News Release
Schering-Plough Corporation
2000 Galloping Hill Road
Kenilworth, New Jersey 07033-0530
FOR RELEASE: IMMEDIATELY Investor Contacts: Lisa W. DeBerardine
Janet M. Barth
(908) 298-7436
Media Contact: Steve Galpin, Jr.
(908) 298-7415
SCHERING-PLOUGH REPORTS FINANCIAL RESULTS
FOR 2003 FOURTH QUARTER, FULL YEAR
KENILWORTH, N.J., Jan. 26, 2004 - Schering-Plough Corporation (NYSE: SGP) today
reported financial results for the 2003 fourth quarter and full year, including
lower 2003 sales and a loss for the year stemming primarily from the decline in
sales and recognition of special charges.
"Shortly after I took over Schering-Plough in the second quarter of 2003,
we started taking tough actions to stabilize the serious systemic problems
affecting this company, problems that had been a long time in the making," said
Fred Hassan, Schering-Plough chairman and CEO. "We are closely tracking the
five-point Action Agenda that we presented at last year's annual shareholders
meeting. We are making good progress in stabilizing our allergy franchises and
building market share in the cholesterol-treatment market in spite of the
aggressive launch of a new competitor. As planned, 2004 will be the year of
repair and cleanup, bridging to an expected turnaround starting in 2005."
The company had previously indicated in 2003 that fourth quarter
comparisons would be affected by unusual dynamics of its hepatitis C business in
that quarter as well as the absence of LOSEC revenues from Europe, which ended
in the preceding quarter. The company had also previously indicated that 2004
comparisons with 2003 would be difficult.
Added Hassan, "Though we have accomplished a great deal in a short period
of time, much remains to be done. We know that this is a long-haul process, and
it won't be easy or without occasional setbacks. But we are building for the
long term, avoiding quick fixes and staying focused on making Schering-Plough a
highly competitive global organization, with multiple growth drivers and capable
of delivering superior growth. Our commitment to business integrity, quality and
compliance remains fundamental to all our plans."
The company's results for 2003 reflect a number of factors and difficult
comparisons with prior
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financial periods. The decline in full-year sales was largely due to the impact
from the 2002 patent expiration of prescription CLARITIN, which was launched
without exclusivity protection as an over-the-counter (OTC) product at year-end
2002, and to the introduction of new competition for its hepatitis C franchise
in a market that in the 2002 fourth quarter benefited from wait-listed patients
going on the company's new therapy. Results for the hepatitis C franchise in
2003 also reflect lower trade inventory levels in anticipation of U.S. generic
competition for REBETOL.
Special charges in the 2003 fourth quarter were primarily related to the
Voluntary Early Retirement Program (VERP) in the United States, which was
initiated as part of the company's global cost-cutting program designated the
Value Enhancement Initiative (VEI). Out of an eligible 2,400 U.S. employees (the
eligible population of employees excluded customer-facing employees and
employees dedicated to fulfillment of the company's consent decree obligations),
approximately 900 people elected to take the VERP. The number of people taking
the VERP closely approximated the company's original estimate. The VERP was the
first step toward Schering-Plough's goal of reducing overall payroll and related
expenses by at least 10 percent (excluding customer-facing employees and consent
decree-related employees). While the VERP is expected to achieve a substantial
part of the 10 percent goal to reduce payroll and related expenses, additional
global workforce reductions will occur in 2004 in order to reduce the company's
cost base. The special charges in the 2003 fourth quarter also include asset
impairment charges related to certain fixed and intangible assets.
"We are taking the necessary steps now so that we can begin the turnaround
in 2005 and get Schering-Plough on a sustainable growth path," added Hassan. "We
are aggressively pursuing our Value Enhancement Initiative (VEI), which is
expected to yield annual cost savings in excess of $200 million." VEI actions
taken to date include VERP; elimination of profit-sharing; elimination of
employee bonuses under the company's standard plans in 2003 and of routine merit
increases in 2004 (excluding customer-facing employees and consent
decree-related employees); renegotiated contracts with product and service
providers; tight controls on new hires; and cutbacks in travel costs and general
expenses.
Hassan noted that the company is reinvesting a significant portion of the
VEI cost savings back into the company to help build a solid foundation for
long-term growth. "We will be restoring the strength of our primary care sales
force and enhancing our specialty sales force, providing the resources to
maximize our ZETIA and ezetimibe/simvastatin opportunities, and supporting our
major profit-making products like NASONEX, REMICADE and our hepatitis C
franchise. In addition, we will continue to invest in our promising research
compounds and strengthen our manufacturing and compliance systems in concert
with meeting our extensive consent decree obligations and other
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initiatives to repair and upgrade our infrastructure. We also continue to work
hard at pursuing in-licensing opportunities to supplement our R&D pipeline. We
are pleased to note that, based on fourth quarter sales, ZETIA is now
annualizing at more than $600 million in sales, one of the few large launches in
the pharmaceutical industry in recent years.
"The road ahead will be difficult and challenging," Hassan added, "but we
have an exciting opportunity to become a leader in innovation and execution, and
to achieve earnings growth beginning with the anticipated turnaround in 2005."
FOURTH QUARTER 2003 RESULTS
The company reported a loss for the 2003 fourth quarter of $181 million or 12
cents per share compared with net income of $313 million and diluted earnings
per share of 21 cents in the 2002 period. The special charges in the 2003 fourth
quarter were $229 million, or 13 cents per share (as measured using the
company's effective tax rate). These charges include employee termination costs
of approximately $179 million primarily related to the VERP and asset impairment
charges of $50 million related to certain fixed and intangible assets. As
discussed above, the fourth quarter results reflect the substantially lower
sales comparisons for the INTRON franchise, which includes the
anticancer/antiviral agent INTRON A Injection, as monotherapy and in combination
with REBETOL Capsules for treating hepatitis C, and PEG-INTRON Powder for
Injection, a longer-acting form of INTRON A, as monotherapy and in combination
with REBETOL for treating hepatitis C.
Fourth quarter 2003 sales of $1.9 billion were 18 percent lower versus the
comparable 2002 period, including a favorable exchange impact of 6 percent.
These sales do not include any results from the cholesterol joint venture with
Merck. Contributing to lower fourth quarter sales comparisons was a 55 percent
decline to $369 million in global sales of the company's INTRON franchise. U.S.
sales of the INTRON franchise were down 76 percent to $132 million. Also
contributing to lower fourth quarter sales comparisons was a reduction in
overall trade inventories, including a reduction of REBETOL trade inventories in
anticipation of U.S. generic competition. U.S. REBETOL sales in the fourth
quarter were $18 million. Additionally, as the company's LOSEC agreement with
AstraZeneca ended in the 2003 third quarter, there were no LOSEC revenues
recorded in the fourth quarter. LOSEC revenues in the 2002 fourth quarter were
$37 million.
The company's U.S. allergy franchise continued to face intense competitive
pressures for its major products. The company succeeded, however, in stabilizing
CLARINEX market share (reported at 19.3 percent in December 2003 after a market
bottom in new prescriptions of 18.5 percent in August 2003) and NASONEX market
share (reported at 25.5 percent in December 2003 after a bottom of 23.3
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percent in new prescriptions in July 2003). Fourth quarter 2003 U.S. CLARINEX
sales were $93 million, down 36 percent, primarily reflecting a decline in the
prescription antihistamine market due to the introduction of OTC CLARITIN and
private label generic loratadine. NASONEX U.S. sales were $78 million, down 3
percent due to year-over-year market share comparisons. Sales of OTC CLARITIN
totaled $96 million in the 2003 fourth quarter compared to sales of $105 million
in the 2002 period when the product was first shipped.
The company continued to record strong positive results outside the United
States for several major products in the 2003 fourth quarter, reflecting market
share gains and favorable foreign exchange. Products recording higher sales
outside the United States included REMICADE, up 46 percent to $159 million;
TEMODAR, up 44 percent to $48 million; CAELYX, up 57 percent to $32 million;
CLARINEX, up 30 percent to $40 million; and NASONEX, up 21 percent to $55
million.
The company noted that its cholesterol joint venture with Merck has moved
well beyond the research and development phase. ZETIA was launched in late 2002
and global sales of ZETIA in the 2003 fourth quarter totaled $165 million, with
U.S. sales of $144 million. Further, a U.S. marketing application for
ezetimibe/simvastatin, a new cholesterol-lowering product, was submitted in
September 2003 and accepted for filing in November 2003.
To reflect the venture's first full year of commercial operations, the
company will begin presenting the venture's results in accordance with the
equity method of accounting. Under this method, the company reports its share of
operating profits of the venture, net of its share of research and development
costs. This presentation is effective for the full year 2003. Accordingly, the
operating profits of the venture that had been included in net sales as alliance
revenue in the first three quarters of 2003 have been reclassified to "Equity
Income from Cholesterol Joint Venture." Likewise, the company's share of the
venture's research and development costs, which had been reported in "Research
and Development" in the previous quarters of 2003, have been reclassified to
"Equity Income from Cholesterol Joint Venture." Further, in the second quarter
of 2003, the company earned a milestone from Merck of $20 million that had been
reported in "Other, net" in the second quarter. This amount has also been
reclassified to "Equity Income from Cholesterol Joint Venture." Prior years are
not affected by this new presentation.
The "Equity Income from Cholesterol Joint Venture" for the 2003 fourth
quarter totaled $33 million. This amount includes operating profits of $47
million less research and development costs of $14 million. For the full year
ended 2003, "Equity Income from Cholesterol Joint Venture" totaled $54 million,
which is comprised of $113 million of operating profits, plus $20 million for
the milestone earned in the second quarter, less $79 million which represents
the company's share of the research and
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development costs. It should be noted that the company incurs substantial costs,
such as selling costs, that are not reflected in the equity income from the
cholesterol joint venture and are borne by the overall cost structure of
Schering-Plough.
The company's gross margin ratio to sales was 62.1 percent for the 2003
fourth quarter versus 74.4 percent in the 2002 period. However, 3.9 points of
the decline were due to the benefit in the 2002 fourth quarter from a favorable
adjustment of $92 million related to the settlement of a royalty dispute with
Biogen regarding interferon products. The remaining amount of the decline was
due to a change in product sales mix and increased spending for the company's
current Good Manufacturing Practices (cGMP) compliance efforts.
Selling, general and administrative expenses declined 9 percent to $821
million in the fourth quarter of 2003, reflecting lower marketing expenses in
the global pharmaceutical business and VEI savings, primarily from the absence
of payments for profit sharing and bonuses, offset by higher promotional
spending for OTC CLARITIN and unfavorable foreign exchange. While the VEI
savings should create better comparisons in the overhead costs in 2004 and 2005,
the company also expects to invest more in sales and marketing to protect its
U.S. market shares, to support new product launches and to invest in R&D
projects.
Research and development spending for the fourth quarter totaled $395
million. Including the amount reported as "Equity Income from Cholesterol Joint
Venture," research and development spending was essentially flat versus the 2002
period due to the timing of research spending. Going forward, the company said
there will be VEI savings realized in R&D, but these are expected to be offset
by expenditures on ZETIA and the improving early pipeline.
Schering-Plough noted that its continued focus on compliance in all key
functions is negatively impacting the overall cost structure of the company.
The "Other, net" line reflects higher net interest expense from increased
borrowings including higher borrowing costs associated with the long-term debt
issued in the 2003 fourth quarter. The 2002 fourth quarter "Other, net" line
included a nonrecurring gain of $80 million from the sale of U.S. marketing
rights for SUBOXONE and SUBUTEX back to Reckitt Benckiser plc.
FOURTH QUARTER 2003 CONFERENCE CALL AND WEBCAST
Schering-Plough will conduct a conference call at 8 a.m. (EST) today to review
these results and respond to investor inquiries. Fred Hassan, Schering-Plough's
chairman and CEO, and other members of management will participate in the
conference call. To listen live to the call, dial 1-706-634-5003. A replay of
the call will be available starting at approximately 11 a.m. on Jan. 26 through
5 p.m. on Jan.
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29. To listen to the replay, dial 1-706-645-9291 and enter the conference ID #
4807512.
A live audio webcast of the conference call also will be available to all
interested parties via the Schering-Plough corporate Web site,
www.schering-plough.com, by clicking on the "View Webcasts" link. Software
needed to listen to the webcast (Windows Media Player) is available via the site
and should be downloaded prior to the beginning of the webcast. A replay of the
webcast will be available starting at approximately 11 a.m. on Jan. 26 through 5
p.m. on Feb. 2.
DISCLOSURE NOTICE: The information in this press release includes certain
"forward-looking" statements relating to the company's business prospects,
earnings outlook, anticipated turnaround and resulting growth prospects, and
savings goals relating to productivity and efficiency initiatives. Actual
results may differ materially from forward-looking statements due to a number of
risks and uncertainties, including the market viability of the company's
marketed and pipeline products, including the current and pipeline products in
the company's joint venture with Merck; possible changes in business strategies
and the ability to successfully implement those business strategies; general
market and economic factors; competitive product development; market acceptance
of new products; product availability; current and future branded, generic or
OTC competition; federal and state regulations and legislation; the research and
regulatory processes for new products and indications; existing and new
manufacturing issues that may arise; trade buying patterns; patent positions;
litigation and investigations; and instability or destruction in a geographic
area important to the company due to reasons such as war. For further details
and a discussion of these and other risks and uncertainties, see the company's
past and future Securities and Exchange Commission filings, including the
company's 10-Q for the 2003 third quarter. The company does not assume any
obligation to update any forward-looking statements.
Schering-Plough is a research-based company engaged in the discovery,
development, manufacturing and marketing of pharmaceutical products worldwide.
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SCHERING-PLOUGH CORPORATION
Report for the fourth quarter and twelve months ended December 31 (unaudited):
(Amounts in millions, except per share figures)
Fourth Quarter Twelve Months
-------------------------------------- -------------------------------------
2003 2002 % 2003 2002 %
-------- -------- -------- -------- -------- --------
Net Sales ....................... $ 1,948 $ 2,370 (18) $ 8,334 $ 10,180 (18)
Cost of Sales ................... (739) (607) 22 (2,833) (2,505) 13
Selling, General
and Administrative ........... (821) (897) (9) (3,474) (3,681) (6)
Research and Development ........ (395) (409) (3) (1,469) (1,425) 3
Equity Income from Cholesterol
Joint Venture a/ ............. 33 0 N/M 54 0 N/M
Other, net ...................... (10) 98 N/M (59) 144 N/M
Special Charges b/ .............. (229) (150) 53 (599) (150) N/M
-------- -------- -------- --------
(Loss)/Income Before Income Taxes (213) 405 N/M (46) 2,563 N/M
Income Tax Benefit/(Expense) .... 32 (92) N/M (46) (589) (92)
-------- -------- -------- --------
Net (Loss)/Income ............... $ (181) $ 313 N/M $ (92) $ 1,974 N/M
======== ======== ======== ========
Diluted (Loss)/Earnings per
Common Share ................. $ (0.12) $ 0.21 N/M $ (0.06) $ 1.34 N/M
======== ======== ======== ========
Effective Tax Rate c/ ........... 15.0% 23.0% N/M 23.0%
Average Common Shares
Outstanding - Diluted ........ 1,470 1,469 1,469 1,470
Actual Number of Common Shares
Outstanding at December 31 ... 1,471 1,468 1,471 1,468
N/M - Not a meaningful percentage
a/ Effective for the full year 2003, the company is presenting its
collaboration with Merck under the equity method of accounting. Under that
method, the company records its share of the operating profits less its share of
research and development costs in "Equity Income from Cholesterol Joint
Venture." Included in this line for the full year 2003 are the company's share
of the operating profits of $113 million and a $20 million milestone payment,
less its share of research and development costs of $79 million. It should be
noted that the company incurs substantial costs, such as selling costs, that are
not reflected in the equity income from the cholesterol joint venture and are
borne by the overall cost structure of Schering-Plough.
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b/ Special Charges for the fourth quarter of 2003 included $179 million of
employee termination costs, primarily related to the VERP in the United States,
as well as $50 million of asset impairment charges related to certain fixed and
intangible assets. Special Charges for the full year 2003 also included the $350
million provision to increase litigation reserves recorded in the third quarter,
as well as $20 million of asset impairment charges related to manufacturing
facility fixed assets recorded in the second quarter. Special charges in 2002
included a $150 million provision to increase litigation reserves.
c/ For the full year 2003, the effective tax rate was 15% excluding the $350
million provision to increase litigation reserves, which is not tax deductible.
Foreign exchange had no impact on diluted earnings per share for the fourth
quarter of 2003. Diluted earnings per share for the 12 months of 2003 reflect a
favorable exchange impact of $0.05 per share. The company advises that the trend
in earnings per share should be viewed with and without the effects of foreign
exchange rates.
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SCHERING-PLOUGH CORPORATION
Report for the fourth quarter and twelve months ended December 31 (unaudited):
Net Sales by Major Product:
(Dollars in Millions) Fourth Quarter Twelve Months
-------------------------------- -------------------------------
2003 2002 % 2003 2002 %
------- ------- ------- ------- ------- -------
ANTI-INFECTIVE & ANTICANCER $ 726 $ 1,088 (33) $ 3,098 $ 3,733 (17)
Caelyx 32 21 57 111 71 55
Intron franchise* 369 817 (55) 1,851 2,736 (32)
Remicade 159 109 46 540 337 60
Temodar 87 69 26 324 278 16
ALLERGY & RESPIRATORY 487 338 44 2,003 3,304 (39)
Clarinex 133 176 (25) 694 598 16
Claritin Rx 81 (51) N/M 370 1,802 (79)
Nasonex 132 125 6 500 523 (4)
Proventil 43 17 N/M 125 128 (2)
CARDIOVASCULARS 87 102 (15) 467 433 8
Integrilin 46 81 (43) 306 304 1
DERMATOLOGICALS 115 158 (27) 507 511 (1)
OTHER PHARMACEUTICALS 101 236 (57) 597 807 (26)
------- ------- ------- -------
GLOBAL PHARMACEUTICALS 1,516 1,922 (21) 6,672 8,788 (24)
OTC 143 155 (8) 563 269 N/M
OTC Claritin 96 105 (9) 415 105 N/M
FOOT CARE 64 65 (1) 275 279 (1)
SUN CARE 11 35 (69) 127 167 (24)
------- ------- ------- -------
CONSUMER HEALTH CARE 218 255 (14) 965 715 35
ANIMAL HEALTH CARE 214 193 11 697 677 3
------- ------- ------- -------
CONSOLIDATED NET SALES $ 1,948 $ 2,370 (18) $ 8,334 $10,180 (18)
======= ======= ======= =======
N/M - not a meaningful percentage
*The Intron franchise includes INTRON A, PEG-INTRON and REBETOL.
NOTE: Additional information about U.S. and international sales for specific
products is available by calling the company or visiting the investor
relations Web site at http://ir.schering-plough.com.