Another quarter is in the books, and Schering-Plough (NYSE:SGP) continues to look as though it's on the mend. The question, though, is where the company might find cost-cutting efforts begin to level off and whether it has enough internal projects to mitigate the risk that today's lead dogs go off track.

While as-reported sales were up 11% for the second quarter (a pretty solid result itself among big pharmaceutical companies), adjusted sales were up 18% and better reflect, in my opinion at least, the state of business. Unfortunately, that's about as straightforward as it gets, as charges and items here and there do impair earnings and profit comparisons. Nevertheless, my own cooked-up version of operating income (gross income minus selling, general, and administrative expenses and research and development and plus joint venture equity income) shows 47% growth from last year, with the joint venture contributing more than its share and making up for increased costs and losses elsewhere.

That joint venture, a cholesterol partnership with Merck (NYSE:MRK), continues to be the big thrill with Schering-Plough these days. Revenue appeared to jump another 86% in the quarter and joint venture earnings more than doubled. Trouble is, this is a point of vulnerability as well as strength: Sales are good now and accelerating the company's recovery, but what happens if Merck decides to favor internal cholesterol projects or rivals like Pfizer (NYSE:PFE) and AstraZeneca (NYSE:AZN) come up with equally compelling combos?

I still maintain that Schering-Plough would do well to acquire or in-license a drug or two. To that end, I've heard rumors that Sepracor (NASDAQ:SEPR) could be a candidate, and with the sales potential of the new(ish) drug Lunesta, I can see the attraction. Now the vast majority of idle rumors end up being precisely that, but I'd hope that Schering-Plough seriously considers something to bulwark its pipeline.

For now, though, my feelings are getting more mixed on this stock. I think CEO Fred Hassan has done a good job getting the company this far and I seem to have a little more optimism on future margin potential than many analysts. That said, I do think the company's recovery is vulnerable, and I'd like to see more developments in the pipeline before laying my own money on the table.

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Fool contributor Stephen Simpson has no financial interest in any stocks mentioned (that means he's neither long nor short the shares).