Once again, some thoughtful comments at CafePharma have helped me to clarify, and amplify, my points about the longer-term implications of latest Schering/IMS Monthly Scrips disclosures. I’ll set them forth here, as they await moderation-cue clearing, over at CafePharma:
. . . .Merck had projected a full-year 2008 decrease of $700 million on April 21, 2008 (for its half of the Cholesterol Joint Venture) — and I had suggested that it would be closer to $900 million for Schering’s half, on the morning of April 21, 2008.
Note: I now think it might-well be closer to $1 billion in 2008. How so?
Well, assuming things get no worse (a rather generous assumption, that) for the rest of 2008 — Schering’s decrease of income looks to be much more like $850 million, than the April-Merck-projected $700 million.
However, we may yet see Vytorin/Zetia (per Healthcare Marketplace reports and predictions) dropped to Tier Three for reimbursement programs, in 2008.
That would greatly increase the co-pays, and effectively drop the price Schering would be able to charge for Vytorin/Zetia. . . . thus, I am pretty much expecting a “second wave” fall-off in late-Summer/early-Fall 2008.
Will the fall-off top $1 billion?
Who knows? But were I an able corporate lawyer, charged with repeatedly-defending Schering from its own proclivity for self-inflicted wounds [Heh!], I’d think long and hard about this apparent strategy of effectively allowing Merck to disclose, by proxy, SGP’s projected 2008 Cholesterol Franchise fall-off figures. If Merck’s numbers are wrong — by, say even 30 percent ($1 billion v. $700 million, in 2008), Merck (mostly) doesn’t care — it can cover the hole in 2008 EPS elsewhere. Merck is that big.
Schering plainly is not — creating yet another avenue for a clever securities fraud class action lawsuit, to wit:
The Cholesterol Joint Venture is “under Schering’s common control” (in SEC parlance), and Schering is “jointly responsible” for all the J/V’s mis-statements to the markets. Any future damages from Joint Venture mis-statements will be small at Merck, but they will have a much larger effect upon the operations of the much smaller Schering businesses (and, presumably, the Schering stock price). . . .
And so, buckle-up.
It might be a good idea for Schering to start offering its own views on these matters, to the markets, directly — as opposed to via the Merck sock-puppeteers. The Cholesterol Franchise, is, after-all, very-likely (as it had, in 2007, and 2006) to represent at least 55 percent of Schering’s consolidated 2008 profitability. Gee — that’s kind of a lot, no? Word.