Schering’s Profit Pill

Focus: STOCKS

Paul Larson Image Paul Larson Editor, Morningstar StockInvestor

Paul Larson, editor of Morningstar StockInvestor, and analyst Damien Conover say drug maker Schering-Plough will grow sales and earnings nicely.

Schering-Plough (NYSE: SGP) manufactures and markets a variety of health-care products, including prescription and over-the-counter drugs, animal health products, and foot-care products.

Its largest internal product is Remicade for autoimmune diseases, which it markets outside the US. It sells blockbuster cholesterol drugs Zetia and Vytorin through a joint venture with Merck (NYSE: MRK). Pharmaceuticals account for 80% of total sales, [and] 60% of revenue comes from overseas.

Through partnering, acquiring, and in-licensing, Schering-Plough developed a strong product line. Sales of Zetia and Vytorin combined for $5.2 billion in 2007, representing a majority of operating income.

The majority of Schering-Plough’s existing products are growing at a fast pace and are poised for continued growth. Remicade, an anti-inflammatory, leads with sales of $1.6 billion in 2007, up 33% from the previous year, representing 13% of total sales.

Facing the loss of Claritin in late 2002, Schering-Plough successfully cut overhead and streamlined operations. During the last four years, efficiency levels increased and a resurgent new product line emerged.

Schering’s marketed products appear well positioned for growth, with a few exceptions. Namely, Clarinex will face generic competition in late 2008, and we also expect the negative media coverage from [various] studies will sharply reduce Zetia and Vytorin sales.

Yet with the help of in-licensing and the 2007 acquisition of Organon, the company now has several drugs in Phase III development.