Productivity Transformation Delivering Savings;
Industry-Leading Late-Stage Pipeline Advances
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KENILWORTH, N.J., Feb. 3 /PRNewswire-FirstCall/ -- Schering-Plough Corporation (NYSE: SGP) today reported financial results for the 2008 fourth quarter and full year.
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"Schering-Plough delivered a very strong performance in 2008 - in the face of intensifying pressures on our industry," said Fred Hassan, chairman and CEO. "We have delivered these results by executing on our core strategies while responding quickly and decisively to the fast-changing environment, including taking effective actions to reduce costs and improve productivity.
"Despite the challenges facing our industry today," continued Hassan, "we remain confident about one thing: that innovator companies - those that can discover and deliver valuable new medicines - should continue to do well. We have shown that we are one of those companies."
For the 2008 fourth quarter, Schering-Plough reported net income available to common shareholders of $442 million or 27 cents per common share on a GAAP basis. Earnings per common share for the 2008 fourth quarter would have been 39 cents on net income of $633 million on a reconciled basis, which excludes purchase accounting adjustments, special and acquisition-related items, and $22 million of income from the termination of a respiratory joint venture with Merck & Co., Inc. (Merck). For the 2007 fourth quarter, Schering-Plough reported a net loss available to common shareholders of $3.4 billion or $2.08 per common share on a GAAP basis and earnings of 27 cents per common share on a reconciled basis.
GAAP net sales for the 2008 fourth quarter totaled $4.3 billion, up 17 percent as compared to the fourth quarter of 2007, reflecting an unfavorable impact from foreign exchange of 6 percent. Sales for the quarter benefited from the inclusion of net sales of products from Organon BioSciences N.V. (OBS), which was acquired on Nov. 19, 2007. Net sales of the global cholesterol joint venture, which include VYTORIN and ZETIA, totaled $1.1 billion in the 2008 fourth quarter and were down 26 percent, primarily due to lower sales in the U.S. 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 percent of the global cholesterol joint venture net sales, Schering-Plough's adjusted net sales for the 2008 fourth quarter would have been $4.9 billion.
Said Hassan on the company's research pipeline: "We are rich in potential first-in-class and best-in-class compounds - and excited that the strength of our innovation is coming through. With 12 new entities in Phase III or pre-registration, we believe ours is an industry-leading late-stage pipeline."
In addition, many of Schering-Plough's key prescription products are protected by long periods of expected exclusivity, with most protected well into the next decade. "At a time when many others in the industry are facing pipeline droughts and patent cliffs, we believe we're in the sweet spot on product flow and expected exclusivity. This gives us a special edge."
The company has made major progress in building strength and diversity - across its businesses, geographic presence and product portfolio. Important assets include its leading Animal Health business and innovative Consumer Health Care unit. A key action was the acquisition of Organon BioSciences in November 2007 and its successful integration. The OBS acquisition added new treatment categories (women's health and central nervous system), expanded the product pipeline with promising late-stage compounds, and made Schering-Plough the world's largest animal health company. In the first half of 2008, the company had already achieved its full-year OBS accretion target.
Several other important achievements were made over the past five full years (2004-08) since the current management team joined Schering-Plough:
Thomas P. Koestler, Ph.D., executive vice president and president of Schering-Plough Research Institute, said, "Our scientists have made R&D innovation a hallmark of our pipeline. The productivity of our labs is evidenced by our rich late-stage pipeline, by the six projects designated 'fast track' by the FDA, and by our 75 new molecular entities in all phases of development. We will continue to pursue novel approaches so that patients and physicians can gain access to new therapies to treat and modify the pathways of serious diseases."
Schering-Plough at a November 2008 R&D Update meeting highlighted its rich and innovative pipeline, with 46 new entities in clinical trials or under regulatory review, including:
Responding decisively to business conditions, the company in April 2008 launched its Productivity Transformation Program (PTP), which is expected to realize savings of $1.5 billion by the end of 2012, with $1.25 billion in savings targeted to be accomplished by 2010. The $1.5 billion target includes the previously announced integration synergy targets from the OBS acquisition. The company is making steady progress toward achieving these savings targets and increasing operational efficiencies.
Fourth Quarter 2008 Results
For the 2008 fourth quarter, Schering-Plough reported net income available to common shareholders of $442 million or 27 cents per common share on a GAAP basis. Earnings per common share for the 2008 fourth quarter would have been 39 cents on net income of $633 million on a reconciled basis, which excludes purchase accounting adjustments, special and acquisition-related items and $22 million of income from the termination of a respiratory joint venture with Merck. For the 2007 fourth quarter, Schering-Plough reported a net loss available to common shareholders of $3.4 billion or $2.08 per common share on a GAAP basis and earnings of 27 cents per common share on a reconciled basis, which excludes acquisition-related items and an upfront R&D payment.
GAAP net sales for the 2008 fourth quarter increased 17 percent to $4.3 billion, including $1.3 billion in sales of products from the OBS acquisition and an unfavorable impact from foreign exchange of 6 percent.
Global cholesterol joint venture net sales, which include VYTORIN and ZETIA, totaled $1.1 billion, a decrease of 26 percent when compared to the fourth quarter of 2007. 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 percent of the global cholesterol joint venture net sales, Schering-Plough's adjusted net sales for the 2008 fourth quarter would have been $4.9 billion.
Overall, Schering-Plough shares in approximately 50 percent 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 $426 million in the 2008 fourth quarter, as compared to $566 million in the fourth quarter of 2007. Included in fourth quarter 2008 GAAP equity income is $22 million of income related to the termination of the respiratory joint venture. 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 Prescription Pharmaceuticals for the 2008 fourth quarter increased 17 percent to total $3.5 billion, including an unfavorable impact from foreign exchange of 6 percent. Included in the fourth quarter of 2008 are $823 million of net sales of products related to the OBS human health business compared to $409 million in the prior year period. Schering-Plough acquired OBS on Nov. 19, 2007.
Sales of REMICADE increased 8 percent to $491 million in the fourth quarter of 2008 due to continued market growth and expanded penetration in certain indications partially offset by an unfavorable impact from foreign exchange. REMICADE is a treatment for inflammatory diseases that Schering-Plough markets in countries outside the U.S. (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.
Sales of TEMODAR, a treatment for certain types of brain tumors, increased 4 percent to $242 million, with higher sales in most markets partially offset by the unfavorable impact of foreign exchange.
Global sales of NASONEX, an inhaled nasal corticosteroid for allergies, rose 3 percent to $280 million versus the 2007 period, due to increased sales in the U.S. and international markets.
Sales of PEGINTRON for hepatitis C decreased 6 percent to $225 million in the 2008 fourth quarter, primarily due to lower sales in the U.S.
In women's health care, sales for FOLLISTIM/PUREGON, a fertility treatment, for the fourth quarter of 2008 were $127 million. Sales of NUVARING, a contraceptive product, in the 2008 fourth quarter grew to $110 million. These women's health products were obtained as part of the OBS acquisition.
Global sales of CLARINEX, a nonsedating antihistamine, in the fourth quarter of 2008 were $160 million, a decrease of 8 percent as compared to the fourth quarter of 2007, primarily due to lower sales in the U.S.
International sales of prescription CLARITIN were $99 million in the fourth quarter of 2008, a 6 percent increase compared to sales of $93 million in the fourth quarter of 2007 due primarily to higher sales in Japan.
Animal Health sales totaled $674 million in the 2008 fourth quarter, a 33 percent increase (including an unfavorable impact from foreign exchange of 9 percent) as compared to $507 million in the fourth quarter of 2007. Animal Health sales included sales related to products from the acquired OBS animal health business of $436 million in the fourth quarter of 2008 and $217 million in the fourth quarter of 2007. Animal Health sales in the 2008 fourth quarter were unfavorably impacted by foreign exchange, the divestment of certain products related to the acquisition of OBS and by factors resulting from current credit conditions, including inventory reductions initiated by customers.
Consumer Health Care sales were $219 million in the 2008 fourth quarter, down 14 percent versus the 2007 period. The decrease was mainly due to lower sales of OTC CLARITIN, which were unfavorably impacted by retail inventory reductions, private-label competition and the timing of shipments. Partially offsetting the sales decline were higher sales of OTC MIRALAX, launched in February 2007, which increased to $30 million.
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 totaled 64.9 percent for the 2008 fourth quarter as compared to 57.9 percent in the 2007 period. Excluding purchase accounting adjustments, the gross margin percentage increased to 68.9 percent for the fourth quarter of 2008 as compared to 66.7 percent for the fourth quarter of 2007, primarily due to a favorable impact from foreign exchange.
SG&A expenses were $1.6 billion in the fourth quarter of 2008, essentially flat as compared to the fourth quarter of 2007.
Research and development spending for the 2008 fourth quarter was $850 million consistent with the fourth quarter of 2007. Included in R&D spending in the fourth quarter of 2007 was $21 million related to an upfront payment made for a licensing transaction. R&D expenditures reflect spending for clinical trials and related activities, and investments to build greater depth and capacity to support Schering-Plough's expanding global R&D pipeline.
Full-Year 2008 Results
Schering-Plough's full-year 2008 financial results include results of operations for OBS. For the full-year 2008, Schering-Plough reported net income available to common shareholders of $1.6 billion or $1.01 per common share on a GAAP basis. Earnings per common share on a reconciled basis grew 28 percent to $1.75, excluding purchase accounting adjustments, special and acquisition-related items, a $160 million pre-tax gain from the divestitures of certain animal health products, $105 million of income from the termination of a respiratory joint venture with Merck, and other specified items. For the full-year 2007, Schering-Plough reported a net loss of $1.6 billion or $1.04 per common share on a GAAP basis, which included $3.8 billion of acquired in-process research and development charges related to the purchase accounting of the OBS acquisition. Excluding purchase accounting adjustments, special and acquisition-related items and other specified items, Schering-Plough's full-year 2007 earnings per common share were $1.37.
Schering-Plough reported full-year 2008 GAAP net sales of $18.5 billion, a 46 percent increase, compared to $12.7 billion in 2007, including a favorable impact of 3 percent from foreign exchange. The increase was primarily due to the acquisition of OBS on Nov. 19, 2007. Schering-Plough's adjusted net sales for 2008 totaled $20.8 billion, an increase of $5.6 billion as compared to $15.2 billion on an adjusted basis in 2007. The company noted that for 2009 U.S. sales of VYTORIN and ZETIA are expected to be lower than in 2008 while international sales, excluding the impact of foreign exchange, should continue to grow.
On a GAAP basis, Schering-Plough's gross margin was 60.5 percent in 2008 as compared to 65.3 percent in 2007. Excluding purchase accounting adjustments, the gross margin percentage increased to 68.3 percent in 2008 as compared to 67.9 percent in 2007.
For the 2008 full year, selling, general and administrative expenses were $6.8 billion.
Research and development spending for 2008 totaled $3.5 billion.
Equity income in 2008 totaled $1.9 billion, a decrease of 9 percent compared to 2007.
Recent Developments
The company also offered the following summary of recent significant developments that have previously been announced, including:
Fourth Quarter 2008 Conference Call and Webcast
Schering-Plough will conduct a conference call today at 8 a.m. (EST) to review the 2008 fourth quarter and full-year results. To listen live to the call, dial 1-877-565-9664 or 1-706-634-5003 and enter conference ID #78444197. A replay of the call will be available beginning later on Feb. 3 through 5 p.m. on Feb. 10. To listen to the replay, dial 1-800-642-1687 or 1-706-645-9291 and enter the conference ID #78444197. A live audio webcast of the conference call also will be available by going to the Investor Relations section of the Schering-Plough corporate Web site, www.schering-plough.com, and clicking on the "Presentations/Webcasts" link. A replay of the webcast will be available starting on Feb. 3 through 5 p.m. on Feb. 24.
DISCLOSURE NOTICE: The information in this press release, the comments of Schering-Plough officers during the earnings teleconference/webcast on Feb. 3, 2009, beginning at 8 a.m. (EST), and other written reports and oral statements made from time to time by the company may contain "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements do not relate strictly to historical or current facts and are based on current expectations or forecasts of future events. You can identify these forward-looking statements by their use of words such as "anticipate," "believe," "could," "estimate," "expect," "forecast," "project," "intend," "plan," "potential," "will," and other similar words and terms. In particular, forward-looking statements include statements relating to the company's plans; its strategies; its progress under the Action Agenda and anticipated timing regarding future performance of the Action Agenda; business prospects; anticipated growth; timing and level of savings achieved from the Productivity Transformation Program, including the ongoing integration of OBS; prospective products or product approvals; trends in performance; anticipated timing of clinical trials and its impact on R&D spending; anticipated exclusivity periods; actions to enhance clinical, R&D, manufacturing and post-marketing systems; and the potential of products and trending in therapeutic markets, including the cholesterol market. Actual results may vary materially from the company's forward-looking statements, and there are no guarantees about the performance of Schering-Plough stock or Schering-Plough's business. Schering-Plough does not assume the obligation to update any forward-looking statement. A number of risks and uncertainties could cause results to differ materially from forward-looking statements, including, among other uncertainties, market viability of the company's (and the cholesterol joint venture's) marketed and pipeline products; market forces; economic factors such as interest rate and exchange rate fluctuations; the outcome of contingencies such as litigation and investigations including litigation and investigations relating to the ENHANCE clinical trial; product availability; patent and other intellectual property protection; current and future branded, generic or over-the-counter competition; the regulatory process (including product approvals, labeling and post-marketing actions); scientific developments relating to marketed products or pipeline projects; and media and societal reaction to such developments. For further details of these and other risks and uncertainties that may impact forward-looking statements, see Schering-Plough's Securities and Exchange Commission filings, including Part II, Item 1A. "Risk Factors" in the third quarter 2008 10-Q, filed Oct. 29, 2008.
Schering-Plough is an innovation-driven, science-centered global health care company. Through its own biopharmaceutical research and collaborations with partners, Schering-Plough creates therapies that help save and improve lives around the world. The company applies its research-and-development platform to human prescription, animal health and consumer health care products. Schering-Plough's vision is to "Earn Trust, Every Day" with the doctors, patients, customers and other stakeholders served by its colleagues around the world. The company is based in Kenilworth, N.J., and its Web site is www.schering-plough.com.
-- More than doubling adjusted net sales, from $8.9 billion in 2004 to $20.8 billion in 2008; -- Expanding and diversifying sales drivers, from only one product with sales above $1 billion in 2004 to five products with sales above $1 billion in 2008 (REMICADE, NASONEX and TEMODAR - as well as VYTORIN and ZETIA in the cholesterol joint venture); -- Increasing reconciled earnings per share, from roughly breakeven in 2004 to $1.75 in 2008; -- Strengthening the financial position, going from a negative free cash flow in 2004 to generating positive free cash flows in 2006, 2007 and 2008; -- Building an impressive late-stage R&D product pipeline, going from only three new entities in Phase III in 2004 to having eight at year-end 2008, with four more in pre-registration, for a total of 12 in late-stage development.
SOURCE Schering-Plough Corporation
