With Schering-Plough's patent for star drug Claritin expiring in 2002, investors ask whether Schering-Plough's drug pipeline can pitch in with new and increasing revenue. The answer is yes. Not only are current products increasingly successful, five big drugs await FDA action, and the pipeline is chock full of drug candidates developed either by Schering-Plough alone or in alliance with path-breaking research and development biotech firms.
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Schering-Plough's hugely successful Claritin, a non-sedative antihistamine, bumped sales up 10% to $787 million for the quarter. Sales of all forms and combinations of the company's anti-viral and anti-cancer interferon product Intron-A rose 24% to $338 million. Other products, led by newbie Nasonex allergy nasal spray, also performed strongly. Click here for the full number parade.
Schering's challenge
Investors will naturally beam at management's expectation that 2000 will cap 15 years of double-digit growth in earnings per share. The Motley Fool Rule Maker Portfolio managers have long been impressed with Schering-Plough's strong balance sheet and continued ability to perform -- witness their 1998 purchase here. But they and all drug-company investors know that top makers like Schering-Plough must broaden their offerings -- so as not to bet the company on producing more and more blockbusters, with increasing risk that sales will not outpace development costs.
Schering-Plough is especially vulnerable, because the Claritin patent expires in 2002. Though it's not the company's only big seller, Claritin is on track to well over $3 billion in 2000 revenues, or about a third of the company's projected 2000 sales. But the company is poised to keep pace and expand. Not only is its drug development pipeline full, but it has spread the research and development risks by forming an astonishing number of development and marketing partnerships with biotechnology companies.
Filling the pipeline
We like companies that clearly explain their drug development pipeline on their website (for example, this Foolish article on drug trials links to four websites with pipeline information). Though I couldn't find a pipeline chart on Schering-Plough's website, a review of other sources shows five drugs waiting Food and Drug Administration action and at least ten in Phase III trials (click here for an explanation of the drug development process). Not only that, but Schering-Plough sports development and marketing deals with over 24 biotech companies for more than 30 drug indications (a drug must be separately tested and approved for reach condition it will treat).
Schering-Plough's deals cover drugs in all stages of development. The deals involve biotechs including Alkermes (Nasdaq: ALKS), Biogen (Nasdaq: BGEN), COR Therapeutics (Nasdaq: CORR), and Corixa (Nasdaq: CRXA).
All Schering-Plough's pipeline drugs are geared for large markets -- from allergies, to all major forms of cancer, to cutting-edge central nervous system treatments for Alzheimer's and schizophrenia. In fact, a comparison of Schering-Plough with other major drug makers strongly suggests that it is one of the top worldwide drug makers in forming alliances with biotechs to develop potentially profitable drugs.
The individual investor and drug firms
To know how drugs in a company's pipeline progress, we can rely on quarterly and annual reports (type in the ticker symbol and Go "SEC filings") and stock discussion boards. We can follow whether the drugs perform well in the clinical trials, and for most diseases we can estimate very roughly the size of the markets. If your potential drug company investment relies on a small number of very complicated drugs for rare conditions, you definitely need to know more science -- and question whether it's the best place for your money.
Schering-Plough's drugs target conditions affecting large populations (allergies, AIDS, breast and ovarian cancer, and so on). And with so many in the pipeline, Schering can survive the inevitable occasional human trial failure or FDA disapproval of a drug candidate. Sure, it'll be hurt for a while -- drug company investors expect this from time to time -- but it won't suffer the fatality facing a start-up drug maker that depends on one drug hopeful.
Schering might not be the number one candidate for a romantic affair, but its performance and pipeline strongly suggest that it will stick around for the long term. There may be the occasional bumpy quarter -- or even year -- but the long-term investor can see a big pharmacy shelf for this company's future.
Your Turn:
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