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Schering-Plough And The Vytorin-Zetia Backstory

CNBC.com

The Star-Ledger of New Jersey this weekend did a story that I think provides the best insight and backstory about what happened last week at the highest levels of Schering-Plough .

CEO Fred Hassan was inMiami when doctors dropped the bomb on Vytorin and Zetia at the American College of Cardiology meeting.

And then he and his people shifted into crisis mode which resulted in the mid-week announcement of massive job cuts. I've occasionally mentioned this on the blog before, but because the drug industry is such a huge part of the NJ economy, the Star-Ledger has a handful of reporters covering pharma. But the paper kind of operates in the shadow of The New York Times and The Wall Street Journal. Nonetheless, it often cranks out stuff like this that you might not read anywhere else.

In her daily cholesterol-drug prescriptions note to clients, Catherine Arnold at Credit Suisse says on April 4th that Vytorin and Zetia combined had a 14.7 percent share of the total prescriptions in the segment. That's down from 16.3 percent pre-ACC. She's going to keep a close eye on the scripts for the next two months and says she expects "increased volatility" during that time.

Deutsche Bank's Barbara Ryan in a research note to clients this morning says there could be an immediate 15 percent drop in Vytorin/Zetia prescriptions from March levels. But she's not certain how much staying power it'll have. She writes: "The recommendation for use (of Vytorin and Zetia) 'as a last resort' seemingly comes with a stamp of consensus medical expert approval, which based upon our observations and conversations is NOT the case." The caps are hers.

And Goldman Sachs analyst James Kelly says for SGP, it's all about the Vytorin/Zetia prescriptions: "We believe that trading in Schering-Plough shares will be dominated by reaction of prescribing trends in the aftermath of the ENHANCE (the name of the study that started all this) presentation." GS has done and wants to do more investment banking for SGP. It also holds some of the company's debt. Deutsche Bank makes a market in SGP & MRK and owns at least one percent of the shares of both.

In the early going this morning, SGP is once again one of the top percentage gainers in the sector. Leading the way, though, is Wyeth which was featured in a very bullish article in Barron's over the weekend and is the biggest dollar gainer.

Elan is also benefiting from the Barron's write-up because the companies are partners on a promising Alzheimer's drug. Also from Barron's: Pfizer now ranks 19th on the list of New York Stock Exchange companies with the largest short positions. According to the publication, the number of PFE shares being shorted went up 4.1 million, or 7.2 percent, from March 14th to March 31st.

Questions? Comments? Pharma@cnbc.com

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