KENILWORTH, N.J., July 21 /PRNewswire-FirstCall/ -- Schering-Plough Corporation today reported financial results for the second quarter of 2008.
“We are very pleased to see another quarter of strong performance and broad-based growth for our company,” said Fred Hassan, chairman and CEO. “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.” The company had estimated an accretion target of 10 cents per share for the first full year of combined operations when the Organon BioSciences (OBS) acquisition was announced in March 2007.
He noted that Schering-Plough’s successful geographic diversification strategy has resulted in strong sales growth -- and approximately 70 percent of sales in the 2008 second quarter -- being generated outside the U.S. Adding business diversity are the Animal Health and Consumer Health Care businesses, which in the quarter represented about 25 percent of sales on a combined GAAP net sales basis. Said Hassan, “The combination of our broad portfolio, robust R&D pipeline and geographic breadth positions us well in this difficult environment.”
For the 2008 second quarter, Schering-Plough reported net income available to common shareholders of $398 million or 24 cents per common share on a GAAP basis. Earnings per common share for the 2008 second quarter would have been 45 cents on a reconciled basis, which excludes purchase accounting adjustments, special and acquisition-related items, and income from termination of a respiratory joint venture with Merck. For the 2007 second quarter, Schering-Plough reported net income available to common shareholders of $517 million or 34 cents per common share on a GAAP basis and 41 cents per common share on a reconciled basis.
GAAP net sales for the 2008 second quarter totaled $4.9 billion, up 55 percent as compared to the second quarter of 2007. Sales for the quarter benefited from the inclusion of OBS net sales as well as a favorable impact from foreign exchange. Net sales of the global cholesterol joint venture, which include VYTORIN and ZETIA, totaled $1.1 billion in the 2008 second quarter. Schering-Plough does not record sales of its cholesterol joint venture with Merck as the venture is accounted for under the equity method. Including an adjustment of an assumed 50 percent of the global cholesterol joint venture net sales, Schering-Plough’s adjusted sales for the 2008 second quarter would have been $5.5 billion.
Regarding second quarter results, Hassan said, “While the overall U.S. prescription market continues to get tougher, we achieved good sales growth internationally, with strong results for REMICADE, NASONEX and TEMODAR.”
Commenting on REMICADE, he said, “We were proud in 2006 to see this life-changing medicine go past the $1 billion sales mark in our territories -- and excited now to see it currently annualizing past the $2 billion mark. As we look at the future of our company, we are counting on our anti-inflammatory agents REMICADE and golimumab to be key assets and contributors to our long-term performance.”
On the cholesterol franchise, he said, “We remain confident in VYTORIN and ZETIA and the ability of these medicines to help patients get to lower LDL cholesterol goals.” The company noted that VYTORIN has been shown to be the most effective medicine for lowering LDL (“bad”) cholesterol in head-to-head clinical trials versus rosuvastatin, atorvastatin or simvastatin alone, and to get more patients to goal at the usual starting dose and across the dosing range.
Said Hassan: “As we go forward, we will continue taking decisive actions to strengthen this company and pursue our basic strategy: grow the top line, grow the pipeline, reduce costs and invest wisely.” He expressed confidence about the company’s future, pointing to its robust Phase III research pipeline and long exclusivity periods for key marketed products that offer protection well into the next decade. He cited such Phase III compounds as a thrombin receptor antagonist (TRA) for atherothrombosis; boceprevir, a protease inhibitor for hepatitis C; and vicriviroc for HIV.
PRODUCTIVITY TRANSFORMATION PROGRAM (PTP)
Hassan reviewed progress with the Productivity Transformation Program (PTP), which also incorporates the ongoing integration of OBS. PTP was launched in April 2008.
“Thanks to the hard work of the people of the newly combined Schering-Plough, we are successfully integrating the acquired OBS units while continuing to advance our R&D pipeline and achieve impressive savings via our PTP actions,” said Hassan.
“PTP is more than just about cutting costs. Our aim is to streamline operations, make optimal use of our resources, and retain the strength and flexibility to capture and invest in new business and pipeline opportunities.”
PTP is expected to realize savings of about 10 percent or $1.5 billion of the company’s full-year 2007 cost base (including OBS) by the end of 2012, with $1.25 billion in savings targeted to be accomplished by 2010. The $1.5 billion target includes $500 million of previously announced integration synergy targets from the OBS acquisition. The company is on track to achieve these savings targets.
Second Quarter 2008 Results
For the 2008 second quarter, Schering-Plough reported net income available to common shareholders of $398 million or 24 cents per common share on a GAAP basis. Earnings per common share for the 2008 second quarter would have been 45 cents on net income of $731 million on a reconciled basis, which excludes purchase accounting adjustments, special and acquisition-related items, and $64 million of income from termination of a respiratory joint venture with Merck. For the 2007 second quarter, Schering-Plough reported net income available to common shareholders of $517 million or 34 cents per common share on a GAAP basis and 41 cents per common share on a reconciled basis.
GAAP net sales for the 2008 second quarter totaled $4.9 billion, including $1.4 billion as a result of the OBS acquisition. The overall sales increase includes the impact of the OBS net sales and an estimated favorable impact of 7.6 percent from foreign exchange on stand-alone Schering-Plough sales.
Global cholesterol joint venture net sales, which include VYTORIN and ZETIA, totaled $1.1 billion, a decrease of 9 percent when compared to the second quarter of 2007. Schering-Plough does not record sales of its cholesterol joint venture with Merck as the venture is accounted for under the equity method. Including an adjustment of an assumed 50 percent of the global cholesterol joint venture net sales, Schering-Plough’s adjusted sales for the 2008 second quarter would have been $5.5 billion.
Overall, Schering-Plough shares in approximately 50 percent of the profits of the joint venture with Merck, although there are different profit-sharing arrangements for the cholesterol products in countries around the world. Schering-Plough records its share of the income from operations in “Equity income,” which totaled $493 million in the 2008 second quarter, as compared to $490 million in the second quarter of 2007. Included in second quarter 2008 GAAP equity income is $64 million of income related to the termination of the respiratory joint venture. Schering-Plough noted that it incurs substantial costs such as selling, general and administrative costs that are not reflected in “Equity income” and are borne by its overall cost structure. There is a separate co-marketing agreement with Bayer for ZETIA in Japan, where the product was launched in June 2007.
Sales of Global Pharmaceuticals for the 2008 second quarter totaled $3.7 billion. Included in the second quarter of 2008 are $921 million in net sales related to Organon, the OBS human health business acquired in 2007.
Sales of REMICADE increased 41 percent to $557 million in the second quarter of 2008 due to continued market growth, expanded use and a favorable impact from foreign exchange. REMICADE is a treatment for inflammatory diseases that Schering-Plough markets in countries outside the United States (except in Japan and certain other Asian markets) for rheumatoid arthritis, early rheumatoid arthritis, ankylosing spondylitis, psoriatic arthritis, plaque psoriasis, Crohn’s disease, pediatric Crohn’s disease and ulcerative colitis.
Global sales of NASONEX, an inhaled nasal corticosteroid for allergies, rose 6 percent to $311 million versus the 2007 period, due to increased sales in international markets, partially offset by a decline in U.S. sales.
Sales of TEMODAR, a treatment for certain types of brain tumors, grew 16 percent to $251 million due to increased demand in most geographic regions.
Sales of PEGINTRON for hepatitis C decreased 2 percent to $229 million in the 2008 second quarter.
Sales in the women’s health franchise, including fertility and contraception products, grew to exceed $500 million in the 2008 second quarter. Franchise sales in the 2008 second quarter were led by FOLLISTIM/PUREGON, a fertility treatment, with sales of $162 million, and NUVARING, a contraceptive product, with sales of $116 million. Both products were obtained as part of the OBS acquisition.
Global sales of CLARINEX, a nonsedating antihistamine, in the second quarter of 2008 were $240 million, down 4 percent as compared to sales of $250 million in the second quarter of 2007, primarily due to lower sales in the U.S.
International sales of prescription CLARITIN were $111 million in the second quarter of 2008, an 8 percent increase compared to sales of $102 million in the second quarter of 2007 due primarily to foreign exchange.
Sales of AVELOX, an antibiotic marketed in the U.S., were down 12 percent to $67 million primarily reflecting a weaker respiratory tract infection season.
Animal Health sales totaled $818 million in the 2008 second quarter. Included in the second quarter of 2008 were net sales of $526 million related to products from the acquired OBS animal health business. Sales benefited from solid growth in all geographic regions, including in Europe where the company recently launched a vaccine for bluetongue disease (Bovilis BTV8). Bluetongue disease is a devastating disease of cattle and sheep caused by a virus which was first identified in Northern Europe in 2006. The newly combined animal health organization also achieved sales growth in products for cattle and poultry. Animal Health sales also benefited from foreign exchange.
Consumer Health Care sales were $401 million in the 2008 second quarter, up 2 percent versus the 2007 period. The increase was mainly due to higher sales of MIRALAX, launched in February 2007, partially offset by lower sales of OTC CLARITIN, due to the timing of shipments, a less severe allergy season and increased competition.
Schering-Plough does not record sales of its cholesterol joint venture and incurs substantial costs such as selling, general and administrative costs that are not reflected in “Equity income” and are borne by the overall cost structure of Schering-Plough. As a result, Schering-Plough’s gross margin and ratios of selling, general and administrative (SG&A) expenses and R&D expenses as a percentage of sales do not reflect the benefit of the impact of the cholesterol joint venture’s operating results.
Schering-Plough’s gross margin on a GAAP basis was unfavorably affected by purchase accounting adjustments and as a result was 61.2 percent for the 2008 second quarter as compared to 69.3 percent in the 2007 period. The gross margin percentage excluding purchase accounting adjustments was 68.4 percent in the second quarter of 2008.
SG&A expenses were $1.9 billion in the second quarter of 2008 versus $1.4 billion in the prior-year period. SG&A in the second quarter of 2008 increased primarily due to the impact of the inclusion of SG&A expenses from OBS and foreign exchange.
Research and development spending for the 2008 second quarter increased to $906 million compared to $696 million in the second quarter of 2007. Included in R&D spending in the second quarter of 2007 was $60 million related to an upfront payment made for licensing transactions. The increase in R&D expenses was due to the inclusion of OBS expenses, higher spending for clinical trials and related activities, and investments to build greater breadth and capacity to support Schering-Plough’s expanding R&D pipeline.
Recent Developments
The company also offered the following summary of recent significant developments that have previously been announced, including:
Second Quarter 2008 Conference Call and Webcast
Schering-Plough will conduct a conference call today at 4:45 p.m. (EDT) to review the 2008 second quarter results. To listen live to the call, dial 1-877-565-9664 or 1-706-634-5003 and enter conference ID #50992673. A replay of the call will be available beginning later on July 21 through 5 p.m. on July 28. To listen to the replay, dial 1-800-642-1687 or 1-706-645-9291 and enter the conference ID #50992673. A live audio webcast of the conference call also will be available by going to the Investor Relations section of the Schering-Plough corporate Web site, www.schering-plough.com, and clicking on the “Presentations/Webcasts” link. A replay of the webcast will be available starting on July 21 through 5 p.m. on Aug. 20.
DISCLOSURE NOTICE: The information in this press release, the comments of Schering-Plough officers during the earnings teleconference/webcast on July 21, 2008, beginning at 4:45 p.m. (EDT), and other written reports and oral statements made from time to time by the company may contain “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements do not relate strictly to historical or current facts and are based on current expectations or forecasts of future events. You can identify these forward-looking statements by their use of words such as “anticipate,” “believe,” “could,” “estimate,” “expect,” “forecast,” “project,” “intend,” “plan,” “potential,” “will,” and other similar words and terms. In particular, forward-looking statements include statements relating to the company’s plans; its strategies; its progress under the Action Agenda and anticipated timing regarding future performance of the Action Agenda; business prospects; anticipated growth; timing and level of savings achieved from the Productivity Transformation Program, including the ongoing integration of OBS; prospective products or product approvals; trends in performance; anticipated timing of clinical trials and its impact on R&D spending; anticipated exclusivity periods; actions to enhance clinical, R&D, manufacturing and post-marketing systems; and the potential of products and trending in therapeutic markets, including the cholesterol market. Actual results may vary materially from the company’s forward-looking statements, and there are no guarantees about the performance of Schering-Plough stock or Schering-Plough’s business. Schering-Plough does not assume the obligation to update any forward-looking statement. A number of risks and uncertainties could cause results to differ materially from forward-looking statements, including, among other uncertainties, market viability of the company’s (and the cholesterol joint venture’s) marketed and pipeline products; market forces; economic factors such as interest rate and exchange rate fluctuations; the outcome of contingencies such as litigation and investigations including litigation and investigations relating to the ENHANCE clinical trial; product availability; patent and other intellectual property protection; current and future branded, generic or over-the-counter competition; the regulatory process (including product approvals, labeling and post-marketing actions); scientific developments relating to marketed products or pipeline projects; and media and societal reaction to such developments. For further details of these and other risks and uncertainties that may impact forward-looking statements, see Schering-Plough’s Securities and Exchange Commission filings, including Item 1A, “Risk Factors” in the company’s first quarter 2008 10-Q.
Schering-Plough is an innovation-driven, science-centered global health care company. Through its own biopharmaceutical research and collaborations with partners, Schering-Plough creates therapies that help save and improve lives around the world. The company applies its research-and-development platform to human prescription and consumer products as well as to animal health products. Schering-Plough’s vision is to “Earn Trust, Every Day” with the doctors, patients, customers and other stakeholders served by its colleagues around the world. The company is based in Kenilworth, N.J., and its Web site is www.schering-plough.com.
The company incurs substantial costs related to the cholesterol joint venture, such as selling, general and administrative costs, that are not reflected in the “Equity income” and are borne by the overall cost structure of Schering-Plough.
1/ Net sales for the three and six months ended June 30, 2008, include sales of $1.4 billion and $2.8 billion, respectively, from Organon BioSciences (OBS) which was acquired on November 19, 2007.
2/ Cost of sales for the three and six months ended June 30, 2008 include purchase accounting adjustments of $354 million and $1.0 billion, respectively, related to the acquisition of OBS.
3/ Research and development for the three and six months ended June 30, 2007 include $60 million and $156 million, respectively, related to upfront R&D payments.
4/ Included in other expense/(income), net for the three and six months ended June 30, 2007 were mark-to-market losses of $35 million and $31 million, respectively, related to a Euro denominated currency option related to the acquisition of OBS.
5/ Special and acquisition-related charges relate to the Productivity Transformation Program (PTP) which also incorporates the ongoing integration of OBS. For the three and six months ended June 30, 2008 these charges were $94 million ($77 million for severance costs and $17 million for integration- related costs) and $117 million, respectively. Special and acquisition- related charges for the three and six months ended June 30, 2007 was $11 million and $12 million, respectively.
6/ Included in Equity income is $64 million of income related to the termination of a respiratory joint venture with Merck.
Reconciliation from Reported Net Income Available to Common Shareholders and Reported Diluted Earnings Per Common Share to As Reconciled Amounts for Net Income Available to Common Shareholders and Diluted Earnings per Common Share
(Amounts in Millions, except per share figures)
To supplement its consolidated financial statements presented in accordance with accounting principles generally accepted in the United States of America (U.S. GAAP), Schering-Plough is providing the supplemental financial information below and on the following pages to reflect “As Reconciled” amounts related to Net income available to common shareholders and Diluted earnings per common share. “As Reconciled” amounts exclude the effects of purchase accounting adjustments, special and acquisition-related items and other specified items.
“As Reconciled” amounts related to Net income available to common shareholders and Diluted earnings per common share are non-U.S. GAAP measures used by management in evaluating the performance of Schering-Plough’s overall business. The effects of purchase accounting adjustments, special and acquisition-related items and other specified items have been excluded from Net income available to common shareholders and Diluted earnings per common share as management of Schering-Plough does not consider these charges to be indicative of continuing operating results. Schering-Plough believes that these “As Reconciled” performance measures contribute to a more complete understanding by investors of the overall results of the company and enhances investor understanding of items that impact the comparability of results between fiscal periods. Net income available to common shareholders and Diluted earnings per common share, as reported, are required to be presented under U.S. GAAP.
(1) “As Reconciled” to exclude purchase accounting adjustments, special and acquisition-related items and other specified items.
Reconciliation from Reported Net Income Available to Common Shareholders and Reported Diluted Earnings Per Common Share to As Reconciled Amounts for Net Income Available to Common Shareholders and Diluted Earnings per Common Share
(1) “As Reconciled” to exclude purchase accounting adjustments, special and acquisition-related items and other specified items.
Reconciliation from Reported Net Income Available to Common Shareholders and Reported Diluted Earnings Per Common Share to As Reconciled Amounts for Net Income Available to Common Shareholders and Diluted Earnings per Common Share
(1) “As Reconciled” to exclude purchase accounting adjustments, special and acquisition-related items and other specified items.
Reconciliation from Reported Net Income Available to Common Shareholders and Reported Diluted Earnings Per Common Share to As Reconciled Amounts for Net Income Available to Common Shareholders and Diluted Earnings per Common Share
(1) “As Reconciled” to exclude purchase accounting adjustments, special and acquisition-related items and other specified items.
SCHERING-PLOUGH CORPORATION
Reconciliation from Reported Net Income Available to Common Shareholders and Reported Diluted Earnings Per Common Share to As Reconciled Amounts for Net Income Available to Common Shareholders and Diluted Earnings per Common Share
(Amounts in Millions)
a/ Human Prescription Pharmaceuticals Net sales for the three and six months ended June 30, 2008 include net sales of $921 million and $1.8 billion, respectively, from the human health segment of Organon BioSciences (OBS), which was acquired on November 19, 2007.
b/ Animal Health Net sales for the three and six months ended June 30, 2008 include net sales of $526 million and $980 million, respectively, from the animal health segment of OBS, which was acquired on November 19, 2007.
c/ Products acquired in OBS acquisition on November 19, 2007.
NOTE: Additional information about U.S. and international sales for specific products is available by calling the company or visiting the Investor Relations Web site at http://ir.schering-plough.com.
Adjusted net sales, defined as Net sales plus an assumed 50 percent of global cholesterol joint venture net sales.
a/ Net sales for the three and six months ended June 30, 2008 include sales from Organon BioSciences (OBS) which was acquired on November 19, 2007.
b/ Total Net sales of the cholesterol joint venture for the three months ended June 30, 2008 and 2007 were $1.1 billion and $1.2 billion, respectively. Total Net sales of the cholesterol joint venture for the six months ended June 30, 2008 and 2007 were $2.3 billion and $2.4 billion, respectively.
NOTE: Adjusted net sales, defined as net sales plus an assumed 50 percent of global cholesterol joint venture net sales, is a non-U.S. GAAP measure used by management in evaluating the performance of the Schering-Plough’s overall business. Schering-Plough believes that this performance measure contributes to a more complete understanding by investors of the overall results of the company. Schering-Plough provides this information to supplement the reader’s understanding of the importance to the company of its share of results from the operations of the cholesterol joint venture. Net sales (excluding the cholesterol joint venture net sales) is required to be presented under U.S. GAAP. The cholesterol joint venture’s net sales are included as a component of income from operations in the calculation of Schering-Plough’s “Equity income.” Net sales of the cholesterol joint venture do not include net sales of cholesterol products in non-joint venture territories.
CONTACT: Media Contact, Steve Galpin, Jr., +1-908-298-7415, or Investor
Contacts, Alex Kelly, Janet M. Barth, or Joe Romanelli, +1-908-298-7436,
all of Schering-Plough Corporation
Web site: http://www.schering-plough.com/
http://ir.schering-plough.com/
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