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American Home, Schering-Plough Both Match Forecasts

Updated from 9:10 a.m. EST

Two pharmaceuticals firms that have lately been distracted from their primary mission of selling drugs posted generally solid earnings Thursday. That could be where the similarities between them end, though.

American Home Products (AHP - Get Report), which recently resolved litigation over its diet drugs, posted improved net income for the quarter and year based on strong prescription drug sales. The company also said it was on track for double-digit earnings and revenue gains in 2002.

Schering-Plough (SGP), on the other hand, has yet to resolve expensive regulatory problems involving its manufacturing plants. Excluding a $500 million charge to cover potential government fines for the manufacturing issues, the company reported a drop in net income for the quarter and year. And while Schering is looking for earnings growth in the "low double digits" in 2002, it said that will depend on the launch of approved drug Clarinex and reaching a consent decree with the Food and Drug Administration.

Late in Thursday's session, American Home was trading down 29 cents, or 0.5%, at $64.20, while Schering-Plough was down 36 cents, or 1%, at $33.50.

Home Free

American Home noted that its legal settlement with thousands of former users of fen-phen, a diet cocktail containing two drugs that was recalled in 1997 due to safety concerns, received final legal approval on Jan. 3. After running up more than $13 billion in charges for the litigation, the company said it didn't expect to incur any more costs in the matter. "Based on current information, we feel that the reserve is adequate to cover diet-drug liability," a company spokesman said.

The company wants a fresh start, to the extent that it is changing its name to Wyeth. But even despite its legal troubles, AHP fared well in 2001 relative to its peers. A rush of patent expirations in the industry has ushered in a wave of competition from lower-priced generics. And while a record number of drugs are in the early testing stages, few top sellers have come to market since the middle of 1999.

Nevertheless, American Home saw prescription drug revenues rise 10% in fourth quarter to $2.8 billion, on higher sales of Effexor, Protonix and the Premarin line of female hormone replacement medicines. Animal health products sales fell 6% in the fourth quarter and 2% in the full year, and nonprescription drug sales dropped 1% in both the fourth quarter and full year.

American Home posted operating profits of $823 million, or 62 cents a share, in the fourth quarter, up 17% from $704 million, or 53 cents a share, a year earlier, meeting analysts' forecasts. Full year 2001 earnings also rose 17% to $2.3 billion, or $1.72 a share. Revenue, including foreign exchange losses, rose 9% for both the 2001 fourth quarter and the full year.

And next year looks even better. For 2002, American Home expects earnings growth of 17% to 22% and revenue growth of 10% to 12%.

Rough Sledding

In the meantime, storm clouds still hang over Schering-Plough's future.

Whether the company will in fact be fined $500 million for the quality control problems at its manufacturing plants couldn't be confirmed by the company or the Food and Drug Administration, as negotiations are ongoing.

The company also declined to comment on how much it spent to upgrade plants last year and how much more would need to be done. Total capital outlays for 2001 totaled $750 million, which includes work on these facilities as well as other projects worldwide.

"We have done a lot of work, and significant progress has been made, but we would recognize that additional work needs to be done. How these issues will be resolved will be the subject of any agreement with the FDA," said a company spokesman.

In its release, the company said that low double-digit earnings growth in 2002 remains subject to a number of factors, including "possible impact on product shipments as the company continues to implement enhancements to manufacturing operations," as well as the timing and impact of a consent decree.

Those targets are also dependent upon the success of its U.S. launch of Clarinex, which has received FDA approval, and potential trade inventory reductions of an important revenue-generating drug, Claritin, the company said.

Schering-Plough said full-year earnings per share, excluding the $500 million charge, fell 8% to 36 cents in 2001, on net income of $528 million. Including the charge, fourth-quarter diluted earnings per share declined 74% to 10 cents on net income of $143 million. Worldwide pharmaceutical sales of $8.4 billion for the full-year 2001 were flat compared with the 2000 period and up 2% when foreign exchange is excluded.

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