Schering-Plough Marred by Costs

But the company had an 18% gain in second-quarter sales.
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Schering-Plough

(SGP)

said Thursday that it has doubled to $500 million the amount of reserves used to cover government investigations and litigation involving past marketing, financial and clinical trial activities.

The company took $259 million in charges for the second quarter, of which all but $9 million was devoted to the investigations by the U.S. attorney's office in Massachusetts, as well as

investigations into price-setting practices by the Justice Department and several states.

The $259 million charge, worth 18 cents a share, played a key role in a red-ink report for the three months ended June 30. Schering-Plough lost $70 million, or 5 cents a share, on revenue of $2.53 billion. For the same period last year, it lost $65 million, or 4 cents a share, on revenue of $2.15 billion.

"While no agreement has been reached, the increase in litigation reserves reflects the company's current estimate to resolve these matters," Schering-Plough said. The company also said it has achieved many of the goals required by a 2002

consent decree with the Food and Drug Administration over manufacturing practices.

"These matters relate to issues that arose before this new management team joined Schering-Plough," said Fred Hassan, chairman and CEO, who started with the company in April 2003. "We are working hard to put these matters behind us and to strengthen the emphasis on business integrity in our new culture."

Schering-Plough's stock slipped 10 cents to $20.10 in heavier than average trading Thursday.

Schering-Plough said the 18% gain in second-quarter sales was paced by Remicade, a product for rheumatoid arthritis and several other inflammatory diseases. Sales rose to 29% to $234 million. Schering-Plough sells the drug in most foreign markets, and

Johnson & Johnson

(JNJ) - Get Report

sells it in the U.S.

Another big gain came from Temodar, a treatment for certain types of brain tumors, whose sales rose 42% to $145 million. The allergy drug Nasonex contributed $199 million, up 28%, and Peg-Intron, a treatment for hepatitis C, advanced 26% to $182 million.

The company also

reported strong results for its Zetia cholesterol pill that it comarkets with

Merck

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, as well as for Vytorin, the combination cholesterol pill that joins Zetia and Merck's Zocor.

Schering-Plough doesn't include sales from its Zetia/Vytorin joint venture in its GAAP accounting. Joint venture sales are split 50/50, so Schering-Plough reported $257 million for the second quarter vs. $122 million for the same period last year.