This summary is based on the first quarter fiscal 2008 earnings call conducted by Schering Plough Corporation (SGP) on April 23, 2008.
Management:
VP, IR: Alex Kelly
Chairman and CEO: Fred Hassan
EVP and President, Schering-Plough Research Institute: Thomas P. Koestler
EVP and CFO: Robert J. Bertolini
EVP and President, Global Pharmaceuticals:
Key Investors Issues
- EPs were 15 cents a share compared to 36 cents a share last year.
- Net income was $291 million compared to $565 million for the same period a year earlier.
- Revenue rose 57% to $4.66 billion, up from $2.98 billion last year.
First Quarter Highlights
Schering-Plough reported net income available to common shareholders of $253 million or 15 cents per common share on a GAAP basis.
Earnings per common share would have been 53 cents on net income of $862 million on a reconciled basis, which excludes purchase accounting adjustments and acquisition-related items for the OBS acquisition and other specified items. For the 2007 first quarter, Schering-Plough reported net income available to common shareholders of $543 million or 36 cents per common share on a GAAP basis and 42 cents per common share on a reconciled basis.
GAAP net sales totaled $4.7 billion, including $1.3 billion as a result of the OBS acquisition.
- The overall sales increase of 56% includes the impact of the OBS net sales and a favorable impact of 7% from foreign exchange on stand-alone Schering-Plough sales.
- Global cholesterol joint venture net sales, which include VYTORIN and ZETIA, totaled $1.2 billion. 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% of the global cholesterol joint venture net sales, Schering- Plough''s adjusted sales would have been $5.3 billion.
- Overall, Schering-Plough shares in approximately 50% 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 $517 million, an increase of 6% versus $487 million in the first quarter of 2007. 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 totaled $3.6 billion.
Included in the first quarter of 2008 are $861 million in net sales related to Organon, the OBS human health business acquired in 2007.
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Sales of REMICADE increased 36% to $507 million due to continued market growth and expanded use. 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 8% to $307 million versus the 2007 period, due to increased sales in international markets, partially offset by a decline in sales in the United States.
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Sales of TEMODAR, a treatment for certain types of brain tumors, grew 20% to $236 million due to increased sales across all geographic regions.
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Sales of PEGINTRON for hepatitis C increased 4% to $225 million due to higher sales in Latin America, emerging markets across Europe and a favorable impact from foreign exchange, tempered by lower sales in Japan and the United States.
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Sales for FOLLISTIM/PUREGON, a fertility treatment, were $145 million. Sales for NUVARING, a contraceptive product, were $96 million. Both products were obtained as part of the OBS acquisition.
- Global
sales of CLARINEX, a nonsedating antihistamine, were $213 million, up 4% as compared to sales of $204 million in the first quarter of 2007. Higher sales of CLARINEX in international markets were partially offset by lower sales in the United States.
- International
sales of prescription CLARITIN were $128 million, a 14% increase compared to sales of $112 million in the first quarter of 2007 as a result of increased sales in Japan due to an early allergy season and favorable foreign exchange.
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Sales of the antibiotic AVELOX were up 24% to $142 million as a result of increased market share.
Animal Health sales totaled $723 million.
- Included in the first quarter of 2008 were net sales of $454 million related to Intervet, the OBS animal health business. Sales benefited from solid growth in all geographic areas, coupled with a positive impact from foreign currency exchange rates.
- Consumer Health Care sales were $377 million, up 9% versus the 2007 period. The increase was primarily due to sales of MIRALAX, which was launched in February 2007 as the first Rx-to-OTC switch in the laxative category in more than 30 years, as well as higher sales of OTC CLARITIN, which grew despite the aggressive launch of a competing OTC cetirizine allergy product.
- 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 54.1% as compared to 68.5% in the 2007 period. The gross margin percentage excluding purchase accounting adjustments was 68.9% in the first quarter of 2008.
- SG&A expenses were $1.7 billion versus $1.2 billion in the prior-year period. SG&A in the first 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 increased to $880 million compared to $707 million in the first quarter of 2007. Included in R&D spending in the first quarter of 2007 was $96 million related to upfront payments 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.
