This summary is based on the first quarter fiscal 2007 earnings call conducted by Schering-Plough Corp. (SGP: chart) on 19th of April 2007.
Key Investors Issues
- First-quarter profit jumped 55% from a year ago.
- Sales of Remicade, Vytorin and Zetia drove sales up 17%, to $2.98 billion from $2.55 billion.
- Including 50% of sales from its global cholesterol joint venture with Merck & Co. the company would have posted sales of $3.6 billion, up 21% from a year ago.
- Sales of Remicade increased 34% percent to $373 million.
- Sales of Avelox climbed 43% to $115 million, primarily as a result of increased market share.
First Quarter Financial Highlights
- GAAP sales were nearly $3 billion, up 17% from a year ago.
- Currency had a 3% benefit on the sales growth in the quarter.
- Adjusted sales increased to $3.6 billion which is 21% adjusted growth from a year ago.
Earnings on a GAAP basis are in 36 cents per share in the first quarter.
Expenses of $96 million or about 6 cents per share in upfront payments for in-licensed R&D projects are included in this number. Excluding these payments earnings in the quarter were 42 cents per share.
- Gross margin on a GAAP basis was 68.5%, up with 300 basis points from a year ago due to product mix and cost savings.
- The company had cost savings of about $30 million from the manufacturing streamlining actions.
- The company invested $707 million in research and development to advance their pipeline, which included upfront payments of $96 million for the ALK-Abello, Valeant and Anacor agreements that closed in the first quarter.
- The global cholesterol franchise, which is part of the company’s product portfolio, accounted for $1.2 billion sales for the first quarter, recording a 48% increase.
GAAP sales climbed 17%, adjusted for the assumed 50% share by VYTORIN and ZETIA sales, which is 21% adjusted growth compared to the same quarter a year ago.
The company continued to grow by VYTORIN and ZETIA despite the new wave of generics that has recently entered the market. Evolving medical science that is indicating that lower LDL cholesterol is better.
The company will be extending the core of their cholesterol business into Japan.
- The Japan approval of ZETIA earlier this week will bring very important new treatment option to the local physicians and their patients with an attractive clinical profile for the Japanese market.
- Other top nine products, including VYTORIN and ZETIA all grew double-digits. These include REMICADE, which grew 34%, and NASONEX which grew 24%.
- Animal Health and Consumer Health businesses are also growing and 70% of this growth came from outside the cholesterol franchise.
- Top line growth reinforced by financial discipline is driving bottom line earnings growth. This strategy has been driving their performance over the last three years.
Sales, earnings, free cash flow and other metrics such as employee engagement, R&D productivity, and business integrity are all showing improvements in every aspect of the business.
As a result of the momentum the company has ranked first in the total shareholder return among their peer group of AQS companies between January 2004 and December 2006.
The company is gaining momentum in R&D from internal innovations.
Phase II pipeline has expanded during the past three years. One of the Phase II compounds, the Thrombin Receptor Antagonist, TRA, emerged as one of the higher profile compounds at last months meeting of the American College of Cardiology.
Cardiovascular experts noted the emerging data showing that TRA is not associated with the significant leading risk. They saw potential signs of TRA’s efficacy though the study was not powered to demonstrate this. This Phase II data on TRA gives them confidence to go into larger Phase III studies.
The company expects to see further Phase II data on two of their FDA fast-track projects in the second half of this year, Vicriviroc for HIV AIDS and protease inhibitor for Hepatitis C Boceprevir.
Recent in-licensing deals have a strategic fit, strengthening the key therapeutic areas.
