What is the impact of the FDA consent decree on Schering-Plough's operations and finances?

The consent decree addresses compliance issues with current Good Manufacturing Practices (GMPs) at certain manufacturing facilities. Schering-Plough has agreed to pay $500 million to the U.S. government, with $250 million paid in May 2002 and the remainder due in Q2 2003. The decree also includes provisions for daily payments if deadlines are missed and potential royalty payments. The company has temporarily suspended production of certain animal health products and is undertaking recalls. While the $500 million provision was accrued in Q4 2001, ongoing compliance and potential penalties are significant considerations.

What is the outlook for CLARITIN sales given the upcoming patent expiry and potential OTC switch?

Schering-Plough anticipates a rapid, sharp, and material decline in CLARITIN sales in the United States following the expected approval of CLARITIN for Over-the-Counter (OTC) use and/or the introduction of generic prescription or OTC loratadine. The compound patent for loratadine expired in June 2002, with market exclusivity extended to December 2002. The company's earnings projections assume generic entry as early as December 20, 2002. The potential erosion of CLARITIN sales is expected to be substantial, similar to the rapid decline experienced by Prozac upon generic entry.

How is the collaboration with Merck & Co. performing, particularly regarding ZETIA?

The collaboration with Merck & Co. is showing progress. ZETIA, a cholesterol absorption inhibitor, received approval in Germany on October 17, 2002, and more importantly, was approved by the FDA on October 25, 2002, for use alone or with statins to lower LDL and total cholesterol. The agreements involve co-development and co-promotion, with equal sharing of costs and profits. While the fixed-combination tablet with CLARITIN and Singulair for allergic rhinitis and asthma did not meet primary endpoints in Phase III trials, the ZETIA developments are a positive step for the partnership.

What are the main drivers behind the significant increase in Anti-infective & Anticancer sales?

The substantial growth in the Anti-infective & Anticancer category, up 93% for the quarter and 73% year-to-date, is primarily driven by the INTRON franchise. This includes INTRON A, PEG-INTRON (a longer-acting form for Hepatitis C), and REBETRON Combination Therapy. The October 2001 launch of PEG-INTRON with REBETOL for Hepatitis C in the U.S. and subsequent launches in Europe and Japan are key contributors. Sales of REMICADE for Crohn's disease and rheumatoid arthritis, and TEMODAR for brain tumors, also significantly increased due to improved market penetration.

MRK 10-Q Quarterly Report Q3 FY2002 — Revenue, Net Income, EPS

Summary

Schering-Plough Corporation (now Merck & Co., Inc. after the merger) reported its third-quarter and year-to-date results for 2002. While overall net sales saw a modest increase of 2% for the quarter and 7% for the nine-month period, profitability faced pressure. Net income for the quarter declined by 29% to $429 million, resulting in diluted EPS of $0.29, down from $0.41 in the prior year. For the nine months, net income decreased by 8% to $1,662 million, with diluted EPS at $1.13 compared to $1.22 in 2001. The company is navigating significant challenges including the impending loss of market exclusivity for its key product, CLARITIN, with generic competition anticipated by late December 2002. This, coupled with the ongoing consent decree with the FDA regarding manufacturing compliance, is impacting results. The company is actively managing its product portfolio, including the launch of CLARINEX and strategic collaborations, such as the one with Merck & Co. for cholesterol and respiratory products, which saw ZETIA approved in Europe and the US during the quarter. Investors should monitor the progress of CLARITIN's transition to OTC status and the impact of the consent decree on future manufacturing and sales.

Key Highlights

1Net sales increased by 2% to $2.42 billion for the third quarter and 7% to $7.81 billion for the nine months ended September 30, 2002, compared to the prior year.
2Diluted earnings per share decreased by 29% to $0.29 in the third quarter and by 7% to $1.13 for the nine months, reflecting increased costs and competitive pressures.
3The company reached an agreement with the FDA for a consent decree to resolve GMP compliance issues, involving a $500 million payment, with the first $250 million installment paid in May 2002.
4Sales of the CLARITIN family of products decreased significantly (51% for the quarter, 25% year-to-date) due to inventory reductions in anticipation of OTC launch and patient shifts to CLARINEX.
5ZETIA, a key product from the collaboration with Merck & Co., received FDA approval for use in patients with high cholesterol.
6Anti-infective and anticancer product sales saw substantial growth (93% for the quarter, 73% year-to-date), driven by the INTRON franchise (INTRON A, PEG-INTRON, REBETOL).
7The company anticipates significant adverse effects on CLARITIN sales starting late 2002 due to the potential introduction of generic forms and the expected switch of CLARITIN to OTC status.

Merck & Co., Inc. Quarterly Report for Q3 Ended Sep 30, 2002

Summary

Key Highlights

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