Excluding purchase accounting adjustments, special and acquisition related charges and the $64 million of income related to the termination of the respiratory joint venture, earnings are $0.45 per share on a reconciled basis. This year the company expects to record income of $105 million from this termination. So, Schering Plough will be recording another $41 million as income during the second half of 2008. This income is recorded in the GAAP equity income line, but excluded from the company’s reconciled earnings.
On a reconciled basis, gross margin in the second quarter was 68.4%, representing a decline on a year-over-year and sequential basis.
On a sequential basis, the gross margin decline was primarily impacted by REMICADE and AVELOX as well as growth in the animal health business.
SG&A expenses were $1.9 billion in the quarter.
Excluding the impact of currency and estimated OBS expenses, SG&A costs were roughly flat on a year-over-year basis.
R&D expenses totaled about $900 million this quarter, an increase of 42% on a reconciled basis.
This was driven by an estimated $230 million related to OBS and continued investment in R&D pipeline.
Comments on PTP and the OBS Acquisition
Schering Plough is already seeing positive contributions. The management estimates that the company has already achieved its first year target of about $0.10 of accretion. Schering Plough is integrating these businesses on a global and country basis so, going forward, the company will not be able to separately identify the OBS results.
Update on PTP Program
This program seeks to reduce and avoid costs, increase productivity and generate a total of $1.5 billion in targeted annual savings and synergies by the end of 2012. Schering Plough anticipates achieving $1.25 billion of this target by 2010. PTP includes the original $500 million of integration synergies related to the OBS acquisition.
To date, Schering Plough has achieved about $100 million in savings, including about $70 million this quarter. Most of the savings were in SG&A.
The company’s US business reflects difficult market dynamics, while the international business continues to perform well, with strong growth in both emerging and established markets.
Schering Plough pipeline has many important assets, including near-term opportunities, such as golimumab, sugammadex and asenapine, all currently under regulatory review. The company is pleased with the continued progress with REMICADE and with the new women''s health care products, and many of the brands have expected exclusivity well into the next decade.
Sales from the global cholesterol franchise decreased 10% to $1.2 billion.
In the U.S., sales were down 26%, reflecting the impact of earlier events in the cholesterol market. During the quarter, total U.S. prescriptions for the cholesterol franchise were down 24%, versus the prior year, with pressure on both market share and market growth.
Recent IMS data suggests that 94% of patients switching from VYTORIN have moved to a less efficacious product.
Only VYTORIN provides more than a 50% LDL cholesterol reduction at the usual starting dose, and gets more patients to goal than simvastatin, atorvastatin and rosuvastatin.
Schering Plough will continue to remain focused on the many patients who require the LDL cholesterol reduction that VYTORIN and ZETIA can provide. Schering Plough isfirmly committed to both brands and will continue to invest appropriately to further advance patient care.
Cholesterol franchise sales from our international markets increased 37%.
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