Schering-Plough Returns to Profit

Sales of new cholesterol drugs helped Schering-Plough Corp. return to profitability in the first quarter but weren’t strong enough for its joint venture partner, Merck & Co., to overcome the earnings drag from the loss of its former arthritis drug Vioxx.

Schering-Plough, which lost almost $1 billion last year, reported Thursday that it earned $105 million, or 7 cents a share, thanks in large part to higher sales of cholesterol drugs Vytorin and Zetia. The earnings beat analysts’ expectations by 6 cents a share. The company’s shares rose almost 4% after its chief executive said a long-promised turnaround was at hand.

Merck’s revenue fell 5% in the quarter to $5.36 billion. Its net income of $1.37 billion was down 15% from a year earlier when Vioxx, which it pulled from the market Sept. 30 over cardiac risks, was one of its top sellers. Analysts have estimated that the company’s legal liability for Vioxx litigation could run as high as $30 billion.

Still, Merck’s net income of 62 cents a share beat the 59-cent consensus of analysts surveyed by Thomson First Call, and total sales would have grown 8%, excluding Vioxx sales in 2004’s first quarter.

“Merck and Schering-Plough both benefited from the cholesterol market,” which is growing steadily, said pharmaceuticals analyst Mike Krensavage of Raymond James & Associates.

He said Merck’s top seller, an older cholesterol drug called Zocor whose sales were down 15% to $1.1 billion in the first quarter, had been losing market share to Vytorin and Zetia as well as Pfizer Inc.’s Lipitor. Because Merck and Schering-Plough have roughly a 50%-50% split of Vytorin and Zetia revenues, Krensavage said it was unlikely the franchise could grow enough to totally replace the $5-billion-plus in annual revenue Zocor once brought Merck.

Krensavage said that Merck beat analysts’ forecasts mainly because of cost cutting and that Schering-Plough might have had an “unusually strong” quarter with results that couldn’t be sustained all year.

In trading on the New York Stock Exchange on Thursday, Merck shares rose 21 cents to $34.28, and Schering-Plough shares jumped 75 cents to $20.70.