Monday, July 27, 2009

What Is "The Truth" About Schering-Plough's Animal Health Businesses?

On page 31 of the just-filed SEC Form 10-Q, Schering-Plough attributes the weakening sales in Intervet to "intense competition" and "frequent introduction of generic products", thus:

. . . .Animal Health global net sales totaled $677 million in the 2009 second quarter, a 17 percent decrease as compared to $818 million in the second quarter of 2008. Excluding the unfavorable impact of foreign exchange of 10 percent, Animal Health sales would have been down by 7 percent as compared to the second quarter of 2008. The sales decline was a result of the overall economic environment, difficult comparisons against the 2008 launch of bluetongue vaccine and the impact of 2008 product divestitures. For the six months ended June 30, 2009, Animal Health sales decreased by 15 percent from $1.5 billion to $1.3 billion. The Animal Health segment’s sales growth rate is impacted by intense competition and the frequent introduction of generic products. . . .

On the other hand, Schering-Plough executives regularly feed, and encourage, the analysts' mantra that animal health businesses see few generic product introductions, and that "people will pay (almost) anything" when it comes to their pets. See this, as but one recent example:
. . . .As large pharmaceutical companies look for ways to diversify and defend against generic drug rivals, they are finding animal health offers consistent growth and limited competition. . . .

So, which version is the truth? The former -- not the latter -- of course. And Schering-Plough very-well-knows this.

But at the moment, Schering and Merck very much need to sell one or more Animal Health businesses -- to clear the FTC, and Hart Scott Antitrust review. So the spin wears thin -- and thinner -- out there in the financial (flogging) press outlets. Sometimes, the MSM seems to be a simple stenography pool, no?


Condor said...

And then there is this:

. . . ."Animal health is a much steadier business than the human pharmaceuticals business these days," David Moskowitz, an analyst with Caris & Co., told Bloomberg. "Animal products tend to have very nice margins, there's much lower threat of generic competition, and there's a lot of brand loyalty. . . ."

Or. Not. So. Much.

In passing, should note one other point -- as circumstantial evidence that Schering rushed this filing into the SEC: a missed modifier. Where? In the last sentence of Schering-Plough's 10-Q disclosure quoted above, the lawyers refer to factors that negatively impacted the "growth rates" in sales.

In fact, for the last six months, or ALL of 2009 -- there was no "growth" -- none at all.

Even if we ignore currency fluctuations.

That sentence should read "factors that drove the sales declines. . . ."

I think somebody was in a hurry, and just used last year's verbiage, substituting numbers, without much of a closer look.


Anonymous said...

Raul's message at the quarterly review basically boiled down to "if you ignore all the bad news, which we are explaining away, we actually did quite well"

Condor said...

Yep -- and thanks, that's essentially what Fred, Bob, Carrie and Tom said on the Q2 webcast.

My reaction?

"There be many, many wild unicorns in yonder forest!"

Thanks -- do stop back -- so, you were in the room when Raul Kohan spoke? Do tell! I mean. . . is there anything else we'd like to know, from that meeting?


Anonymous said...

Nah. It was pretty boring. Despite advance rumors to the contrary, he had no news about animal health, and he had been well coached enough to avoid giving his opinion or speculating