Higher expenses and charges pulled down Schering-Plough Corp.'s third-quarter profit by 23 percent, the drug developer said Tuesday, but a series of restructuring and expansion moves helped it top Wall Street forecasts.
Faced with declining sales of its cholesterol drugs and stiffer generic competition, the company has been shifting to a more diversified business, including pharmaceuticals, consumer health and animal health products. It also has been looking to grow internationally.
The Kenilworth, N.J.-based company earned $551 million, or 34 cents per share, compared with profit of $713 million, or 45 cents per share, during the same period a year prior. Excluding acquisition-related expenses and other charges, the company earned 39 cents per share.
Revenue, meanwhile, rose 63 percent to $4.58 billion from $2.81 billion. International sales accounted for 70 percent of the company's revenue.
Overall, the company pleased Wall Street, with analysts polled by Thomson Reuters expecting profit of 31 cents per share on revenue of $4.48 billion.
Shares jumped 60 cents, or 4.3 percent, to $15.10 in morning trading.
The key to Schering-Plough's revenue boost came from its Organon Biosciences unit, which contributed $896 million in sales. Schering-Plough bought the company a year ago and said integration of the unit is going well.
"It was the right move at the right time," Chairman and Chief Executive Fred Hassan said in a conference call with investors Tuesday.
Meanwhile, sales in Europe, Japan, and the growing Chinese, Brazilian, and Russian markets also helped lift revenue.
"Our good performance in these tough times reflects the strength and diversity that we've been building into the company over the past few years," Hassan said.
That international boost is most evident in sales of the company's troubled cholesterol drug franchise, including Zetia and Vytorin. The latter drug is a combination of Zetia and Merck & Co.'s Zocor. Study data over the past year has cast doubts over whether Vytorin is as effective as cheaper, generic versions of the statin Zocor.
Overall, cholesterol drug sales fell 15 percent to $1.1 billion. Though U.S. sales fell 29 percent, international sales of the drug remained strong, with a 37 percent boost.
Some of the brighter spots in the third-quarter report include a surge in animal health product sales to $759 million from $248 million, mostly because of the addition of Organon. Elsewhere, sales of the biotechnology-based arthritis drug Remicade rose 32 percent to $564 million.
While analysts mainly applauded Schering-Plough's third-quarter performance, several urged caution.
"Schering-Plough's new management has succeeded in righting the ship, having stabilized the base business and grown its earnings base via the cholesterol joint venture with Merck and the Organon Acquisition," Deutsche Bank-North America analyst Barbara Ryan said in a note to investors.
But she reaffirmed a "Hold" rating on the stock, saying cholesterol drugs still account for more than 50 percent of the company's profit.
Cowen and Co. analyst Steve Scala, meanwhile, reaffirmed a "Neutral" rating, pending a clearer outlook on Vytorin and Zetia sales trends and the success of Schering-Plough's product pipeline.
The company said it is on track with a cost-cutting plan that will trim its staff, while keeping it in a solid position financially in a turbulent market. Schering-Plough has more than $3 billion in cash on hand, with no need to access capital markets and no debt maturities upcoming, Hassan said.
