Earlier this week, there was some idle speculation that Schering-Plough (NYSE Symbol: SGP) might be a takeover candidate. In this clearly capital/capacity-constrained market? I think not. Here is a comment, followed by my dissection of it, over at the Yahoo stock chat-boards:
. . . .I agree that SGp is an obvious takeover candidate; they have one of the strongest pipelines in the business with 3 novel drugs currently under review by the FDA and another 5-6 in phase 3 clinical development. With a current market cap of ~$26B, there are a number of big players who could take them over, PFE being one, but companies like Novartis (also facing a bad patent cliff), LLY (facing a horrible patent cliff) and MRK would be obvious candidates. Also, Fred Hassan is no stranger to deals, having brokered the Pharmacia-Upjohn deal and the PFE-Pharmacia deals. I would not be surprised if SGP was taken over within the next 12 months, at least if their market cap stays low. I stay long on SGP, and believe that all long could be handsomely rewarded within the next 6-12 months. . . .
Biotechbull -- the last part of your handle -- "bull" -- suits your above-comment, to a tee. Of the three to which you presumably refer -- one received a "non-approvable" letter from FDA (Sugammadex, in July 2008), and later, Asenapine was delayed for additional safety data, at FDA in the fourth quarter of 2008.
So much for that vaunted near-term pipe. I will grant you that Schering has some interesting possibilities in the 2012 to 2014 time-frame. But they are only possibilities at this point. With this management team, I am sure they'll find a way to screw up the studies/approval process.
That out of the way -- as to the recent SGP share price action -- I think it increasingly clear that Schering is a potential "bust-up" play, at present.
But where is a player to get the deal done? The old-line investment banks don't even exist any longer. And the capital markets are looking for sure things, not "maybes" -- some three to five years, from now.
Schering-Plough -- intact, and "as is" -- is very-likely worth less than the sum of its parts. Look -- it runs an animal health (Organon) business -- being dragged about by an OTC consumer health (Coppertone) segment. . . being lugged along by an aging straight pharma pill (Vytorin) portfolio. . .
No biotech, no bio-equivalent emerging business -- no strategy for self-branded generic capabilities -- in short, no forward momentum, in these cost-constrained times, and segments.
SGP does generate decent cash, and as such, a savvy, very deep-pocketed capitalist, with a three year horizon, could split the parts -- selling each off -- and net a potentially very nice return. Again, where is that capitalist? I dunno.
In any event, current CEO Hassan is, in my opinion, plainly not the man to preside over an auction. He is far too myopic, and ego-invested in his false vision of an "intact Schering" health conglomerate/synergy play.
If it hits $19, I'll likely go short again. It will likely fall again, when December (and year-long) 2008 Vytorin/Zetia scrips data are released by IMS -- and reported by SGP -- in the third week of Janauary 2009. Look for that, in an SEC Form 8-K, probably on a Friday night, if Schering's law department holds true to form.
[Later I added this:]
Schering's psycho-tropic drug candidate, Asenapine, has been delayed by FDA, late in 2008, for additional safety study data.
As the erstwhile Salmon would likely inform us, were he present, now -- Asenapine is a drug that a few other pharma companies spent several years, and several hundred million dollars on, in the last decade, only to abandon it outright over safety (and other) concerns.
Yet Schering persists. Yes, three of CEO Hassan's "five stars" -- from the Nov. 24, 2008 R & D Day Webcast Conference -- are significantly "off-track", with FDA.
For additional clarity: I was not blunt enough about a "bust-up": usually, only a small portion of the "unlocked" value -- from a bust-up -- ever reaches the shareholders of the combined entity -- here the current SGP shareholders. True, one or two units may be spun-off -- as a stock for stock dividend, but most would be sold for cash, to pay down the immense debt Schering took on, when it bought Organon for over $15 billion, in late 2007. A goodly-chunk of that comes due in late-2010.