Schering-Plough Q2 Profit Drops On Charges, Revenue Up 55%

(RTTNews) - New Jersey-based drug maker Schering-Plough Corp. (SGP | Quote | Chart | News | PowerRating) Monday reported a 30% decline in second-quarter profit on acquisition related charges. Schering-Plough delayed the release of its second quarter results to facilitate investigators time to present data from a study on cholesterol drug Vytorin. Adjusted earnings, however, increased from last year and topped market expectations. Revenues for the quarter increased 55%, aided by sales from the recently acquired Organon BioSciences and a favorable foreign exchange rate.

In the afternoon, results from the Vytorin study, a cholesterol drug jointly marketed by Schering-Plough and Merck Co. Inc. (MRK | Quote | Chart | News | PowerRating), indicated that the drug failed to achieve its primary goal of inhibiting the progression of a major heart valve problem. The data showed no significant difference in the study's composite goals between the patients who received placebo and those who received Vytorin.

Shares of Schering-Plough, which gained $0.56 in the morning trading, dropped about 15% in the mid-afternoon following the announcement of results from the Vytorin study. The stock closed the day's trading lower by 11.61% and further lost 3.69% in the extended trading session.

Net income available to common shareholders for the quarter dropped to $398 million or $0.24 per share from $517 million or $0.34 per share in the comparable quarter last year. Net income was $436 million, down from $539 million in the last-year quarter.

Adjusted earnings available to common shareholders was $731 million or $.45 per share, compared to $623 million or $0.41 per share in the prior year quarter that excluded special items. On average, 15 analysts polled by First Call/Thomson Financial expected earnings of $0.42 per share for the quarter.

Adjusted earnings excluded purchase accounting adjustments, acquisition-related items and income from termination of a joint venture with Merck.

Meanwhile, Merck reported higher profit for the second quarter on lower costs and expenses. On a non-GAAP basis, excluding restructuring charges, earnings topped Street expectation. Merck's second-quarter sales slipped to $6.051 billion from $6.111 billion last year.

Schering-Plough's second-quarter net sales increased 55% to $4.92 billion from $3.18 billion in the second quarter of 2007. Adjusted sales for the quarter, assuming 50% of the company's global cholesterol joint venture with Merck, were $5.5 billion. Analysts expected the company to report revenues of $4.77 billion for the quarter.

Schering-Plough does not record sales of the cholesterol joint venture with Merck that include Vytorin and Zetia, as the venture is accounted for under the 'equity method'.

Second-quarter sales of Remicade for the treatment for inflammatory diseases rose 41% and sales of nasal corticosteroid Nasonex increased 6%. Sales of Temodar, a treatment for brain tumors, increased 16%, while sales of hepatitis C drug Pegintron dropped 2% from last year.

Sales in the company's nonsedating antihistamine, Clarinex declined 4% from last year. Claritin sales increased 8%, while sales of antibiotic Avelox declined 12% from the same quarter last year. Animal Health sales for the quarter surged 210% and Consumer Health Care sales improved 2% from the year-ago quarter.

Cost of sales for the quarter, including purchase accounting adjustments of $354 million related to the acquisition of Organon BioSciences, jumped to $1.91 billion from $977 million in the year-ago quarter. Special and acquisition-related charges for the quarter, including the ongoing integration of Organon BioSciences, climbed to $94 million from $11 million last year.

Fred Hassan, Schering-Plough CEO, said, "Through the Action Agenda we launched in 2003, we were determined to diversify our company and to build a deep Phase III pipeline. Today, we are succeeding on both fronts. Our Phase III pipeline is now the strongest in our company's history, and the $16 billion acquisition of Organon BioSciences in November 2007 has already met its accretion target for 2008."

For the six-month period, the company recorded net income of available to common shareholders of $651 million or $0.40 per share, down from $1.06 billion or $0.70 per share in the same period a year earlier. Year-to-date sales increased 55.64% to $9.58 billion from $6.15 billion in the corresponding period last year.

Looking ahead, Schering-Plough's Productivity Transformation Program launched in April 2008 is expected to realize savings of about 10% or $1.5 billion of its 2007 cost base by the end of 2012. Of the projected cost savings, $1.25 billion is targeted to be accomplished by 2010.

SGP closed Monday's trading down 11.61% at $18.95 and further dropped 3.69% in after-hours, trading at $18.25 on the NYSE. The stock has been moving in a range of $13.83 to $33.40 for the past twelve months, with a three-month average volume of about 13.98 million shares.

Shares of Merck closed the day's trading at $35.33, down 6.24% from the previous close and further lost 6.65% in after-hours to trade at $32.98.

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