October 24, 2007

 

Schering-Plough announces 12th quarter of profit

 

Press release

 

 

Schering-Plough Corporation reported financial results for the third quarter of 2007 and commented on its planned acquisition of Organon BioSciences N.V. (OBS), which includes the Organon human health business and Intervet animal health business.

 

Animal Health sales increased 8 percent to US$248 million, reflecting solid growth internationally, led by the poultry, companion animal, aquaculture and swine product lines, coupled with a positive impact from foreign currency exchange rates. The growth in international markets was tempered by a decline in the United States.

"Schering-Plough has now recorded its 12th consecutive quarter of double- digit adjusted sales growth," said Fred Hassan, chairman and CEO. "Schering- Plough's long-term strategy continues to unfold. Our strategy to grow the top line, exercise financial discipline and expand our R&D pipeline again delivered strong results."

 

For the 2007 third quarter, Schering-Plough reported net income available to common shareholders of $713 million or 45 cents per common share on a GAAP basis. Excluding acquisition-related items and an upfront R&D payment, earnings per share for the 2007 third quarter would have been 28 cents). For the 2006 third quarter, Schering-Plough reported net income of $287 million or 19 cents per common share on a GAAP basis.

 

Net sales for the 2007 third quarter rose 9 percent on a GAAP basis and 12 percent on an adjusted basis versus the 2006 period. GAAP net sales for the 2007 third quarter totaled $2.8 billion; adjusted net sales, which includes an assumed 50 percent of global cholesterol joint venture net sales  for the 2007 third quarter would have totaled $3.5 billion compared to $3.1 billion on a similar adjusted basis in the 2006 third quarter. Schering-Plough does not record sales of its cholesterol joint venture with Merck & Co., Inc. (Merck), as the venture is accounted for under the equity method.

 

Organon BioSciences Update

 

Since the March 12 announcement, Schering-Plough has made significant progress toward completing the acquisition of OBS from Akzo Nobel N.V. This includes gaining European Commission approval for the acquisition and completing most of its financing plan by securing nearly $9 billion in financing through a mix of equity and debt of varying maturities (3-30 years). The company has completed a customary consultative process with the OBS Works Council in the Netherlands in a positive manner, which will facilitate the transaction with Akzo Nobel.

 

"The acquisition of Organon BioSciences will create a world-class human health business balanced by the diversification of a world-class animal health business, with its cash flow and strong operating margins," said Hassan.

 

In connection with the European Commission clearance, Schering-Plough has agreed to divest certain animal health products in Europe. The divestitures are not expected to be material to the company's financial results. Schering- Plough still needs to secure certain other regulatory approvals, including clearance from the U.S. Federal Trade Commission (FTC), and continues to expect the transaction to be completed by year-end 2007.

 

Consumer Health Care sales were US$273 million in the 2007 third quarter, up 5 percent versus the 2006 period.

 

Schering-Plough incurs substantial costs such as selling, general and administrative costs that are not reflected in "Equity income from cholesterol joint venture" 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.

 

On a GAAP basis, Schering-Plough's gross margin was 67.1 percent for the 2007 third quarter as compared to 65.6 percent in the 2006 period.

 

SG&A expenses were US$1.3 billion in the third quarter of 2007, up 9 percent versus US$1.2 billion in the prior-year period. SG&A in the third quarter of 2007 increased primarily due to increased promotional spending.

 

Research and development spending for the 2007 third quarter increased to $669 million compared to US$536 million in the third quarter of 2006. Included in R&D spending in the third quarter of 2007 was US$20 million related to an upfront payment made for in-licensing acadesine, a Phase III cardiovascular agent for ischemia-reperfusion injury. The increase in R&D expenses was also due to higher spending for clinical trials and related activities, and investments to build greater breadth and capacity to support the dramatic expansion of Schering-Plough's Phase III pipeline during the past 12 months.

 

 "Our focus on building R&D excellence is beginning to bear fruit. With the upcoming acquisition of Organon BioSciences, we will have a total of 12 significant projects in Phase III -- we will have a pipeline with a Phase III bulge. This, combined with relatively long exclusivity of our marketed product portfolio, puts Schering-Plough in a substantially stronger position in terms of its late-stage pipeline and portfolio than only four years ago," said Hassan.

 

Schering-Plough is a global science-based health care company with leading prescription, consumer and animal health products.