Early Tuesday morning, Schering-Plough
As two and a half years of sales declines would suggest, Schering has had its problems. Not only had drug sales declined while inventory grew, but also the company found itself in hot water with the Food and Drug Administration. Nevertheless, CEO Fred Hassan seems to have this company back on the right track. Prescription growth was up 15% for the quarter, and Schering reported sales declines for only one of its leading drugs.
The key to Schering's recovery likely will be Vytorin. A unique cholesterol therapy, Vytorin has the potential to be a blockbuster on the order of $2 billion to $3 billion in sales. Investors need to remember, though, that this drug is part of a partnership with Merck
Investors wishing to take a flier on pharmaceutical turnarounds need to remember that they take time. What's more, Schering's stock is already up about 30% from its lows at the end of 2003. There is also risk here -- given Schering's rather shallow drug pipeline (at least in comparison to its peers), it really needs Vytorin to succeed for the turnaround to work.
While a skeptic could argue that Schering is already valued on par with its peers (at least in terms of price-to-sales and price-to-book), I believe this overlooks a couple of points in Schering's favor. Unlike downtrodden peers like Wyeth
Schering is undoubtedly a risky turnaround play, and investors looking for a more stable play would do well to look at Pfizer shares instead. Nevertheless, those who believe that Hassan can keep the turnaround going and that Vytorin can be a big winner could see outsized gains from this downtrodden drug company.
Fool contributor Stephen Simpson is a chartered financial analyst. He has no ownership interest in any stocks mentioned.