Drug maker Schering-Plough(NYSE: SGP) cut its 2003 earnings forecast yesterday. In its fifth warning since summer 2002, the company lowered current-year projections for diluted earnings to $0.75 from $0.85 a share, down from actual EPS of $1.34 in 2002.

The news plowed the stock under 4% in morning trading. Shares have fallen 72% from $59.13 on Dec. 13, 2000 ($56.21, adjusting for dividends) to a near-six-year low, closing yesterday at $16.60. This drop wiped out about $63 billion in market cap. Holy Internet!

Its challenges have been well known for several years. It finally resolved a large one last year when it settled FDA regulatory issues with its manufacturing for $500 million, the last half due in Q2 2003. The company has long known that allergy drug Claritin would move from prescription to over-the-counter status in December, but sales of follow-up prescription drug Clarinex aren't yet replacing equivalent high-margin Claritin prescription sales.

Earnings for Q4 2002 showed the first cracks, off 19% from the year before, with U.S. pharmaceutical sales off 28% and international up 17%. The company said current-quarter sales will yield a projected EPS of $0.10, versus year-ago's $0.41.

Schering-Plough has strongly pinned its hopes on cholesterol treatment Zetia, just introduced and co-marketed with Merck(NYSE: MRK), as well as the respiratory disease inhaler it will market and distribute in the U.S. pursuant to a November deal with Novartis(NYSE: NVS). Schering-Plough also earns revenues from international sales of Remicade, marketed in the U.S. by Johnson & Johnson(NYSE: JNJ), and a significant revenue share of cardiovascular drug Integrilin, which it shares with Millennium Pharmaceuticals(Nasdaq: MLNM) after its purchase of COR Therapeutics. Meanwhile, competition hurt sales of its hepatitis C treatments.

With about 1.7 times cash to total debt, even with reduced free cash flow (FCF), Schering-Plough can likely handle the $250 million due to the FDA in Q2 and the demands of its 4.2% dividend. But shares currently sell for an enterprise value-to-FCF ratio of 16 -- pricey for its current situation. And this multiple will undoubtedly rise with the newest 2003 forecast.

If you believe that Clarinex and other drug sales will ramp up to merit this multiple, which is just under Merck's, the stock is a bargain. I won't be convinced without a few more quarters of a company financials, and I'd be willing to pay a higher price later for more certainty.

Think I'm too wimpy? Not cautious enough? Tell us why on our Schering-Plough discussion board.