Schering-Plough Situation Analysis Team Acci ó n: Beth, Diane, Kevin, Don, and Felix. March 2006

1. Schering-PloughSituation AnalysisTeam Acción:Beth, Diane, Kevin, Don, and Felix.March 2006 Schering-Plough

2. Company Overview Company Who are we? What do we sell? Competitors How do we compare to the field? Context How is the environment changing? Customers Who are they? Appendix and References Source: Schering-Plough.com

3. 2003 Fred Hassan named CEO Company Highlights 2002 Agreement to pay $500 million fine & overhaul of manufacturing operations 2004 Dividends slashed by 2/3, stock dives 2005 Work on legal issues, complete operation overhaul Sources: Prial (2006), Simmons (2003);

4. Company Source: Schering-Plough.com

5. Company Source: Schering-Plough.com

6. Company Source: Schering-Plough.com

7. Competitors Pharmaceutical Industry was valued at $550 billion in 2005. The chart shows that the industry leader captured approximately 10% of the market share; the top ten competitors shared nearly 40% of the market share. There are three groups: the big players, the followers, and more than 1000 dwarfs Source: Edgarscan

8. Competitors: The Big players Pfizer (PFE) $ 26.19 -0.41 www.pfizer.com Johnson&Johnson (JNJ) $ 57.65 -0.26 www.jnj.com Merck (MRK) $ 34.86 -0.50 www.merck.com Bayer $ 40.39 -0.50 www.bayer.com Novartis (NVS) $53.25 -0.41 www.novartis.com Note: Stock prices of NYSE in 2/28/06

9. Competitors: The followers Abbott (ABT) $ 44.18 -0.27 www.abbott.com Bristol Myers (BMY) $ 23.10 -0.11 www.bms.com Wyeth (WYE) $ 49.80 -0.25 www.wyeth.com Eli Lilly (LLY) $ 55.62 -1.11 www.lilly.com Schering-Plough (SGP) $18.50 -0.45 www.schering-plough.com Note: Stock prices of NYSE in 2/28/06

10. Competitors Total Operating Revenue Source: Edgarscan

11. Competitors Total Operating Revenue Source: Edgarscan

12. Competitors Industry Rank This graph shows Schering-Plough’s strengths are strong among its top ten competitors, and also points out its weaknesses. Strong financial activities are a result of selling stocks (2004) and allocating financial resources. These operations also generated additional cash. On the other hand, PS shows poor performance in operational activities, which indicates problems in its core business. Note PS posted a poor current ratio, implying they don’t have sufficient assets to cover current liabilities Source: Edgarscan

13. Research and Development as Percentage of Revenue This graph compares SP’s level of R&D with the average of the top-ten companies. Even though in 2003 and 2004 PS had negative incomes, the total dollar amount spent in R&D increased. Source: Edgarscan

14. Cost of Goods Sold as a Percentage of Revenue Schering-Plough’s result is higher than Pfizer, Johnson & Johnson, and Merck, as well as the industry average. SP must obviously revise its costs structure to become more competitive. Source: Edgarscan

15. Sales Cost as a Percentage of Revenue Note the sales costs of SP are again above the industry average. This may be due to SP employing more salespeople or investing in more advertising. Results indicate the greater spending has not resulted in improved financials. Source: Edgarscan

16. Cash as a Percentage of Revenue Data depicts SP ranks the highest in this category. Results may be due to the stocks sold in 2003 and 2004. Source: Edgarscan

17. Customer Demographics

18. Customer Geographics

19. Customer Behaviors • 25% of patients request a brand name drug from their doctors (69% of requests are granted) • Noncompliance with prescription regimens • Ranchers desire easy methods of vaccinations Sources: Patients request (2002), Hughes (2001), Zenk (2004)

20. Context AMEX Pharma Index Source: AMEX Index

21. Context SWOT Strengths • Cholesterol venture with Merck resulted in $512 million in sales (not reflecting in accounting numbers because of joint venture) • Completed operations manufacturing overhaul • Weaknesses • Significant litigation charges • Clarinex patent expiration • Lack of any ‘stars’ in R&D pipeline Sources: Martinez (2005), Meyers (2005), Prial (2006)

22. Context SWOT • Opportunities • Foreign markets • Joint ventures for specific pharmaceuticals • Threats • Gobbled up by Pfizer or Merck (less likely) • Cheap generics and overseas patent infringement • Potential for loss in legal battles Source: Simons (2003), Nagappa (2005)

23. Conclusions • Schering-Plough • Company is rebounding a little financially • Competition is formidable • Legal conflicts are resolving slowly • Industry is high-growth and high-change • SP’s high priority on R&D is key to maintain company viability Source: Simons (2003), Nagappa (2005)

24. Appendices Source: Edgarscan

25. Appendices Source: Edgarscan

26. Appendices Source: Edgarscan

27. References Anonymous. 2002. Patients request Brand Name Drusgs from Doctors, Workspan, Scottsdale: July 2002. Vol. 45, Iss. 7, pg 10. Anonymous.  2004. Bayer in Marketing Pact With Schering-Plough;Chemical Market Reporter New, York:Sep 20, 2004.  Vol. 266,  Iss. 9,  p. 2 (1 pp.) Anonymous. 2005. Schering-Plough Corporation; Study shows addition of Integrelin to oral platelet therapy more effective at reducing inflammation. Lab Business Week, 25 December, pg. 183. Anonymous. 2006. Schering-Plough Corp.; U.S. FDA approves new indication for Avelox, Nursing Home & Elder Business Week, 1 January, pg. 101. The Economist, London: Jun 18, 2005 Vol.375, Iss. 8431;  pg. 3 EdgarScanTM Benchmarking: Schering-Plough and Pharmaceutical Industry. http://edgarscan.pwcglobal.com/cgi-bin/EdgarScan/edgarscan_java Health Brief -- Bayer AG: Schering Marketing Agreement To Trim Global Sales 5% to 7% Wall Street Journal (Eastern Edition). New York, N.Y.:Nov 29, 2004.  p. B.6 Hensley, S. and Greil,A. 2006. Drug Makers Deliver Weak Earnings; Generics Weigh on Pfizer, Wall Street Journal (Eastern edition), 20 January, pg A2. Herskovits, B. 2005. Schering-Plough Looks to Remedy and Ailing Image, PRweek, Vol. 8, Iss. 49, pg. 8.

28. References Cont. Hoovers’ Online Report Builder: Schering-Plough Corporation, http://www.hoovers.com/free/tools/report/builder/form.xhtml?ID=11326 (31 January 2006). Hughes, D.A., Bagust, A., Hacox, A., & Walley, T. 2001. Accounting for Noncompliance in Pharmacoeconomic Evaluations, PharmacoEconomics, Vol. 19, Iss., 12, pg. 1185, 12 pgs. Meyers, M. 2005. Three Drug Stocks are Ripe for Recovery, Kiplinger’s Personal Finance, Vol. 59, Iss. 2, pg. 40. Nagappa, A. 2005. The Patens (Amendment) Act, 2005 – Fears and Challenges, Pharmabiz, 27 April. Prial, D. 2006. Schering Completes Production Overhaul, Knight Ridder Tribune Business News Washington: January 4, 2006, pg 1. -------------. 2006. Schering-Plough Reports FDA Grants Fast Track Designation to Oral HCV Protease Inhibitor SCH 503034. PR Newswire Europe Including UK Disclose. 30 January. Simons, J. 2003. Is it too late to save Schering, Fortune, Vol148, Iss. 5, pg. 145 Thomaselli, R. 2004. Schering, Merck fire drug-war salvo, Advertising Age (Midwest Region Edition). Chicago:Aug 2, 2004.  Vol. 75,  Iss. 31,  p. 1, 2 pgs. Zenk, P. 2004. Vaccinating as Cows Ruminates, Farm Industry News, Vol. 37, Iss. 2.