Earnings Preview: Schering-Plough to report 2Q

TRENTON, N.J. - Schering-Plough Corp., the world's No. 18 drugmaker by sales, reports earnings for the second quarter on Tuesday morning. The following is a summary of key developments and analyst opinion related to the period.

OVERVIEW: The maker of hepatitis and allergy drugs and consumer health staples such as Dr. Scholl's foot products and Coppertone sun care items is being acquired by bigger New Jersey neighbor Merck & Co. for $41.1 billion. They have been working on integration planning and getting regulatory approval, and their shareholders will hold separate votes on the merger on Aug. 7.

Merck and Schering already have a partnership on blockbuster cholesterol drugs Vytorin and Zetia. During the latest quarter, their sales continued a decline that began in January 2008 over reports questioning their effectiveness and safety.

In April, Canadian regulators approved Simponi, a biologic drug produced in living cells for rheumatoid arthritis and other immune disorders. Kenilworth, N.J.-based Schering-Plough has rights to sales in most countries outside the United States; Johnson & Johnson has the U.S. rights. Now that Merck is buying Schering, J&J has begun arbitration over whether it should get rights to all future sales of Simponi and an older version called Remicade, which racks up several billion dollars a year in sales.

Also in June, Schering-Plough launched the first vaccine for canine influenza, a highly infectious respiratory disease, after getting a conditional U.S. license.

BY THE NUMBERS: Analysts polled by Thomson Financial expect, on average, earnings per share of 45 cents and revenue of $4.63 billion. In the year-earlier period, earnings per share were 24 cents — depressed by about 20 cents worth of charges — and revenue was $4.92 billion. In the first quarter, earnings per share jumped to 46 cents from 17 cents in the 2008 period, when charges from acquiring Organon Biosciences pulled down profit.

ANALYST TAKE: Steve Brozak of WBB Securities says there are only three things going on at Schering-Plough right now: "Merger, merger, merger." He said employees are all worried about whether they will survive as the company goes through "Cost Management 101," closing redundant facilities and cutting jobs.

Also key, he says, is what happens in the arbitration with Johnson & Johnson over their shared sales of Remicade and Simponi. The arbitration could drag on for up to a year.

Miller Tabak analyst Les Funtleyder wants to know whether Schering's animal health business will end up being sold in order to win merger approval from antitrust regulators, because Merck has a 50-50 partnership in the Merial animal medicine business with Sanofi-Aventis SA of France.

Funtleyder also is hoping for news on Schering-Plough's pipeline, a likely growth driver for Merck. He's particularly interested in an experimental anticlotting drug in a class called thrombin receptor antagonists. Such drugs are meant to prevent heart attacks and strokes, often in patients undergoing heart procedures, by blocking a protein that helps blood clots form.

WHAT'S AHEAD: Steps toward completing the merger will take center stage. Meanwhile, the company's highly touted experimental drug for schizophrenia and bipolar disorder, Saphris, is set for review by a panel of Food and Drug administration advisers on July 30. The drug, known chemically as asenapine, is one of Schering-Plough's "five stars" — medicines in late-stage development that company executives have been saying could be big sellers.

STOCK PERFORMANCE: Shares rose nearly 7 percent to $25.12 during the second quarter. In the first half of 2009, shares rose 48 percent.

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