Merck's 2009-2010 Guidance: [More] Bad News For Kenilworth.

[UPDATE: Merck continues to hedge some of its foreign currency (mostly euro-denominated) exposures -- per CFO Peter Kellog, just now -- thus, it expects, in 2009, a more-dampened currency headwind at the EPS line, vis-a-vis Schering. Merck uses a US Dollar functional currency rate accounting, thus the hedging either helps (or hurts) the EPS line. Merck also hedges based on the contribution to profits, of various exposures. Again, far more sophisticated, and forward-thinking, in its financial management approach, than Schering.

Significantly, Schering does not hedge these exposures -- so perhaps the 2009 EPS headwind from currencies could be a little more than 10 percent, at Schering. Wow. This is a very significant, and largely under-appreciated, source of risk to Schering's operating income for 2009 and beyond.]

~~~~~~ END, UPDATE ~~~~~~

Merck CFO Peter Kellog just said, on the Merck 2009-2010 Guidance Call, that the coveted "Tier II status" [think unrestricted access to remibursement, here] -- which was over 90 percent of all formularies as 2008 began, is expected to fall to 66 percent, during 2009, for Vytorin/Zetia.

Said another way, it used to be that less than 10 percent of all payers in the US required pre-approval for a Vytorin/Zetia new scrip (to be reimbursed) -- now, one in three scrips will require pre-approval.

That proportion is very likely to grow, as President Obama (and a more-active Congress) take a much closer look at reforming reimbursement, and preferring generics -- like generic statins -- for cost v. efficacy equasions. Where is that cardiac event risk data for Vytorin/Zetia? Right. It. Doesn't. Exist.

Remember, folks, that Vytorin/Zetia franchise is still at least 50 percent of ALL of Schering's 2009 EPS (profitability)!

And the Schering cholesterol management offering costs 20 to 100 times what a generic statin costs.

Let's listen in, from the Reuter's story, this morning:

. . . .Merck Chief Financial Officer Peter Kellogg also told analysts on a conference call that he expects combined global sales of its Vytorin and Zetia cholesterol fighters, which it sells in partnership with Schering-Plough (NYSE:SGP - News), to fall next year due to flagging U.S. demand. . . .

Merck said the strengthening dollar would crimp 2009 revenue by 3 percentage points, while having a negative 6 percent impact on earnings per share. . . .

Note that last line, above -- Merck now expects 2009 foreign exchange rates to have a negative EPS effect of 3 to 6 percent on it. Remember, now, Merck sells far less, proportionately, outside the US (only 45 percent of its total is non-US, mostly euro) -- than Schering.

Schering's 2009 sales are expected to be atleast 70 percent outside-US. So expect a new, negative -- closer to 4 to 8 8 to 11 percent EPS downdraft [See my Update, at top, above] -- to Schering's 2009 EPS, due to foreign currencies exposures. That is entirely separate from the overall, continuing swoon in Vytorin/Zetia. Ouch.