Notable Calls

Goldman Sachs notes the ENHANCE data were presented this weekend and were not surprising. The big surprise was the professional commentary, which spoke to limiting the use of the drug (until after other cholesterol-lowering medicines have failed) unless it is proved in an outcomes trial (expected to complete in 2012). Given the uncertainty around the franchise, the firm is downgrading Schering-Plough stock to Neutral. SGP shares are down 32.4% since being added to the Americas Buy List on November 26, 2007, while the S&P 500 has fallen 6.5% over the same period. Over the last 12 months SGP shares are down 22.1%, while the S&P 500 is down 7.2%.

Previously, GSCO had been below consensus, assuming that the US cholesterol business would fall 20% in 2008, and recover in 2010. They are now moving to a more prolonged fall, with US cholesterol sales down 24% in 2008, 20% in 2009, 10% in 2010, and 5% thereafter to 2012. They are lowering their estimates, with 2008-2012E EPS now $1.40, $1.46, $1.64, $1.80 and $2.11 from $1.37, $1.52, $1.77, $2.01, $2.39 (2008 rises slightly due to currency adjustments). This new set of estimates reflects modest reductions in SG&A to account for decreasing US promotion.

GSCO is lowering their 12-month price target to $23 (from $28), based on relative P/E and DCF methodology (70%/30% weighting). While they believe that Merck and Schering-Plough will work hard to support the product, the negative revision bias will remain high. Uncertainty around the IMS trends will likely leave the shares range-bound. In the mid- to high teens, they believe that the shares will have priced in the removal of Zetia and Vytorin from the model, and this valuation could represent a floor.

Notablecalls: At around $15 I rate SGP a Strong Buy. GSCO's dg is just make-up.