Earnings Preview: Schering-Plough

OVERVIEW: Schering-Plough, a major maker of respiratory, hepatitis and cholesterol drugs, has seen revenue boom since its November acquisition of Dutch biopharmaceutical company Organon BioSciences NV for $14 billion, its biggest buy ever. The deal made the world's 16th-biggest drugmaker a world leader in veterinary medicines and women's health products, including the contraceptives Implanon and Nuvaring.

But revenue has been falling steadily for cholesterol drugs Vytorin and Zetia, which it markets jointly with Merck & Co., since a study in January showed they didn't prevent arterial plaque buildup better than a cheaper generic.

Amid the fallout, CEO Fred Hassan recently started the company's second major restructuring since he took over in 2003, aiming to cut another 10 percent of jobs and $1.5 billion in annual costs.

Last month, the company and partner Merck & Co. said they've ended efforts to get U.S. regulators to approve an allergy drug that combines Schering's Claritin and Merck's Singulair--a couple months after the FDA rejected it. Besides the HomeAgain pet recovery system, Schering-Plough also makes a host of popular consumer products, such as Dr. Scholl's foot products and the Coppertone sun-care line.

BY THE NUMBERS: Analysts polled by Thomson Financial expect, on average, earnings per share of 41 cents and revenue of $4.76 billion. In the year-earlier period, earnings per share were 34 cents and revenue was $3.18 billion. In the first quarter, earnings per share fell to 15 cents from 36 cents a share in the 2007 period, due to charges from the Organon acquisition.

ANALYST TAKE: Cowen and Co. analyst Steve Scala predicts total revenue will jump nearly 50 percent, mainly because of the Organon purchase. But he writes that equity income from the cholesterol drug joint venture will be down by 10 percent in the second quarter.

Goldman Sachs analyst Jim Kelly two weeks ago lowered his earnings-per-share forecast by a few cents for each of the next five years, citing expected lower sales of prescription allergy drug Clarinex and of nonprescription allergy drug Claritin. In January, Claritin got competition from Johnson & Johnson's newly over-the-counter Zyrtec, which has been grabbing market share.

On the other hand, Lehman Brothers analyst Charles Butler recently raised his rating to "Buy" and lifted his price target to $27 per share from $22, saying Schering-Plough will post better profit and revenue growth than rivals through 2012, because of limited patent expirations the next few years, an undervalued product pipeline and other diversified businesses.

WHAT'S AHEAD: Leerink Swann analyst Seamus Fernandez thinks two experimental drugs awaiting FDA approval could be catalysts for the stock later this year: asenapine, for schizophrenia and bipolar mania, and sugammadex, for reversing the effects of anesthesia. But he writes that odds for asenapine's approval look "like 50/50 in this FDA environment." That's because the agency is viewed as being tougher on experimental drugs the past couple years, rejecting applications or requiring new data more than it previously did.