[4Q06 Sales of the Zetia/Vytorin franchise were $1.1B, +46% (!) year-over-year. SGP uses a term called “adjusted net sales” to mean what sales would have been if SGP had booked half of the Zetia/Vytorin revenue that is actually booked by a JV between SGP and MRK. Peg-Intron sales declined 2% year-over-year but still maintained an $800M annual run rate, and SGP’s overall HCV franchise continued to sell at a $1.3B run rate (#msg-14167340). Please see actual PR for financial tables.]
KENILWORTH, N.J., Jan. 29 /PRNewswire-FirstCall/ -- Schering-Plough Corporation (NYSE: SGP ) today reported financial results for the 2006 fourth quarter and full year.
"We registered strong performance both for the recent quarter and for 2006," said Fred Hassan, chairman and CEO. "After three full years of progress under the Action Agenda, Schering-Plough is doing what we set out to do -- deliver a solid record of performance while continuing an extraordinary transformation." He added, "We have been achieving successes across all major fronts. We have been growing the top line, maintaining financial discipline and driving higher earnings. Our organization is becoming stronger, more efficient and more resilient. Our research pipeline is progressing. In 2007, we look forward to further advances in becoming the long-term, high-performance company of our aspirations."
For the 2006 fourth quarter, the company reported net income available to common shareholders of $182 million or 12 cents per share on a GAAP basis. Included in net income is an unfavorable impact of 4 cents per share related to the actions during 2006 to streamline the company's manufacturing operations and a charge of 1 cent per share related to the licensing of an over-the-counter (OTC) treatment for heartburn. For the 2005 fourth quarter, the company reported net income of $104 million or 7 cents per share on a GAAP basis.
GAAP net sales for the 2006 fourth quarter totaled $2.7 billion, up 14 percent versus the 2005 fourth quarter. Including an adjustment of an assumed 50 percent of global cholesterol joint venture net sales (see table below), Schering-Plough's adjusted net sales (hereinafter referred to as "adjusted sales") for the 2006 fourth quarter would have totaled $3.2 billion, an 18 percent increase compared to $2.7 billion on a similar adjusted basis in the 2005 fourth quarter. Schering-Plough does not record sales of its cholesterol joint venture with Merck & Co., Inc., as the venture is accounted for under the equity method.
The strength of Schering-Plough's 2006 performance reflects the company's dramatic transformation since the 2003 launch of the Action Agenda, shortly after Hassan joined Schering-Plough. "We set out then with a clear strategy to reposition Schering-Plough," said Hassan. "Our goal was to shift to high value-creation activity across the company. We have executed on that strategy."
Over the past three years, said Hassan, "Schering-Plough's adjusted sales have grown more than twice as fast as its U.S. peer group average sales." In 2006, GAAP sales were $10.6 billion, up $2.3 billion or 27 percent from $8.3 billion in 2003; adjusted sales in 2006 were $12.5 billion, an increase of $3.9 billion or 46 percent compared to adjusted sales of $8.6 billion in 2003. During this time, cash flow improved dramatically, he added, "going from a significant cash-burn rate to generating significant positive cash flow." Major investments were made to strengthen operations and infrastructure, improve quality and compliance, expand product lines and advance the research pipeline. In addition, the company succeeded in attracting and retaining many talented people, restoring organizational health and resolving several major issues from the past. The company made substantial and satisfactory progress on the consent decree entered into with the U.S. Food and Drug Administration (FDA) in 2002.
"The people of Schering-Plough -- through their passion, courage and tenacity -- reversed declining financial results and shrinking market shares," said Hassan, citing increased strength and depth across product portfolios, growth of the cholesterol franchise and the introduction of life-saving medicines like NOXAFIL. New processes and systems were adopted to improve efficiencies and ensure quality and compliance. "The results have been impressive," he said. "As we move forward with the Build the Base phase of our Action Agenda, we have greater strength and flexibility to grow our businesses, penetrate new markets and seize promising opportunities."
Looking at 2006 results, Hassan emphasized the importance of Schering-Plough's strategic balance -- in its businesses, geographic presence and research programs. "One of our prime objectives has been to build multiple growth drivers and not be dependent on a single product," he said. "We are now performing well across our businesses, including our dynamic cholesterol franchise." In 2006, GAAP sales (excluding cholesterol joint venture sales) grew 11 percent versus 2005, with leading prescription products like REMICADE up 32 percent, NASONEX up 28 percent, PEG-INTRON up 11 percent, TEMODAR up 20 percent, and CLARINEX/AERIUS up 12 percent. He noted that the company has a good balance in its prescription business between primary care and specialty care products, and steady contributions from its Consumer Health Care and Animal Health businesses.
Geographically, sales have been growing in all regions around the world. To further its growth objectives, the company is working to expand its U.S. presence and extend core businesses in high-potential markets, such as China, Russia, Korea, Brazil and Central and Eastern Europe.
In R&D, Schering-Plough balances its therapy areas between specialty care and primary care, pursuing disease targets in both small molecules and biologics. "We're encouraged by the degree of innovation in our pipeline," said Hassan. "This is how R&D creates value -- and it is essential to our long-term strategy for success." Three of the company's most visible Phase II projects have been granted fast-track designation by the FDA: a novel thrombin receptor antagonist for acute coronary syndrome and secondary prevention; vicriviroc for HIV; and a protease inhibitor compound for hepatitis C.
...Hassan noted that "it is ironic that as some Europeans begin to regret the damage done to health care and innovation in their regions from inhibiting the free market, we see calls in the United States to go down that same path."[Hehe—Fred belongs in politics, IMO. He’s not eligible to be president but he could run for something.] Hassan stated that the implementation of the Medicare drug benefit has shown that the private sector has been "very efficient in creating savings and passing them on to seniors and to the government. There has been a landmark shift in access to coverage, jumping from 60 percent to more than 90 percent of Medicare-eligible seniors, who now have access to innovative new medicines through their plans."
Fourth Quarter 2006 Results
For the 2006 fourth quarter, the company reported net income available to common shareholders of $182 million or 12 cents per common share on a GAAP basis. Included in net income is an unfavorable impact of 4 cents per share related to the actions implemented and substantially completed during 2006 to streamline the company's manufacturing operations and a charge of 1 cent per share related to the licensing of an OTC version of ZEGERID (omeprazole/sodium bicarbonate) for heartburn. For the 2005 fourth quarter, the company reported net income of $104 million or 7 cents per share on a GAAP basis.
GAAP net sales for the 2006 fourth quarter totaled $2.7 billion, up 14 percent as compared to the fourth quarter of 2005. The sales increase was driven by growth in Prescription Pharmaceuticals. The sales growth versus 2005 reflects a 2 percent favorable impact from foreign exchange.
Global cholesterol joint venture net sales, which include VYTORIN and ZETIA, totaled $1.1 billion in the 2006 fourth quarter compared to net sales of $755 million in the comparable 2005 period. 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 2006 fourth quarter would have been $3.2 billion, an 18 percent increase, compared to $2.7 billion on a similar adjusted basis in the 2005 fourth quarter.
Overall, the company 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. There is a separate co-marketing agreement with Bayer for ZETIA in Japan, where the product is currently under regulatory review. Under the equity method, the company records its share of the income from operations in "Equity income from cholesterol joint venture," which totaled $403 million in the 2006 fourth quarter versus $268 million in the fourth quarter of 2005. The increase in equity income reflected the continued strong sales of VYTORIN and ZETIA, in conjunction with Merck. The company noted that it 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.
Among prescription products posting higher sales in the 2006 fourth quarter was REMICADE, up 34 percent to $337 million. REMICADE is a treatment for immune-mediated inflammatory disorders that Schering-Plough markets in countries outside the United States (except in Japan and certain other Asian markets) for rheumatoid arthritis, early rheumatoid arthritis, psoriatic arthritis, Crohn's disease, ankylosing spondylitis, plaque psoriasis and ulcerative colitis. REMICADE sales were higher primarily due to expanded indications and continued market growth.
Global NASONEX sales rose 37 percent to $253 million, with U.S. sales climbing 48 percent to $171 million, primarily due to greater market share as compared to the 2005 period. International sales increased 18 percent to $82 million.
Sales of the company's PEG-INTRON hepatitis C product declined 3 percent to $208 million in the 2006 fourth quarter primarily due to the decline in sales in Japan, as anticipated, as a result of the moderation of new patient enrollments into hepatitis C therapy.
Sales of TEMODAR, a treatment for certain types of brain tumors, grew 18 percent to $189 million due primarily to continued utilization in Europe for treating newly diagnosed glioblastoma multiforme (GBM), which is the most prevalent form of brain cancer, and the product's 2006 launch in Japan. The growth rate for TEMODAR has moderated, as significant market penetration has already been achieved in the treatment of GBM. Also reporting higher sales in the quarter was CAELYX, up 8 percent to $49 million, largely as a result of increased use in treating ovarian and breast cancer.
Global CLARINEX sales in the fourth quarter of 2006 were $164 million, up 18 percent. International sales of prescription CLARITIN were $78 million in the fourth quarter compared to 2005 sales of $85 million.
Consumer Health Care sales were $205 million in the 2006 fourth quarter, up 4 percent versus the 2005 period due primarily to increased sales of OTC CLARITIN, which rose 35 percent. The positive impact of higher OTC CLARITIN sales was partially offset by sales declines in other consumer businesses.
Animal Health sales increased 6 percent to $234 million, reflecting growth across most geographic areas, led by the companion animal, poultry and swine product lines.
The company 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, the company'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, the company's gross margin was 65.5 percent for the 2006 fourth quarter as compared to 64.9 percent in the 2005 period.
SG&A expenses were $1.3 billion in the fourth quarter of 2006, up 12 percent versus $1.1 billion in the prior year period. SG&A in the fourth quarter of 2006 reflected ongoing investments in emerging markets and field support for new product launches as well as higher promotional spending.
Research and development spending for the 2006 fourth quarter increased 33 percent to $631 million compared to the fourth quarter of 2005. The increase was due to higher costs associated with clinical trials, building greater breadth and capacity to support the company's progressing pipeline, and an upfront payment associated with the company's in-licensing of an OTC version of ZEGERID. The company expects R&D spending to continue to reflect the progression of the pipeline and increased clinical trial activity.
Full-Year 2006 Results
Schering-Plough reported full-year 2006 GAAP net sales of $10.6 billion, up 11 percent versus 2005. The sales growth versus 2005 reflects a 1 percent unfavorable impact from foreign exchange. Schering-Plough's adjusted sales for 2006 totaled $12.5 billion, an increase of $1.8 billion or 17 percent, as compared to $10.7 billion on a similar adjusted basis in 2005.
The company's gross margin was 65.1 percent for the full-year 2006 compared to 64.8 percent in 2005. Selling, general and administrative expenses rose 8 percent to $4.7 billion for the 2006 full year compared with the 2005 full year. Research and development spending for the 2006 full year totaled $2.2 billion, an increase of 17 percent compared to full-year 2005. Equity income from the cholesterol joint venture in 2006 totaled $1.5 billion.
… Fourth Quarter 2006 Conference Call and Webcast
Schering-Plough will conduct a conference call today at 8 a.m. (EST) to review the 2006 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 # 4400942. A replay of the call will be available starting at approximately 11 a.m. on Jan. 29 through 5 p.m. on Feb. 26. To listen to the replay, dial 1-800-642- 1687 or 1-706-645-9291 and enter the conference ID #4400942. 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 at approximately 11 a.m. on Jan. 29 through 5 p.m. on Feb. 26. <<
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