From: watanabe@cs.uiuc.edu (Larry Watanabe)
Subject: Schering-Plough (SGT)
Summary: Investment Idea (good or bad?)
Keywords: pharmaceutical , drug, Clinton, Canada
Organization: University of Illinois, Dept. of Comp. Sci., Urbana, IL
Date: Fri, 8 Jan 1993 18:24:24 GMT

What do people on the network think of the following
investment idea? 

In Value Line, January 1/93

Drug (INDUSTRY RANK 10)

Schering-Plough:
		Recent Price:				68
		Timeliness:				2
		Safety Rank:				1
		Current P/E:				17.4
		Est'd Yield:				2.5%
		Estimated 3-5 year Appreciation:	60-100

Today it is selling for below 60. The whole pharmaceutical industry seems
to have been depressed further on the fears that Clinton will
restrict pharmaceutical company profits. I have more to say about
this later.

If we adjust the above
figures for the new price (admittedly a questionable thing 
for the estimates since they are really ball park figures)
we get:

		Recent Price:				60
		Current P/E:				15.35
		Est'd Yield:				2.8%
		Estimated 3-5 year Appreciation:	80-127

-----------------------

The value line report (Nov 6/92) is very positive about Schering-Plough:

(Bold-faced part of report)

All of Schering-Plough's vital statistics remain in a compelling
uptrend .. An impressive array of pharmaceuticals should keep
share earnings expanding by roughly 17% annually through 1995-97
..These good-quality, timely shares also offer attractive long-term
total return potential.

-----------------------

Now, even if the pharmaceutical companies growth rate slows down, 
the P/E of Schering-Plough Corporation (SGP) is well below
the historical average of 19.0. So, I would say that this has
been taken into account.

However, the impression I get from what Clinton says, and
from things like the report saying that 77% of CEO's favor
a Canadian style health system, I would say that health
care reform spells trouble for insurers and health management
companies, not for pharmaceutical companies. In fact, in Canada they
are passing legislation to increase the protection of 
pharmaceutical companies from competition from generics.

Why are they increasing the profits of pharmaceutical companies in
Canada at the expense of the consumers? Because pharmaceutical
companies are an important and expanding part of the 
economy, and will be more important in the future.
Canada wants to attract pharmaceutical companies to do their 
R&D in Canada.

I would say that America has more to gain by protecting 
the profitability of pharmaceutical companies, than
by cutting health care costs by cutting into their profits.
The American economy can be helped by fostering the
growth and competitiveness of the pharmaceutical industry,
which is one in which America is a leader.

I think the industry also has excellent long-term prospects:
biotechnology is one of the dynamite prospects of the future.
Companies like Schering-Plough are the ones that are doing
the biotechnology research, and have the distribution channels
to make money off of it. Usually you pay a very high P/E to
get into this kind of prospect, (if the company has any
earnings at all) but here it is costing only P/E of 15.

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A lot of mutual fund managers are saying that they are
thinking of buying the drug companies at the currently
depressed prices.  This means that there is potentially
a lot of demand for these companies.

---------------------------------------- 

However, you might also want to look at other companies such as 
Pfizer, IVAX, Forest Labs, Warner-Lambert. Syntex, Merck, 
Bristol-Myers-Squib, etc. There is news about a 
settlement of the silicone-breast implact case for 
one of them (20 million awarded, but will be settled
out of court to avoid the probable appeal).

-----------------------------------------

-Larry Watanabe watanabe@cs.uiuc.edu
Newsgroups: misc.invest