Schering-Plough

(SGP)

investors are starting to feel a little itchy about the spring allergy season.

The company said late Thursday that it finally gained preliminary approval from the

Food and Drug Administration

to sell desloratadine, the much-vaunted successor drug to Claritin, the company's best-selling hay fever drug. Schering-Plough is counting on desloratadine to replace the sales Schering-Plough stands to lose when Claritin loses patent protection.

But the circumstances under which investors learned of the news has led some to wonder if the drug will hit the market as planned this spring. Even before Thursday's events, anxiety about the fate of the Claritin replacement was rising among Schering-Plough watchers because approval has been delayed well past the FDA's typical one-year review period, which ended last October.

A replacement for Claritin is hugely important for Schering-Plough. The drug alone generated a nearly third of Schering-Plough's $9.8 billion in 2000 sales, and it may face generic competition as soon as 2002, although the company may yet block generics until 2004 through various patent strategies. Generic competition can cause prices to drop as much as 80% over the space of a year, decimating earnings and making a replacement's early rollout that much more important.

Need for Speed

The FDA issued its so-called approvable letter on desloratadine Jan. 19. But Schering-Plough didn't disclose that it won the preliminary clearance until after a

Bloomberg

news report last night; the company didn't mention the letter in its fourth-quarter earnings release earlier Thursday.

Sniffling?
Claritin replacement a key issue at Schering-Plough

Events such as approvable letters often trigger news releases at drug companies, particularly now that companies are ever more concerned about promptly reporting "material events" in light of the

Securities and Exchange Commission's

TheStreet Recommends

new full-disclosure, or reg FD, rules. But while SEC rules say companies must disclose material events in a timely fashion, they don't specifically define FDA correspondence as material. Schering spokesman Bill O'Donnell says the company doesn't disclose approvable letters and declines to comment further.

In any case, some analysts say Schering-Plough's reticence raises questions about whether desloratadine might become another Asmanex, a Schering-Plough allergy drug that got an approvable letter last year but still hasn't received full approval. The contents of approvable letters are almost never disclosed, but some analysts speculate that the road to final approval may be onerous for desloratadine.

"They may be having problems getting the labeling claims they want," says Stefan Loren, managing director of

Legg Mason Wood Walker

. "Until we see approval, people will see this as Asmanex all over again." Legg Mason has no formal rating on Schering-Plough.

Schering-Plough's stock fell $1.68, or 3.1%, to $51.93 Friday afternoon.

Watching the Calendar

A delayed approval would be bad for Schering-Plough, since it wants to aggressively begin building a market for desloratadine as soon as possible this spring, in case generics hit the market next year. The drug, a derivative of loratadine, the chemical name of Claritin, was approved this month in Europe. But the U.S. market is more important, since prices aren't controlled here as they are in Europe.

The market also reacted poorly Friday to

Sepracor

(SEPR)

, which helped develop desloratadine for Schering-Plough. Shares in Sepracor fell $4.12, or 5.6%, to $69.31, amid broad weakness in biotech stocks. Analysts said that if this Claritin derivative isn't approved, it could raise questions about the value of Sepracor's molecule-splitting technology.

Salomon Smith Barney

, in a note to investors, said it's likely that Schering-Plough will miss the spring allergy season with desloratadine, but said it expects the company to gain approval in July. That's because the FDA normally takes about six months to issue final approval after issuing an approvable letter.

"This is a downer because SGP recently guided investors to expect final FDA approval and launch before the spring allergy season," the brokerage said.