Tuesday, July 29, 2008

EU Approval of Bridion® (sugammadex) -- about 2.4 cents ONE PENNY per share of 2008 EPS -- in the "Very Best" Case.


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U P D A T E D
08.01.08 @ 8 AM EDT:

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FDA declares the drug "non-approvable". Ouch! So much for that $600 million. Said another way, the about 2.4 cents I posited below in 2008 Schering EPS, just became about one single little penny, in added EPS -- for the foreseeable future at Schering. How much has been spent, thus far, to garner that one shiny penny? I dunno. Yikes.

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This afternoon, Schering announced that it had received EU approval for sugammadex, its new anesthesia drug. That is good news for the besmirched pharma-company. It just won't amount to much, any time soon, in my analysis. Here is something I just wrote, albeit for another purpose. I'll clean it up a little, later -- but you'll get the gist of it, right now:

The fact is today's EU approval of Bridion®, or sugammadex, won't be enough -- enough to cover the 2008 hole Vytorin has created.

Last year, in June of 2007, pre-acquisition Organon had this to say -- putting its very best face on sugammadex's market potential (press release), to lure Schering to pay-up, on acquisition:
". . . .Organon said the global market for the drug is estimated at 400 million euros ($537 million) and could be higher. . . ."

So, Global sales of let's call it $600 million (we see a weaker dollar now) -- and, let's say it has a 30 percent margin (probably a little too generous, but so what?), then its gross WORLDWIDE contribution to pre-tax earnings (and ultimately, after-tax EPS) will be around $180 million.

But wait! -- suggamadex is not approved in the United States -- and may not be, until 2009 (if one reads the FDA tea-leaves carefully), so. . . .

Let us also assume that Europe will be about 30 percent of the gobal market (again, very generously!) -- then the gross contribution of sugmamadex will be around $54 million, max, in 2008.

Spread that $54 million over 1.637 billion common shares outstanding (last SEC Form 10-Q), and the pretax EPS is 3.3 cents a share -- after tax (assuming a 28 percent tax rate) it would be. . . .

2.4 cents per share of 2008 EPS -- the 2008 Vytorin "hole in earnings" or EPS, is something like 42 cents a share of 2008 EPS (doing the math, here, from Merck's Q1 2008 projection of $700 million of Equity Income fall-off due "solely" to the Cholesterol Joint Venture's mishaps).

So, my best guess is that sugammadex (while a nice little pick-up) will not really matter -- it won't "move the needle much" even when the US approval ultimately comes -- it won't be nearly enough to "right the good ship Schering-Plough". QED.

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U P D A T E D
07.30.08 AM
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Financial Analysis/Math is an acquired skill-set, folks. At a 12 times Schering-Plough P/E Multiple, then, that 2.5 cents yields 25 cents in share price increase (today's open) -- but then we must net that, against over $4.80 ($0.42 times a P/E Multiple of 12) "in the hole" [mostly owing to the uncertainties -- still to come], due to ENHANCE-Vytorin fallout. And this stock skids sideways, rather than climbs (like now). But what do I know?

4 comments:

Anonymous said...

Ah the good old days.

I was just remembering Fred's words from Ed's article over at Pharmalot from April 24th.

"As I said when I announce my intention to purchase these shares in January, this investment in Schering-Plough reflects my long-term confidence in the company, its products - including Zetia and Vytorin - and our late stage pipeline."

Speaking of late stage pipeline whatever happened to the rest of it?

John Jenkins head of the office of new drugs at FDA made comment a while back that FDA may be missing some PDUFA deadlines. What he failed to mention is that extension of deadlines per FDA regs (and possibly the FD&CA I need to check) can only occur with the agreement from the sponsor. So when is that PDUFA deadline?

Salmon

Anonymous said...

Note 7th paragraph of the June 2007 press release: “Analysts have said that Bridion is one of the biggest advances in anesthesiology in decades and could generate up to $1 billion in annual revenue if it is approved in major markets.”

-- cpo

Condor said...

Um, cpo -- Organon didn't say so.

And Organon had motive a-plenty to "bump-up" the numbers -- it would help insure/garner the $16 billion Schering paid for Organon -- only two months later. . . .

But very well, then. Let's take your "analysts'" view -- IF EVERYTHING GOES PERFECTLY (and we all know it never does!) -- $1 billion in world wide sales equals about $300 million at the Gross Profit line, in some future year (more on that -- in a few ticks). . . .

and that equals about $216 million after-tax (at Schering's 28 percent tax rate). Spread that $216 million over 1.637 billion common shares of Schering-Plough outstanding, and. . . .

Yep about $0.13 per share in EPS. 13.2 cents, actually.

Now -- that ASSUMES an "instant $1 billion market" -- in actuality, that market will build from zero in 2008, to about $200 to $300 million in mid-2009, as European docs (presumably) add suggamadex to the wake-up cocktail. So, in 2008 through 2009, I like my earlier guesses -- (2.3 cents of EPS in 2008, for Schering) based on Organon's own data.

By 2011, assuming a US approval, it is possible that this will be a more than $500 million per year in revenue drug -- but never without US approval. Europe just won't do surgery the way we here in the US do it. That is my opinion. Said another way, we, here in the US, may overuse meds in the OR.

Finally, the $0.13 would ALSO ASSUME that Schering controls 100 percent of that market (not likely), and that 100 percent of docs decide to add the pricey drug to the sleep-ending cocktail -- all by about 2011, or so.

Okay -- even so, it only adds a buck-sixty to 2011 Schering stock prices -- viz.:

$0.13 in 2011 Schering EPS, times a P/E multiple of 12. . . . equals about $1.58 in additional stock price on the NYSE -- IN THAT YEAR -- 2011.

The object-lesson, then:

Schering has become a "SHOW me" stock -- i.e., no one is giving this management team "three-years'-forward-earnings credit" -- TODAY, in the NYSE price, just on CEO Hassan's "say so". . . . No, that price effect will appear when the actual profits appear at the EPS line -- in 2001 -- if they ever do. [See my earlier Vytorin uncertainty comments.]

Cheers!

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