SEAS Prove Calming for Schering-Plough

On a very weak big pharma tape, shares of Schering-Plough (SGP) started to rally Wednesday morning. As I wrote this, the only other stock in the sector that was trading higher—albeit fractionally—is Wyeth (WYE), because Goldman Sachs added it to its "Conviction Buy List." (For those unfamiliar with it, the CBL means the analyst is pounding the table on the stock).

SGP had been trading lower along with the rest of the market and the sector, but shot up as it became apparent that the expert panel at the American Heart Association meeting in New Orleans talking about Vytorin was relatively benign. I wasn't there and unfortunately the AHA didn't webcast or teleconference the session nor allow any cameras inside the hall. So, my reporting is based on dispatches from analysts, AHA and a spokesperson for SGP and its Vytorin/Zetia joint venture partner Merck (MRK).

You may recall that a similar "panel discussion" which took place at the American College of Cardiology meeting earlier this year caused both stocks to take a nosedive. It actually wasn't a panel discussion at all. One doc read a prepared, rather damning statement about the effectiveness of the cholesterol-fighting drugs and then they moved on to the next topic. No q and a, no discussion. The companies were not happy, to put it politely and mildly. You get my drift.

So, the recent disclosure that there was a higher incidence of cancer and cancer-related deaths in another Vytorin study, known by the acronym SEAS, provided the AHA (the other big, heart-related organization which kind of competes with ACC) with the opportunity to give it another go. JP Morgan analyst Chris Schott shot off a blitz research note to clients right after the session ended, pointing out that even the panel itself was, as he put it, provocatively titled, "What is the Emperor Wearing? Unbiased Evidence from Clinical Trials." Unlike the ACC event, this one had not one, but two moderators and six speakers.

Consider the source, but a JV spokesman emailed that the hall had room for thousands, but that only a few hundred people showed up. If accurate, that's a far cry from the near standing-room-only crowd at the ACC meeting in Chicago last March.

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Schott wrote:

Overall we do not see this panel impacting the Zetia/Vytorin debate and continue to believe we are seeing signs of stabilization for the franchise. More importantly, the lack of incremental negative data on Vytorin should remove the overhang that has impacted both MRK and SGP.

While SGP is moving higher, MRK is not. Vytorin and Zetia are much more important to the bottom line of SGP than they are to Merck's profits. JPM has done and wants to do more investment banking for SGP and MRK.

 

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We should learn more about the state and fate of Vytorin and Zetia at an SGP analyst/investor meeting that's set for just before the Thanksgiving holiday. Since it's just down the road from CNBC HQ in nearby Kenilworth, NJ, we will be there and we expect to do an interview that day with CEO Fred Hassan.

Update: Leerink Swann analyst Seamus Fernandez in a research note to clients confirms the companies' observation about the small crowd at today's session. "The debate was sparsely attended," he writes. And he concurs with JPM's Chris Schott about the impact of the panel.

Fernandez said:

We believe the outcome of this morning's SEAS debate was unquestionably benign relative to expectations, reinforcing our view that the perceived risk of cancer with Zetia is spurious and that the drug will be exonerated of this concern.

Leerink Swann may trade in shares of MRK and SGP.