Schering-Plough announces 2009 third quarter financial results

Oct 22 2009

Schering-Plough Corporation (NYSE: SGP) today reported financial results for the 2009 third quarter.

"This quarter we delivered operational top-line growth, reconciled bottom-line growth and major pipeline successes. We powered through - even in the face of tough global economic and currency headwinds," said Fred Hassan, chairman and CEO. "As we near the anticipated close of our combination with Merck, we are proud of how our colleagues continue to drive Schering-Plough's strong performance."

He added, "Our people are focused and executing well on our core strategies. We continue to improve efficiencies and reduce costs through our Productivity Transformation Program (PTP). And, importantly, we are delivering our robust product pipeline."

Hassan pointed to several recent examples:

• EU approval and launch in October of SIMPONI (golimumab), the first and only once-monthly, subcutaneous treatment for several inflammatory diseases;
• U.S. launch in October of SAPHRIS (asenapine) sublingual tablets for acute schizophrenia and bipolar I disorder;
• New product launches in Japan, the world's second largest pharmaceutical market, including ASMANEX (mometasone furoate) for asthma and REMERON (mirtazapine) for major depressive disorder, both in September. These bring to eight the number of new product launches in Japan since the beginning of 2007.

For the 2009 third quarter, Schering-Plough reported net income available to common shareholders of $477 million or 29 cents per common share on a GAAP basis. Earnings per common share for the 2009 third quarter would have been 40 cents on net income of $670 million on a reconciled basis, which excludes purchase accounting adjustments related to the 2007 acquisition of Organon BioSciences NV (OBS) and special, merger- and acquisition-related items. For the 2008 third quarter, Schering-Plough reported net income available to common shareholders of $576 million or 35 cents per common share on a GAAP basis and earnings of 39 cents per common share on a reconciled basis. GAAP earnings in the 2008 period benefited from a $160 million pre-tax gain on divestitures of certain animal health products related to the OBS acquisition.

GAAP net sales for the 2009 third quarter totaled $4.5 billion, down 2 percent as compared to the third quarter of 2008, reflecting operational growth of 4 percent and an unfavorable impact from foreign exchange of 6 percent during the quarter.

"Our prescription pharmaceutical business performed particularly well in this past quarter," said Hassan. Six of the company's 10 largest-selling prescription products posted higher sales, even with the unfavorable impact of foreign exchange. "Now, six years into our Action Agenda, we have transformed our entire company while building a powerful R&D engine," he added.

At Schering-Plough's R&D Update meeting in November 2008, the company highlighted "Five Stars" in its late-stage pipeline: a thrombin receptor antagonist (TRA), in Phase III for atherothrombosis; SIMPONI; SAPHRIS; boceprevir, a protease inhibitor in Phase III for hepatitis C; and BRIDION (sugammadex), an innovative agent for use in anesthesiology. With the recent approvals of SIMPONI and SAPHRIS, three of those Five Stars - SIMPONI, SAPHRIS and BRIDION - have been launched in major markets.

Since the November 2008 meeting, the company has submitted regulatory filings for three new entities: corifollitropin alfa, a sustained follicle stimulant for controlled ovarian stimulation, filed in the EU; mometasone furoate/formoterol, a combination asthma therapy, filed in the U.S. and EU; and nomegestrol acetate/17 beta-estradiol, a combined oral contraceptive, filed in the EU.

Regarding the planned merger with Merck announced on March 9, 2009, the company noted that pre-integration planning teams at both Schering-Plough and Merck have been meeting collaboratively to plan for a smooth and effective integration. The merger is expected to close in the fourth quarter of 2009. Until the merger closes, both companies will continue to operate independently.

Third Quarter 2009 Results

For the 2009 third quarter, Schering-Plough reported net income available to common shareholders of $477 million or 29 cents per common share on a GAAP basis. Earnings per common share for the 2009 third quarter would have been 40 cents on net income of $670 million on a reconciled basis, which excludes purchase accounting adjustments related to the OBS acquisition and special, merger- and acquisition-related items. For the 2008 third quarter, Schering-Plough reported net income available to common shareholders of $576 million or 35 cents per common share on a GAAP basis and earnings of 39 cents per common share on a reconciled basis. GAAP earnings in the 2008 period benefited from a $160 million pre-tax gain on divestitures of certain animal health products related to the OBS acquisition.

GAAP net sales for the 2009 third quarter totaled $4.5 billion, down 2 percent as compared to the third quarter of 2008, reflecting operational growth of 4 percent and an unfavorable impact from foreign exchange of 6 percent during the quarter.

Net sales of the cholesterol franchise, which include sales of the cholesterol joint venture plus sales recorded by Schering-Plough in non-joint venture territories (such as Japan and Latin America), declined 5 percent in the third quarter of 2009 to $1.1 billion, reflecting a 2 percent operational decrease and a 3 percent unfavorable impact from foreign exchange. Sales declined 10 percent in the U.S. In international markets, sales increased 3 percent, reflecting operational growth of 10 percent and a 7 percent unfavorable impact from foreign exchange. ZETIA in Japan, sold under a co-marketing agreement with Bayer, contributed $47 million to cholesterol franchise sales in the 2009 period.

Sales of Prescription Pharmaceuticals for the 2009 third quarter totaled $3.5 billion, reflecting operational growth of 6 percent offset by a 6 percent unfavorable impact from foreign exchange.

Sales of REMICADE increased 8 percent (18 percent operational growth offset by 10 percent unfavorable foreign exchange impact) to $608 million in the third quarter of 2009 due primarily to continued market growth. REMICADE is a treatment for inflammatory diseases that Schering-Plough markets in countries outside the U.S. (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. In addition, SIMPONI, a once-monthly, subcutaneous treatment for certain inflammatory diseases, has been launched in Canada and Germany; launches in other international markets are ongoing or planned.

Sales of TEMODAR, a treatment for certain types of brain tumors, increased 2 percent (7 percent operational growth offset by 5 percent unfavorable foreign exchange impact) to $278 million, with higher sales in all regions, excluding foreign exchange.

Global sales of NASONEX, an inhaled nasal corticosteroid for allergies, increased 3 percent to $266 million in the 2009 third quarter (7 percent operational growth offset by 4 percent unfavorable foreign exchange impact) as compared to $258 million in the third quarter of 2008. Operational sales increased in both the U.S. and internationally as compared to the 2008 period.

Sales of PEGINTRON for hepatitis C decreased 16 percent to $198 million in the 2009 third quarter (14 percent operational decrease and 2 percent unfavorable foreign exchange impact), with lower sales in both the U.S. and internationally.

In women's health care, sales of NUVARING, a contraceptive product, in the third quarter of 2009 increased 11 percent (15 percent operational growth offset by 4 percent unfavorable foreign exchange impact) to $131 million as compared to $118 million in the third quarter of 2008, with higher sales in all regions when excluding foreign exchange. Sales of FOLLISTIM/PUREGON, a fertility treatment, decreased 14 percent (10 percent operational decrease and 4 percent unfavorable foreign exchange impact) to $122 million as compared to the third quarter of 2008, primarily reflecting lower demand for fertility treatments.

Global sales of CLARINEX, a nonsedating antihistamine, were $164 million, a decrease of 7 percent (1 percent operational decrease and 6 percent unfavorable foreign exchange impact) as compared to the third quarter of 2008.

Sales of CLARITIN in the prescription business were $95 million, a 9 percent increase (13 percent operational growth offset by 4 percent unfavorable foreign exchange impact) compared to sales of $87 million in the third quarter of 2008.

Animal Health sales totaled $669 million in the 2009 third quarter, a 12 percent decrease as compared to $759 million in the third quarter of 2008 (5 percent operational decrease and 7 percent unfavorable foreign exchange impact). The sales decline was primarily due to the overall economic environment, difficult comparisons against the 2008 launch of bluetongue vaccine as well as back orders on certain products due primarily to the ongoing integration of Animal Health manufacturing practices and quality standards.

Consumer Health Care sales were $282 million in the 2009 third quarter, roughly in line with the 2008 period. Higher sales of MIRALAX and other OTC products were offset by lower sales of OTC CLARITIN, sun care and foot care products.

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 special items, and totaled 61.8 percent for the 2009 third quarter as compared to 62.0 percent in the 2008 period. On a reconciled basis, the gross margin percentage decreased to 65.9 percent for the third quarter of 2009 as compared to 66.9 percent for the third quarter of 2008, primarily due to the unfavorable impact from foreign exchange, partially offset by favorable product mix and manufacturing cost savings.

SG&A expenses were $1.5 billion in the third quarter of 2009, a 9 percent decrease versus the third quarter of 2008 (5 percent operational decrease and 4 percent favorable foreign exchange impact) primarily due to the impact of foreign exchange and the company's Productivity Transformation Program.

Research and development spending for the 2009 third quarter totaled $913 million, a 2 percent increase (4 percent operational increase and 2 percent favorable foreign exchange impact), related to higher spending for clinical trials and related activities, partially offset by the impact of foreign exchange.

Recent Developments

In addition to the regulatory and pipeline advances discussed above, the company also offered the following summary of recent significant developments that have previously been announced, including:

• Announced FDA acceptance of a filing for a New Drug Application (NDA) for DULERA, a fixed-dose combination of mometasone furoate and formoterol fumarate, for the maintenance treatment of asthma in patients 12 years of age and older. (Announced July 22)
• Reported a proposed settlement, subject to Court approval, to resolve litigation seeking to enjoin the planned merger with Merck & Co., Inc., and other forms of relief. The consolidated class action lawsuits were filed in U.S. District Court for the District of New Jersey. (Announced July 24)
• Announced that SAPHRIS sublingual tablets met the primary endpoint over one year of treatment in an extension study in patients with predominant, persistent negative symptoms of schizophrenia. (Announced July 24)
• With sanofi-aventis and Merck & Co., Inc., announced that the companies have signed a definitive agreement under which Merck will sell its 50 percent interest in the companies' animal health joint venture, Merial Limited, to sanofi-aventis. (Announced July 30)
• With Merck and the companies' cholesterol joint venture, Merck/Schering-Plough Pharmaceuticals, announced agreements to resolve civil class action litigation relating to the purchase or use of VYTORIN and ZETIA. (Announced Aug. 5)
• Announced results of a special shareholders meeting regarding the proposed merger with Merck. More than 99 percent of votes cast voted to approve the merger agreement, with more than 78 percent of common shares voting. (Announced Aug. 7)
• Reached agreement with Orchid Chemicals & Pharmaceuticals Ltd. and Orgenus Pharma, Inc., related to certain generic formulations of CLARINEX (desloratadine). The agreement marks the end of all pending litigations filed and consolidated since 2006 in the U.S. District Court for the District of New Jersey against several generic drug manufacturing companies involving generic solid oral dosage forms of desloratadine. (Announced Aug. 11)
• Gained U.S. approval for SAPHRIS sublingual tablets for acute treatment of schizophrenia in adults and acute treatment of manic or mixed episodes associated with bipolar I disorder. (Announced Aug. 14)
• Reported the European Medicines Agency's acceptance for review of two applications: for a fixed-dose combination of mometasone furoate and formoterol fumarate for the maintenance treatment of asthma, and nomegestrol acetate/estradiol, a combined oral contraceptive. (Announced Aug. 26)
• With Merck, announced that as part of the pending merger the following three Schering-Plough Board members are expected to remain on the Board of the newly combined company upon completion of the merger: C. Robert Kidder, Patricia F. Russo and Craig B. Thompson, M.D. (Announced Sept. 3)
• Reported final results of a SAPHRIS long-term schizophrenia relapse prevention clinical study, showing that time to relapse or impending relapse, the primary efficacy endpoint, was significantly longer with SAPHRIS than with placebo. (Announced Sept. 14)
• Reported long-term data with vicriviroc, an investigational CCR5 receptor antagonist, from an ongoing, open-label extension of the Phase II VICTOR-E1 study in treatment-experienced HIV-infected patients. (Announced Sept. 14)
• Reported the recommended approval by the FDA's Oncologic Drugs Advisory Committee by a vote of six to four for PEGINTRON in the adjuvant treatment of patients with Stage III malignant melanoma. (Announced Oct. 5)
• With Centocor Ortho Biotech Inc., reported the European Commission approval of SIMPONI as a once-monthly, subcutaneous therapy for the treatment of moderate-to-severe, active rheumatoid arthritis, active and progressive psoriatic arthritis and severe, active ankylosing spondylitis. (Announced Oct. 6)
• Nobilon, Schering-Plough's human vaccine business unit, initiated a clinical Proof of Concept trial with a new intranasal Live Attenuated Influenza Vaccine (LAIV) for annual seasonal use. (Announced Oct. 13)
• Reported new long-term data from two pivotal, Phase III clinical trials showing that patients with active rheumatoid arthritis receiving SIMPONI every four weeks achieved sustained improvements in signs and symptoms and physical function response through one year. (Announced Oct. 19)

Third Quarter 2009 Conference Call and Webcast

Schering-Plough will conduct a conference call today at approximately 7:15 a.m. (EDT) to review results for the 2009 third quarter. To listen live to the call, dial 1-877-565-9664 or 1-706-634-5003 and enter conference ID # 33373738. A replay of the call will be available beginning later on Oct. 22 through 5 p.m. on Thursday, Oct. 29. To listen to the replay, dial 1-800-642-1687 or 1-706-645-9291 and enter the conference ID #33373738. 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 October 22 through 5 p.m. on November 2.

SOURCE Schering-Plough Corporation