The New Schering-Plough

I'd become so used to reading about Schering-Plough's (NYSE: SGP  ) stagnating sales, accounting scandals, and other issues over the past couple of years that when I saw the most recent third-quarter results, it was almost like it wasn't the same company.

Schering finally appears to have returned to a stage of growth, which management quirkily calls the "build a base phase" of its "action agenda" -- whatever that means. Bucking the slow sales growth exhibited by most of the large-cap U.S. pharmaceutical companies, Schering posted revenues of $3.1 billion (including its joint venture with Merck (NYSE: MRK  ) for Vytorin), a 19% gain over its 2005 number.

The nice thing about Schering is that no one drug accounts for more than 16% of its revenues (including the joint venture), so the risk of any new competing drug entering the market and eroding its overall revenues is greatly diminished. As shown below, sales growth was very strong among all of Schering's top drugs.

	Sales (in millions)	Y-O-Y Growth	% of Revenues
Remicade	$317	34%	10%
Nasonex	$221	30%	7%
Peg-Intron	$206	11%	7%
Temodar	$179	18%	6%
Vytorin*	$500	62%	16%

*Dividing the joint venture's sales in half

Sales growth will continue because Remicade recently received an improved label in Europe for additional indications, Temodar finally was approved in Japan, and a study showing the improved effectiveness of Vytorin was added to the drug's label.

Gross margins for the third quarter were flat at a measly 66% for Schering, but this doesn't include sales from Vytorin, which would have boosted margins had they been accounted for differently on the income statement. Net margins were 11%, and as Schering's sales continue to grow, this should scale higher. Earnings came in at $0.19 a share, more than six times higher than the $0.03 the company earned in the third quarter of 2005. This number should also increase at a rapid pace as sales outpace costs.

Possibly the cheapest large-cap pharmaceutical company compared with its growth potential, the new Schering-Plough is no dirt. Investors craving only one domestic large-cap pharma stock might be happiest with the new Schering.

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Fool contributor Brian Lawler does not own shares of any company mentioned in this article. The Fool has a disclosure policy.