Moody's Investors Service said Monday it has placed under review for a possible downgrade the ratings of

Schering-Plough

(SGP)

because the drugmaker's operating cash flow "may fall significantly below" the agency's earlier expectations.

"At this time," the firm said, any downgrade could be "one or two notches" for both long-term debt filed for a shelf registration and for short-term debt.

Schering-Plough's stock closed at $15.12, up 10 cents, as Bernstein Research raised its opinion to market perform from market underperform because the stock has fallen low enough to match the investment banking firm's target price.

Last week, Standard & Poor's reaffirmed its ratings on Schering-Plough, which it had lowered in late July. S&P has a negative outlook on the company, which last week

announced a series of money-saving and cost-cutting moves, including cutting the quarterly dividend to 5.5 cents from 17 cents, eliminating profit-sharing and bonuses this year, and encouraging 1,000 employees to take early retirement.

S&P cut ratings on corporate credit, short-term corporate credit and commercial paper.

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Moody's last acted on Schering-Plough in early January, cutting its rating of long-term securities under a shelf registration to (P)A1 from (P)Aa2. At the time, the ratings firm said the outlook for the Kenilworth, N.J.-based drug company was stable. It also confirmed its rating for the company's short-term debt -- commercial paper -- at Prime-1.

On Monday, Moody's said the review is based on "key product" franchises in the wake of increased competition from brand-name and generic products, a reference to collapsing sales of prescription-strength Claritin and the weakening sales of its hepatitis drugs. Moody's also is examining the company's plans to reduce the number of employees and cope with potential litigation costs.

Moody's said that Schering-Plough's liquidity "remains very good" because its cash and short-term investments as of June 30 were nearly double the combined total of debt and preferred equity securities -- $4.1 billion vs. $2.1 billion.

Schering-Plough also "maintains $1 billion of committed bank facilities without restrictive convenants or onerous" borrowing conditions, Moody's added.

Richard T. Evans, the drug industry analyst for Bernstein Research, said in a report to clients Monday that he is "likely to become more bullish" once he has a clearer picture on future of the company's hepatitis drugs. They face declining market share, declining overall market volumes, generic competition and a possible price fight with brand-name competitors.

Evans said the potential boost to Schering-Plough's stock will depend on the timing and market share-grabbing ability of an experimental cholesterol drug being developed with

Merck

(MRK) - Get Report

. This product combines two existing drugs -- Zocor, made by Merck, and Zetia, a Schering-Plough drug being co-marketed by the companies.