Shares of Schering-Plough ( SGP) climbed Tuesday after the company reported better-than-expected results for the fourth quarter.

Earnings, excluding special items, of 27 cents a share beat the Wall Street consensus by 3 cents. The stock rose $1.12, or 5.4%, by early afternoon. Schering-Plough didn't make predictions about the first quarter or the full year.

On a GAAP basis, the October-to-December quarter was affected by $3.81 billion in net charges related to its Nov. 19 acquisition of Organon BioSciences from Akzo Nobel ( AKZOY).

When all special items are included, Schering-Plough lost $3.4 billion, or $2.08 a share, on revenue of $3.72 billion. The revenue figure includes six weeks' worth of Organon sales commencing from the day the deal closed. Analysts polled by Thomson First Call had been forecasting sales of $3.1 billion. For the fourth quarter of 2006, the company earned $182 million, or 12 cents a share, on sales of $2.65 million.

The GAAP numbers exclude sales from Schering-Plough's joint venture with Merck ( MRK) to sell the cholesterol drugs Vytorin and Zetia. Vytorin is a combination pill containing Schering-Plough's Zetia and Merck's Zocor. The cholesterol franchise is Schering-Plough's biggest source of profit, and the company's 50% share of the joint venture means these drugs added $722 million to fourth-quarter sales.

Fourth-quarter results were unaffected by the ongoing controversy over the publication of a Vytorin clinical trial. Preliminary test results were released in mid-January -- a more detailed account is expected in March -- amid a chorus of medical critics' and legislators' questions about the test. The last patient visit for the test took place in April 2006. Schering-Plough says the results were first made available to a "small group of scientists" on Dec. 31.

Prescriptions for Vytorin and Zetia have been hurt since the results were revealed. Many analysts have reduced their cholesterol franchise revenue expectations, even though they say they believe legislators, doctors and patients have overreacted to the Vytorin news. After the test was made public, Schering-Plough's stock was pounded, provoking some analysts to recommend buying the shares on what they believe is a temporary weakness.

The two companies "acted with integrity and good faith with respect to that trial," Fred Hassan, the chairman and CEO of Schering-Plough, said Tuesday. "We stand behind Vytorin and Zetia and behind the validity of the science."

The clinical trial, called ENHANCE, sought to determine if Vytorin was better at reducing the thickening of certain arteries vs. Zetia alone. The test examined 720 patients with a rare condition that produces high levels of so-called bad cholesterol, which cardiologists say is a warning signal for heart disease.

The test found no statistically significant difference between the two drugs in terms of artery thickening, an indicator of heart-disease risk. Vytorin was significantly better in reducing bad cholesterol.

"Medical experts and health advisory groups have long recognized" that bad cholesterol, also known as LDL cholesterol, is a "significant cardiovascular risk factor," the company said Tuesday.

"While it is too early to tell the impact of the ENHANCE trial results on our cholesterol business, lowering LDL cholesterol, along with healthy diet and lifestyle changes," is crucial for patients with a heart-disease risk, the company said.

Cholesterol-fighting has been big for Schering-Plough and Merck. The $722 million representing Schering-Plough's fourth-quarter sales share was 33% more than the fourth quarter of 2006. Its full-year share, worth $2.56 billion, rose 34% over the previous year.

The cholesterol franchise accounts for 17% of what Schering-Plough calls adjusted net sales, or GAAP revenue plus joint venture revenue. Analysts say Zetia and Vytorin account for 60% or more of Schering-Plough's earnings per share.

Even without the test controversy, analysts say the cholesterol drugs' growth rate will decline due to competition from brand-name drugs and, more importantly, generic versions of other cholesterol drugs. Merck's Zocor has been generic since mid-2006, and many health maintenance organizations are encouraging patients to start on, or switch to, the cheaper drug vs. brand-name medications.

A tougher test will come when Pfizer's ( PFE) Lipitor loses its U.S. patent protection. Lipitor could go generic in early 2010, although Pfizer is trying to keep the drug protected until mid-2011.

Analyst Barbara Ryan says a "primary downside risk" to Schering-Plough is the "sustained weakness" of the joint venture, while an "upside risk" is "a transient, modest decline in growth of the joint venture." She told her Deutsche Bank clients on Tuesday she is keeping a hold rating and a 12-month price target of $24. She doesn't own shares, but her firm has had a noninvestment banking relationship.

Jami Rubin, of Morgan Stanley, also forecasts uncertainty for the cholesterol franchise, but she belongs to the majority of analysts who are Schering-Plough bulls. She told clients that the fourth quarter's "solid" performance caused her to keep an overweight rating. She doesn't own shares, while her firm has had a recent investment banking relationship.

The Vytorin controversy obscured the results over the "other" Schering-Plough, for which many big-selling drugs yielded double-digit sales gains in the fourth quarter.

Remicade, for inflammatory diseases such as rheumatoid arthritis, produced $455 million, up 35% from the fourth quarter of 2006. Schering-Plough sells the drug outside the U.S. (excluding Japan and several other Asian countries), while Johnson & Johnson ( JNJ) handles the U.S. market.

Sales of PEGintron for hepatitis C rose 15% to $239 million, and sales of Temodar for certain brain tumors gained 23% to $234 million. The inhaled nasal allergy drug Nasonex grew 7% to $271 million.

Consumer health products rose 24% to $254 million, while animal-health products jumped 117% to $507 million thanks, in part, to contributions from Organon's animal-drug business.

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