Schering-Plough's (NYSE:SGP) turnaround efforts continue to meet with success. Though reported results were hurt by a charge related to increasing litigation reserves, the company once again beat the mean revenue estimate for the quarter.

Reported revenue rose 18% for the quarter as the company continued to see strong growth from the likes of Remicade, Nasonex, PEG-Intron, and Temodar. Not only did gross margins improve by 2.6 points, but Schering-Plough reined in growth in selling, general, and administrative expenses. As a result, it managed to post an operating profit and reversed the year-ago loss.

Of course, a (relatively) new CEO and a commitment to turning the business around don't wipe away the past. The company recorded a charge of $250 million to increase its litigation reserves related to a host of investigations underway at the Department of Justice and some states. On the Food and Drug Administration front, Schering-Plough continues to make progress living up to its consent decree -- completing 27 of 30 validation actions and 183 of 212 so-called "significant steps."

While Schering-Plough certainly deserves kudos for returning to profitability, the challenges aren't even close to coming to an end. Even once the various legal and regulatory issues go away, there's the matter of the pipeline -- the company's pipeline isn't especially strong with late-stage drugs.

On the bright side, though, Schering is not hugely dependent upon any one drug. What's more, the Zetia/Vytorin collaboration with Merck (NYSE:MRK) has only just begun to deliver on its potential.

Given Schering's somewhat modest size and pipeline, I wouldn't be stunned to see management clean up this company and then look to sell it to a larger player. Schering's half of the Vytorin business could be worth a lot to a company looking to strengthen its position in the cholesterol market, and rights to compounds like Nasonex, Temodar, and PEG-Intron are attractive, too.

Just the same, it's never a bright idea to buy a stock on the presumption of a buyout. So Schering-Plough needs to stand on its own merits for now. It's not always easy to value turnarounds because the historical troubles distort both backward-looking numbers and future growth projections. All that said, as long as Schering-Plough continues to make progress with its legal and regulatory issues and simultaneously continue to deliver solid financial results, the valuation and stock price will likely work themselves out favorably over time.

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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).