This summary is based on the fourth quarter fiscal 2008 earnings call conducted by Schering-Plough Corp. (SGP) on February 03, 2009.
Management:
Chairman and CEO: Fred Hassan
EVP and CFO: Robert J. Bertolini
EVP and President, Global Pharmaceuticals: Carrie S. Cox
EVP and President, Schering-Plough Research Institute: Thomas P. Koestler
VP of Investor Relations: Janet M. Barth
Key Investor Issues:
- Full year GAAP net sales grew 46% to $18.5 billion versus $12.7 billion in 2007.
- GAAP gross margin was 60.5% in 2008 compared with 65.3% in 2007.
- The GAAP full year net income was $1.6 billion versus net loss of $1.6 billion last year.
Fiscal 2008 Review:
- The immense macro level challenges affected the industry.
- The pharmaceutical company had the added challenge of the complex global integration of Organon BioSciences.
- The company also went through the challenge with the Merck Schering-Plough cholesterol JV in the U.S.
- The management reported a reconciled EPS growth for 2008 of 28% over 2007.
- The drivers of top-line included REMICADE, TEMODAR, NASONEX and the Women''s Health Franchise including FOLLISTIM.
- The combined Animal Health unit, now the global industry leader, delivered strong performance on a full year basis with sales of nearly $3 billion.
- The Consumer Health Care unit continues to drive important innovations.
- The company commenced paying down the debt taken on to finance the OBS acquisition.
- The management continues to execute successfully on the geographic expansion strategy with strong growth in Russia, Brazil, China and other newer markets.
- The company has now exceeded $2 billion in annual sales in the newer markets.
- During 2008, the pharmaceutical company started its Productivity Transformation Program (PTP).
Five-Year Review:
- Fiscal 2008 also marked five full years since the current management team joined Schering-Plough.
- The five years recorded a dramatic transformation on many fronts as adjusted sales more than doubled from $8.9 billion in 2004 to $20.8 billion in 2008.
- The management increased reconciled EPS from roughly break-even in 2004 to $1.75 in 2008.
- The company transitioned from large, negative cash flows in 2004 to strong positive free cash flows in 2006, 2007 and 2008.
- Over the five year period, the company transformed one of the weakest late-stage pipelines in the peer group into one of the strongest.
The future:
- Amidst the administrative changes in Washington, the management is bullish about the future.
- The company expects the PTP actions to continue to bring additive cost savings and productivity improvements.
- Innovation is poised to make the decisive difference.
- The company has a strong innovation flow in Consumer Health Care unit, with many new products of line extension plans this year.
- The Animal Health innovation is also very strong.
Fourth Quarter Financial Highlights:
On a GAAP basis, net sales in the fourth quarter increased to $4.3 billion and include about $1.3 billion in sales of products from OBS.
- The sales in the fourth quarter of 2007 included about six weeks of sales from OBS products totaling about 600 million.
- Foreign currency unfavorably impacted sales growth by approximately 6% in the quarter.
Sales of the Prescription business increased 17% to $3.5 billion in Q4 including a 6% unfavorable impact from currency.
- Sales benefited from more than $800 million in sales of products from Organon compared with about 400 million in the partial period last year.
- The management reported higher sales of REMICADE, NASONEX, PROVENTIL and TEMODAR.
- Offsetting this growth were sales declines for CLARINEX, AVELOX and PEGINTRON.
- Global sales of the cholesterol franchise in the fourth quarter were down 24% compared with the prior year period.
- In U.S., sales of VYTORIN and ZETIA were down 35% while international sales grew 6%.
- Excluding the impact of exchange, international sales grew 17%.
Sales of Animal Health products increased 33% in the fourth quarter to $674 million including a 9% unfavorable impact from currency.
- Q4 sales include more than $400 million from the acquired Animal Health business versus about 200 million in the partial period last year.
- The Animal Health sales during Q4 were primarily impacted by the divestment of certain products related to the acquisition of OBS and by factors resulting from current credit conditions, including inventory reductions by customers.
Quarterly Consumer Health sales were $219 million, down 14%.
- The dip was mainly due to OTC CLARITIN which was impacted by inventory reductions by some of the retail customers, private label competition and a timing of shipments in 2007.
- Offsetting these impacts were higher sales of MiraLAX, which grew 66% in the quarter to $30 million.
For the full year 2008, the company achieved more than $600 million in PTP savings.
