Despite all the talk of bear markets, I haven't seen many attractive opportunities among our Rule Maker companies up to this point.

That changed in the last two weeks as pharmaceutical giant Schering-Plough's (NYSE: SGP) shares dropped about 20% to around $38 after the Food and Drug Administration (FDA) found quality-control problems at the drug maker's manufacturing facilities in New Jersey and Puerto Rico. The company's shares are down almost 30% for the year.

Schering-Plough warned it would miss earnings by a wide margin in the first quarter, and there's no question 2001 earnings will be affected. The company was forced to idle production lines at the plants to fix the problems. As a result, Schering plans to spend millions this year upgrading the facilities.

Unfortunately the bad news doesn't stop there. The FDA has refused to approve Clarinex for marketing in the U.S. until Schering-Plough irons out its production problems. Clarinex is the follow-on drug to Claritin, the world's best-selling allergy medicine. Delays in launching Clarinex have investors worried Schering-Plough won't have time to transition Claritin users to Clarinex before Claritin comes off patent next year.

These are serious issues. In addition, Schering-Plough faces shareholder lawsuits and could end up paying FDA fines for the quality issues. A report from an independent pharmaceutical consulting company that was leaked to a public advocacy group makes it clear Schering-Plough's problems -- which reportedly include lack of quality control, an improperly designed manufacturing system, and high staff turnover -- won't get fixed overnight.

Still, I don't view the bad press as bad news for the company, mainly because it puts the heat on the drug maker to get the problems corrected quickly. Richard Kogan, chief executive, has made it clear he's responsible for taking corrective action, and the company will spend $50 million this year to improve the situation.

Keep in mind that Schering-Plough isn't the only pharmaceutical company the FDA has dropped the hammer on as a result of production issues. American Home Products (NYSE: AHP) paid a $30 million fine last year, and Abbott Laboratories (NYSE: ABT) paid a $100 million fine in 1999, according to a recent Bloomberg story.

It'll take time for Schering-Plough to repair the damage, but these issues don't alter the long-term strength of its franchise, which is focused on developing allergy/respiration, and anti-infective/anticancer medications.

It's also incorrect to assume Clarinex, which Schering-Plough hopes will protect its more than $3 billion allergy/respiratory medication franchise, is the only powerful drug in the company's pipeline, or to assume Claritin is the company's only fast-selling drug. Allergy and respiration products generate the bulk of the company's sales, but through the first nine months of 2000, sales of anti-infective/anticancer drugs grew 21% to $1.5 billion, led by combined sales of Intron A and Rebetron Combination Therapy, a leading Hepatitis treatment.

Better yet, in January the FDA approved Schering-Plough's Hepatitis C drug Peg-Intron, an extension of Intron A. The drug, demonstrated to be very effective when used in combination with Ribavirin (developed by ICN Pharmaceuticals (NYSE: ICN) but sold by Schering-Plough), could have sales of $2 billion by 2003. Roughly 4 million Americans and 10 million people worldwide are infected with the Hepatitis C virus.

Schering-Plough also has high hopes for its new, orally inhaled asthma drug Asmanex. (Nearly 15 million people were treated for asthma in the U.S. last year.) As of Dec. 6, Asmanex had been approved in eight countries, including Canada. Investors should keep a close eye on the drug's success since it's one member of a triumvirate of allergy/respiratory drugs Schering-Plough expects will build its franchise: Asmanex, Claritin, and Nasonex, a once-daily nasal spray for allergies that continues to grab market share from Vancenase, also a Schering-Plough drug. Sales of Nasonex helped grow sales of nasally inhaled steroid products 29% through the first nine months of 2000.

We continue to be impressed by the strength of big pharmaceutical companies as investments. While it will be very difficult for the drug companies to keep annual sales growing at the nearly 20% pace achieved during the 1990s, an established pharmaceutical franchise is hard to topple. In addition to its research organization, Schering-Plough has a global sales force more than 11,000 strong to peddle its drugs to doctors, hospitals, and retailers, which is very attractive to biotechnology firms looking to bring drugs to market. It has effectively used partnerships with other drug development companies such as ICN and Enzon (Nasdaq: ENZN), which developed the proprietary technology for Intron A. Investors can expect Schering-Plough to continue to benefit from partnering arrangements. Investors should focus on the many R&D partnerships Schering-Plough has with smaller, innovative biotechnology firms, such as COR Therapeutics (Nasdaq: CORR).

One of the original Nifty Fifty, the high-flying one-decision stocks of the early 1970s, Schering-Plough was the 13th-best-performing stock of the group from 1972 through 1996, returning 13.7% annually. Investors regarded the company as highly valued in 1972, when it sold at a P/E of 48.1. Its warranted P/E, based on its earnings growth, was 54.4, according to Jeremy Siegel, who writes about the Nifty Fifty in Stocks for the Long Run. Today, Schering's trailing P/E is about 23.2, compared to its five-year average of 32.6.

At less than 30x trailing free cash flow, Schering-Plough is one of the more attractively valued Rule Maker companies. It's not cheap since the market understands the value of a pharmaceutical franchise, and it will be difficult for Schering-Plough to duplicate the success it's had over the last three decades. It's a much bigger company now, and faces deeper competition. Schering-Plough also has some holes to patch, but it's selling at a reasonable price for a tested franchise in a highly profitable industry.

Have a great day.

Richard McCaffery lives in Laurel, Md. with his wife Linda, and neither owns any of the stocks mentioned above. Neither can they believe Unbreakable, one of the most original movies of the last 10 years, wasn't nominated for an Academy Award. The Motley Fool is investors writing for investors.