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Schering-Plough (SGP) posted a surprisingly strong profit on Apr. 19, as the drug maker continues its turnaround and pins its hopes on benefits from its recent acquisition of Organon BioSciences N.V.



The Kenilworth, N.J. company's net income rose more than 55% compared to last year to $543 million during the quarter ended March 31, including items related to things like licensing payments and stock-based compensation. "Our first quarter performance demonstrates that we continue to hone our competitive edge, extend our core businesses and deliver very strong results," said CEO Fred Hassan in a press release Apr. 19. He pointed out that his company is gaining momentum in research and development, while its planned combination with Organon holds promise for more success in the future.



First quarter sales totaled $3 billion, up 17% year over year. Significantly, Schering-Plough's global cholesterol joint venture net sales, which include Vytorin and Zetia, totaled $1.2 billion in the March quarter, a 48% increase compared to the same period last year. Hassan has staked his company's success on Zetia, which prevents absorption of cholesterol in the intestine, as well Vytorin, which blends Zetia with Merck's (MRK)'s cholesterol blocker Zocor [see BusinessWeek.com, 7/26/04, "Hooked On The Cash From Cholesterol"].



But other Schering-Plough drugs also fared well. The arthritis treatment Remicade's sales rose by 34% to $373 million in the March quarter. Meanwhile the company announced on Apr. 19 that the U.S. Food and Drug Administration has agreed to an expedited review of studies on its SCH 530348, which researchers hope will prevent blood clots in people who suffer from heart disease.



In another effort to keep growing, Schering-Plough announced a plan on March 12 to buy Netherlands-based drugmaker Organon for around $14.4 billion. Organon has many drugs that recently moved into advanced stages of development, such as the insomnia-fighting compound Esmirtazapine, the follicle-stimulating hormone for infertility called ORG36286, and the oral contraceptive NOMAC/E2. And Organon's Sugammadex, a drug used in anesthesia, is expected to be filed for approval in 2007.



"We think SGP is executing its turnaround strategy well, with ongoing cost streamlining and improving R&D pipeline likely to continue to fuel superior EPS growth," Standard & Poor's equity analyst Herman Saftlas said in a research note. [S&P, like BusinessWeek.com, is owned by The McGraw-Hill Companies.] Saftlas raised his target price on Schering-Plough's stock by $5 to $35 and upgraded it to strong buy from buy.



Saftlas wasn't the only one positively surprised by Schering-Plough's results. Analysts surveyed by Thomson Financial had expected to hear the company announce 29 cents per share, while Schering-Plough ended up posting 36 cents per share.



Investors bid up the stock 8.8% to $31.05 per share in late afternoon trading on the New York Stock Exchange.



"While we think the firm is paying a hefty price for Organon, we expect that will be more than offset by very strong underlying results at Schering, and we plan to increase our fair value estimate," Morningstar analyst Heather Brilliant said in a research note Apr. 19.



Schering-Plough wasn't the only one in the industry to announce stronger results on Apr. 19. Whitehouse Station, N.J's Merck reported that first quarter net income rose to $1.70 billion from $1.52 billion during the same period last year. Merck's stock rose 0.9% to $50.11 per share after the news.