I admit I cannot resist this -- the level of implausibility of Mr. Hassan's recent statements -- on the Russian market -- simply demands a good Fisking (demands to be clearly outlined). So, here goes:
If, as I established in my last post, it would take 48 to 43 billion Roubles of new Russian sales to fill Schering's 2008 EPS "gap" -- then, according to this summary research report, Schering-Plough will need to take home, to America, one Rouble out of every seven spent in Russia this year on pharmaceuticals, or about 15 percent of the overall Russian spending in the category. As many have cogently observed, Pfizer is big into Russia, especially lately -- so that kind of share seems a stretch, at best.
Can Schering garner 15 percent of all Russian pharma Rouble expenditures, in 2008?
I think not.
In any event, here is a relevant snippet from the above report, on Russian pharma market sizes -- I've allowed for 15 percent growth over 2007 levels, in the middle of the more optimistic scenarios outlined in the report:
. . . .According to BMI's latest estimate, Russia's pharmaceutical market reached a total value of US$11.7bn in final consumer prices 2007, representing 20% year-on-year (y-o-y) growth in dollar terms and bringing total per capita annual spending on medicines to US$82.3, twice 2004 levels. This is broadly in line with the growth rate recorded by local research groups DSM (20.2%) and RMBC for 9M07 (21%). More modest local currency growth rates of 11.2% reflect the distorting effect of the weakness of the US dollar. Looking forward, BMI's five-year forecast, extended to 2012, sees annual average dollar growth of 10.9%, a lower but potentially more sustainable growth rate, in particular if the rouble continues to appreciate against the dollar through the forecast period. . . .
8 comments:
wait...didn't Hassan also say he would be looking at other markets e.g., Brazil and India. If you throw in China~~~~maybe~~maybe~~~but, I doubt it...
He did say Brazil, and Slovenia(!). . . .
But I think the cases are more tenuous in those geographies. . .
Slovenia simply is just not big enough (or far enough up the health-care development curve), nor is it flush enough with disposable income. . .
Brazil has a very high-icome population group, but it is narrow, and urban -- and the currency exchange risk is high.
India may be a more promising geography, but how many people really need Schering's flagship product, there? Most Indians are vegetarian -- and their cholesterol levels are not nearly as high -- on average -- as the US, or Western Europe.
Add to these factors, that in each case -- even in India -- Schering will be waiting for quite a while to get government reimbursement.
Most probable outcome? -- Trainwreck in 2008.
Oh, I agree.
I also agree with your response to the nephew's offer over on Yahoo. Though, with new layoffs around the corner (most recent 600 for R+D), I would hate to be last on, first off.
By the numbers--10% reduction =5500 people. My calculations would suggest that management has only achieved 3000 (at best; and including the recent claim for 600).
So, that would mean another 2500 to go~~and that's before calculating the 'new' loss of revenue from the recession/global crisis.
Condor~
Back in the summer the WSJ ran:
June 3, 2008, 4:34 pm
Moody’s Is Gloomy on U.S. Drugmakers’ Credit
Posted by Jacob Goldstein
For the next year or so, credit ratings for U.S. drugmakers are more likely to fall than to rise, Moody’s said today. In its semi-annual weather report for the sector, the ratings shop noted a few patches of sun — strong profitability and cash flow, diminishing litigation exposure — but plenty of clouds.
Along with the familiar problems (patent expirations, reluctant regulators, aggressive generics), Moody’s pointed to some less-frequently-mentioned issues that are of particular interest if you’re worried about companies’ ability to pay their debts.
The adjusted debt level for the nine biggest companies in the sector rose to $94 billion at the end of ‘07 from $75 billion at the end of ‘06, Moody’s says. Among the debt drivers cited by the report: Schering-Plough’s Organon acquisition, J&J’s higher level of share repurchases, Pfizer’s big share repurchases and high dividend and Genentech’s Tanox acquisition.
So, where do you think S/P stand now? Given the global meltdown that has happened. How much is contributing to your statement that S/P will over react to down turns in the market and be less improved when the market climbs?
Sorry to pester.....at what $/share makes S/P a bargain to acquire? I realize they probably have tremendous debt associated with the Organon acquisition but being below $14---how low does it have to go before it is a 'gimme?'
IF the Dow wasn't sitting at 8,500. . . .
I might call $13 as a bottom.
But the Dow is at 8,500 (having been over 10,000 early last week).
Here is my problem: I think Schering isn't any FUNDAMENTALLY worse today (forgetting overall market declines), than it was on Monday morning -- at $17 a share (what I viewed, before today, as near its intrinsic value) -- but because it is now the "weak sister" in the big pharma space, it will DEFINITELY be buffeted MORE by overall market drops. . . and I don't think we've seen the end of those.
So, I'd call the NEW bottom -- for so long as the Dow is below 9,000 -- as $11 a share. Schering's hard assets (without any imputed "going-concern" value), less all the debt, are worth about $8 a share.
It may never touch $11, but I might buy in if it did.
Cheers!
Thanks for all the careful, thoughtful comments here -- one and all!
-- Namaste
Thanks for your thoughts.
Ex-S/P person~~~just concerned for my friends still left there.
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