I know we're all supposed to be long-term investors who are willing to look past stock market movements when we think about our stocks. But I wonder whether Schering-Plough (NYSE:SGP) shareholders are really so sanguine -- even though this company has been making progress, the stock has been a bit choppy.
All the same, the company's progress continues. Reported revenue was up 8% this quarter and would have been up 12% if the company were allowed to include revenue from the cholesterol joint venture with Merck (NYSE:MRK) in its results. Gross margins improved again and the company posted considerably better operating and net income for the quarter.
Turning to the drugs that keep this business moving, total pharmaceutical sales were up 10% this quarter. Remicade, Nasonex, and Temodar all posted 25% or better revenue growth, and PEG-Intron was up 16% as well. Speaking of that cholesterol joint venture, sales here were up 54%, and while those sales were flattish on a sequential basis, prescription trends still seem to be alright.
Now for some of the bad news -- or at least potential bad news. New generics in the market could hurt both Nasonex and Clarinex, though the generics in question are knock-offs of rival compounds. I also thought it was interesting that the company made mention in its 10-K of increasing price pressure from managed health companies. I don't find this surprising, but it'll be interesting to see how this develops over the next few years.
I still think Schering has a decent pipeline, even with the somewhat concerning news that some patients in the vicriviroc (for HIV) study developed cancer. That said, I look at the business today and see pretty low margins relative to the sector. I'm not sure there's a lot of cost-cutting left to do, so I'm wondering whether Schering-Plough wouldn't benefit from acquiring a product or company (or two) and getting a little more leverage out of that corporate infrastructure.
Schering-Plough is still a bit challenging to value by more traditional methods, but that's not uncommon for turnaround stories. And while it may not be my favorite idea for new investment dollars in the pharmaceutical space, I still think there could be some upside here as the recovery story continues to play out.
Plow into more Foolish thoughts on the drug sector:
Merck is a Motley Fool Income Investor recommendation.
Fool contributor Stephen Simpson has no financial interest in any stocks mentioned (that means he's neither long nor short the shares).
