, 2004, reported that “Merck said it planned to persuade doctors to switch patients to Vytorin before 2006, when generic competition starts in the United States for Zocor, the company’s biggest drug.”

75. Defendants also disseminated their fraudulent representations regarding Vytorin to physicians and the medical community via the Physicians Desk Reference (“PDR”). The 2005, 2006 and 2007 volumes of the PDR each include a Vytorin entry containing the Patient Information disclosure. Similar to Defendants’ other advertisements and promotional representations, this Patient Information states plainly that “VYTORIN is a medicine used to lower levels of total cholesterol, LDL (bad) cholesterol, and fatty substances called triglycerides in the blood.” Defendants’ PDR entry regarding Vytorin further clarifies and states that “LDL cholesterol is called ‘bad’ cholesterol because it can build up in the wall of your arteries and form plaque. Over time, plaque build-up can cause a narrowing of the arteries. This narrowing can slow or block blood flow to your heart, brain or other organs. High LDL cholesterol is a major cause of heart disease and stroke.”

76. In 2005, just after the FDA approved Vytorin, the Associated Press issued a story after speaking with Adam Schechter, vice president and general manager of MSP, Merck and Schering-Plough’s joint venture, stating that defendant MSP “is planning extensive marketing, through ads aimed at consumers, sales representatives visiting and giving free samples to doctors and efforts to get Vytorin listed on managed care companies’ formularies of preferred drugs.”

The ENHANCE Trial

77. In 2002, Defendants began a trial known as the ENHANCE trial, which is an acronym for “Effect of Combination Ezetimibe and High-Dose Simvastatin v. Simvastatin Alone on the Atherosclerotic Process in Patients with Heterozygous Familial Hypercholesterolemia.” As the Wall Street Journal reported in an article on January 17, 2008, “At the time, cardiologists were asking Schering and Merck to show that Zetia—which works differently from highly popular statins—didn’t just lower cholesterol but also helped patients live longer and prevented heart attacks. Large studies looking at such outcomes take a long time and the Enhance study offered an interim look that focused on how much plaque formed in the arteries of Vytorin users.”

78. The ENHANCE trial was designed to prove that Vytorin could slow the growth of plaque in carotid arteries, which supply blood to the brain, more than simvastatin alone. The trial studied 720 people with heterozygous familial hypercholesterolemia, an inherited form of high cholesterol that affects about 0.2% of the population. The study pitted Vytorin against simvastatin (whose branded name is Zocor.)

Results of the ENHANCE Trial

79. According to Defendants’ January 14, 2008 press release, the ENHANCE researchers found that while Vytorin lowered LDL more than simvastatin alone, it did not slow the growth of carotid-artery plaques more than simvastatin, a statin now available as a much less expensive generic. In fact, the patients who took Vytorin had slightly more plaque growth than the patients who took simvastatin alone.

80. The results of the ENHANCE study shocked the medical community as it directly contradicted Defendants’ claim that by lowering LDL, Zetia also contributed to slowing or reducing the buildup of arterial plaque.

81. Moreover, there is no evidence of any kind to support a claim that Zetia contributes to slowing or reducing the buildup of arterial plaque. In an article dated November 21, 2007, the New York Times quoted Dr. Eric J. Topol, a cardiologist and director of the Scripps Translational Science Institute in La Jolla, California, as saying, “Statins have diverse effects beyond simple LDL cholesterol lowering, such as potent anti-inflammatory actions. There has yet to be a clinical trial to show that ezetimibe improves clinical outcomes”. . . .

[Much more to come, shortly.]

Cheers!

Categories: Vytorin science not proven RICO Complaint

A look at Credit Suisse’s "independence" re SGP

April 6, 2008 · Leave a Comment

Another View, here.

3-Apr-08 11:22 am

Most of the people from the old CS First Boston (now known as “Credit Suisse”) are generally honest and capable — it is a very good firm. I do think the firm, though, has a little more “skin in this game” — the SGP future common stock pricing game — than a completely independent Wall Street analyst-firm might have (about $800 million worth!).

Credit Suisse, you see, was a second tier member of the lead underwriting-group of the August 2007 common and convert public offering by SGP — that offering was priced at $27.50 per SGP common share (now around $15); $250 per SGP convert (the convert now trades around $158):

SGP common stock:

Credit Suisse Securities (USA) LLC 2,233,125 shares

LINK (On Page S-22):

http://www.sec.gov/Archives/edgar/data/3

SGP 6% converts:

Credit Suisse Securities (USA) LLC 444,375 shares

LINK:

http://www.sec.gov/Archives/edgar/data/3

Credit Suisse ALSO co-led the SGP 2 Billion euro debt offering in September 2007 (See page S-38):

Underwriter Name 2010 Notes 2014 Notes

Goldman Sachs € 100,000,000 € 300,000,000
BNP Paribas € 100,000,000 € 300,000,000
Credit Suisse € 100,000,000 € 300,000,000

LINK (At Page S-38):

http://www.sec.gov/Archives/edgar/data/3

To recap — common stock: $61.4 million sold; converts: $111.09 million, and € 400 million euros of SGP debt is about $626 million at today’s spot rate — All-in, just under $800 million of “skin in the game”. How many clients of Credit Suisse are hopping mad at the firm, as I write this?

So — the firm has egg all over its face (about $800 million worth). Could that explain the higher SGP price targets it espouses?

Next post, I’ll offer some guesses at a SGP REALISTIC EPS for 2008. . . .

Cheers!

~~~~~~~~~~~~~~~~~~~~~

Original comment:

Credit Suisse Upgrade – Target $32!!

3-Apr-08 08:58 am

Productivity Transformation Program (PTP) Augments Future


After having dealt with so much negative surprise over the last 2 days, it is good news to have some hard numbers on SGP’s future cost and integration savings. The $1.5Bn in PTP is 3x the $500MM in Organon savings by 2010 that is factored into Street estimates based upon prior SGP guidance.

The majority of the $1.5Bn in savings probably relates to Organon integration plans, which were intended to incorporate concurrent reductions in SGP base costs. The negative surprise from ACC and the market reaction that ensued no doubt motivated management to implement the most aggressive of these plans and to share the details earlier than planned.

Previous guidance for $500MM in 2010 Organon synergies seemed low to us as this implied only 4.7% of proforma expenses, while we would have expected 8% or more based upon benchmark deals. Before today we had assumed some upside to guidance at $650MM by 2010.

SGP was grossly undervalued before additional cost-savings were added. Our DCF analysis using a 9x EBITDA multiple suggested intrinsic value of $15 with ZERO cholesterol income, which we see as an unimaginable scenario.

With the new savings added to our model, new DCF analysis suggests $17 and $22 with cholesterol revenues at zero and 50% of 2007 revenue levels, respectively.

Our EPS estimate for ’08 remains at $1.66. Our EPS estimates for ’09 and ’10 change from $1.88 and $2.15 to $2.01 and $2.50, respectively. Our target price remains $32.

Posted by: kjragan

Categories: Credit Suisse Analysis $32 independent?

A look at Credit Suisse’s "independence" re SGP

April 6, 2008 · Leave a Comment

Another View, here.

3-Apr-08 11:22 am

Most of the people from the old CS First Boston (now known as “Credit Suisse”) are generally honest and capable — it is a very good firm. I do think the firm, though, has a little more “skin in this game” — the SGP future common stock pricing game — than a completely independent Wall Street analyst-firm might have (about $800 million worth!).

Credit Suisse, you see, was a second tier member of the lead underwriting-group of the August 2007 common and convert public offering by SGP — that offering was priced at $27.50 per SGP common share (now around $15); $250 per SGP convert (the convert now trades around $158):

SGP common stock:

Credit Suisse Securities (USA) LLC 2,233,125 shares

LINK (On Page S-22):

http://www.sec.gov/Archives/edgar/data/3

SGP 6% converts:

Credit Suisse Securities (USA) LLC 444,375 shares

LINK:

http://www.sec.gov/Archives/edgar/data/3

Credit Suisse ALSO co-led the SGP 2 Billion euro debt offering in September 2007 (See page S-38):

Underwriter Name 2010 Notes 2014 Notes

Goldman Sachs € 100,000,000 € 300,000,000
BNP Paribas € 100,000,000 € 300,000,000
Credit Suisse € 100,000,000 € 300,000,000

LINK (At Page S-38):

http://www.sec.gov/Archives/edgar/data/3

To recap — common stock: $61.4 million sold; converts: $111.09 million, and € 400 million euros of SGP debt is about $626 million at today’s spot rate — All-in, just under $800 million of “skin in the game”. How many clients of Credit Suisse are hopping mad at the firm, as I write this?

So — the firm has egg all over its face (about $800 million worth). Could that explain the higher SGP price targets it espouses?

Next post, I’ll offer some guesses at a SGP REALISTIC EPS for 2008. . . .

Cheers!

~~~~~~~~~~~~~~~~~~~~~

Original comment:

Credit Suisse Upgrade – Target $32!!

3-Apr-08 08:58 am

Productivity Transformation Program (PTP) Augments Future


After having dealt with so much negative surprise over the last 2 days, it is good news to have some hard numbers on SGP’s future cost and integration savings. The $1.5Bn in PTP is 3x the $500MM in Organon savings by 2010 that is factored into Street estimates based upon prior SGP guidance.

The majority of the $1.5Bn in savings probably relates to Organon integration plans, which were intended to incorporate concurrent reductions in SGP base costs. The negative surprise from ACC and the market reaction that ensued no doubt motivated management to implement the most aggressive of these plans and to share the details earlier than planned.

Previous guidance for $500MM in 2010 Organon synergies seemed low to us as this implied only 4.7% of proforma expenses, while we would have expected 8% or more based upon benchmark deals. Before today we had assumed some upside to guidance at $650MM by 2010.

SGP was grossly undervalued before additional cost-savings were added. Our DCF analysis using a 9x EBITDA multiple suggested intrinsic value of $15 with ZERO cholesterol income, which we see as an unimaginable scenario.

With the new savings added to our model, new DCF analysis suggests $17 and $22 with cholesterol revenues at zero and 50% of 2007 revenue levels, respectively.

Our EPS estimate for ’08 remains at $1.66. Our EPS estimates for ’09 and ’10 change from $1.88 and $2.15 to $2.01 and $2.50, respectively. Our target price remains $32.

Posted by: kjragan

Categories: Credit Suisse Analysis $32 independent?

A look at Credit Suisse’s "independence" re SGP

April 6, 2008 · Leave a Comment

Another View, here.

3-Apr-08 11:22 am

Most of the people from the old CS First Boston (now known as “Credit Suisse”) are generally honest and capable — it is a very good firm. I do think the firm, though, has a little more “skin in this game” — the SGP future common stock pricing game — than a completely independent Wall Street analyst-firm might have (about $800 million worth!).

Credit Suisse, you see, was a second tier member of the lead underwriting-group of the August 2007 common and convert public offering by SGP — that offering was priced at $27.50 per SGP common share (now around $15); $250 per SGP convert (the convert now trades around $158):

SGP common stock:

Credit Suisse Securities (USA) LLC 2,233,125 shares

LINK (On Page S-22):

http://www.sec.gov/Archives/edgar/data/3

SGP 6% converts:

Credit Suisse Securities (USA) LLC 444,375 shares

LINK:

http://www.sec.gov/Archives/edgar/data/3

Credit Suisse ALSO co-led the SGP 2 Billion euro debt offering in September 2007 (See page S-38):

Underwriter Name 2010 Notes 2014 Notes

Goldman Sachs € 100,000,000 € 300,000,000
BNP Paribas € 100,000,000 € 300,000,000
Credit Suisse € 100,000,000 € 300,000,000

LINK (At Page S-38):

http://www.sec.gov/Archives/edgar/data/3

To recap — common stock: $61.4 million sold; converts: $111.09 million, and € 400 million euros of SGP debt is about $626 million at today’s spot rate — All-in, just under $800 million of “skin in the game”. How many clients of Credit Suisse are hopping mad at the firm, as I write this?

So — the firm has egg all over its face (about $800 million worth). Could that explain the higher SGP price targets it espouses?

Next post, I’ll offer some guesses at a SGP REALISTIC EPS for 2008. . . .

Cheers!

~~~~~~~~~~~~~~~~~~~~~

Original comment:

Credit Suisse Upgrade – Target $32!!

3-Apr-08 08:58 am

Productivity Transformation Program (PTP) Augments Future


After having dealt with so much negative surprise over the last 2 days, it is good news to have some hard numbers on SGP’s future cost and integration savings. The $1.5Bn in PTP is 3x the $500MM in Organon savings by 2010 that is factored into Street estimates based upon prior SGP guidance.

The majority of the $1.5Bn in savings probably relates to Organon integration plans, which were intended to incorporate concurrent reductions in SGP base costs. The negative surprise from ACC and the market reaction that ensued no doubt motivated management to implement the most aggressive of these plans and to share the details earlier than planned.

Previous guidance for $500MM in 2010 Organon synergies seemed low to us as this implied only 4.7% of proforma expenses, while we would have expected 8% or more based upon benchmark deals. Before today we had assumed some upside to guidance at $650MM by 2010.

SGP was grossly undervalued before additional cost-savings were added. Our DCF analysis using a 9x EBITDA multiple suggested intrinsic value of $15 with ZERO cholesterol income, which we see as an unimaginable scenario.

With the new savings added to our model, new DCF analysis suggests $17 and $22 with cholesterol revenues at zero and 50% of 2007 revenue levels, respectively.

Our EPS estimate for ’08 remains at $1.66. Our EPS estimates for ’09 and ’10 change from $1.88 and $2.15 to $2.01 and $2.50, respectively. Our target price remains $32.

Posted by: kjragan

Categories: Credit Suisse Analysis $32 independent?

A look at Credit Suisse’s "independence" re SGP

April 6, 2008 · Leave a Comment

Another View, here.

3-Apr-08 11:22 am

Most of the people from the old CS First Boston (now known as “Credit Suisse”) are generally honest and capable — it is a very good firm. I do think the firm, though, has a little more “skin in this game” — the SGP future common stock pricing game — than a completely independent Wall Street analyst-firm might have (about $800 million worth!).

Credit Suisse, you see, was a second tier member of the lead underwriting-group of the August 2007 common and convert public offering by SGP — that offering was priced at $27.50 per SGP common share (now around $15); $250 per SGP convert (the convert now trades around $158):

SGP common stock:

Credit Suisse Securities (USA) LLC 2,233,125 shares

LINK (On Page S-22):

http://www.sec.gov/Archives/edgar/data/3

SGP 6% converts:

Credit Suisse Securities (USA) LLC 444,375 shares

LINK:

http://www.sec.gov/Archives/edgar/data/3

Credit Suisse ALSO co-led the SGP 2 Billion euro debt offering in September 2007 (See page S-38):

Underwriter Name 2010 Notes 2014 Notes

Goldman Sachs € 100,000,000 € 300,000,000
BNP Paribas € 100,000,000 € 300,000,000
Credit Suisse € 100,000,000 € 300,000,000

LINK (At Page S-38):

http://www.sec.gov/Archives/edgar/data/3

To recap — common stock: $61.4 million sold; converts: $111.09 million, and € 400 million euros of SGP debt is about $626 million at today’s spot rate — All-in, just under $800 million of “skin in the game”. How many clients of Credit Suisse are hopping mad at the firm, as I write this?

So — the firm has egg all over its face (about $800 million worth). Could that explain the higher SGP price targets it espouses?

Next post, I’ll offer some guesses at a SGP REALISTIC EPS for 2008. . . .

Cheers!

~~~~~~~~~~~~~~~~~~~~~

Original comment:

Credit Suisse Upgrade – Target $32!!

3-Apr-08 08:58 am

Productivity Transformation Program (PTP) Augments Future


After having dealt with so much negative surprise over the last 2 days, it is good news to have some hard numbers on SGP’s future cost and integration savings. The $1.5Bn in PTP is 3x the $500MM in Organon savings by 2010 that is factored into Street estimates based upon prior SGP guidance.

The majority of the $1.5Bn in savings probably relates to Organon integration plans, which were intended to incorporate concurrent reductions in SGP base costs. The negative surprise from ACC and the market reaction that ensued no doubt motivated management to implement the most aggressive of these plans and to share the details earlier than planned.

Previous guidance for $500MM in 2010 Organon synergies seemed low to us as this implied only 4.7% of proforma expenses, while we would have expected 8% or more based upon benchmark deals. Before today we had assumed some upside to guidance at $650MM by 2010.

SGP was grossly undervalued before additional cost-savings were added. Our DCF analysis using a 9x EBITDA multiple suggested intrinsic value of $15 with ZERO cholesterol income, which we see as an unimaginable scenario.

With the new savings added to our model, new DCF analysis suggests $17 and $22 with cholesterol revenues at zero and 50% of 2007 revenue levels, respectively.

Our EPS estimate for ’08 remains at $1.66. Our EPS estimates for ’09 and ’10 change from $1.88 and $2.15 to $2.01 and $2.50, respectively. Our target price remains $32.

Posted by: kjragan

Categories: Credit Suisse Analysis $32 independent?