ASTRAZENECA
BUSINESS
quarter—about onefifth of the company’s quarterly revenue growth in constantdollar terms. And two years down the road, they represent a good return on AstraZeneca’s $15 billion purchase of vaccine producer MedImmune. Overall sales for AstraZeneca were up 5.5% for the LINE DANCE quarter, to $8.2 billion, Flu vaccine also boosted by doubleproducers began shipping digit growth of existing doses in the products in emerging third quarter. markets. Sanofi should enjoy the greatest vaccine market penetration due to the number of supply contracts it has signed and because its H1N1 vaccine was approved for vaccinating the widest age range of patients, according to the Waltham, Mass.-based market research firm Decision Resources. Sanofi’s H1N1 vaccine sales were $114 million in the third U.S. companies saw limited growth in THIRD-QUARTER quarter, and the company is predicting ansales, while flu therapies boosted European results other $500 million in the fourth quarter. Its ANN M. THAYER, C&EN HOUSTON other products also performed well in most regions, paced by sales growth of more than 20% in emerging markets. THE THIRD QUARTER marked the first for new vaccines and drugs to fight the Novartis also has a lot to gain, according of this year’s quarters in which combined flu pandemic (C&EN, Sept. 28, page 15). to Decision Resources, because the Swiss sales posted by the leading pharmaceutiBy mid-September, the Food & Drug firm has signed nearly $1 billion in governcal companies rose. Although the broad Administration approved the first H1N1 ment vaccine supply contracts. Novartis picture is much improved, underlying vaccines. Soon after, the major Europestarted shipping vaccine doses in Septemresults from individual firms continue to based vaccine producers—AstraZeneca, ber, too late to have a significant impact on be mixed. The “haves” benefited from their GlaxoSmithKline, Novartis, and Sanofithird-quarter sales. However, by the end positions in emerging markets and in supAventis—began making shipments. of 2009, it expects to produce 90 million plying treatments for the 2009 H1N1 influAlthough these companies created effecto 100 million doses, which will generate enza virus, whereas the “have-nots” saw tive flu vaccines, they have been plagued by $400 million to $700 million in fourththeir sales eroded by unfavorable currency production challenges and couldn’t ramp quarter revenues. For the third quarter, its exchange rates and lower product sales. up production as quickly as expected. Vactotal sales rose 3.2% to $11.1 billion; they Overall third-quarter sales for the 12 macine sales only just started to contribute to were flat for the nine-month period at jor drug companies that C&EN tracks rose revenues in the third quarter but neverthe$31.3 billion. 3.5%, and earnings were up 7.5% compared less offered a glimpse at what’s to come. with the year-earlier period. Even after two The most likely long-term impact of WHILE WAITING for vaccines to emerge, down quarters, the third-quarter increase the H1N1 pandemic is a “transient boost” governments and the health care commuwas just enough to push year-to-date sales in sales, according to the market research nity turned to antiviral drugs to fight the growth into positive territory. Combined firm Datamonitor. It expects sales of seaflu. Roche and GlaxoSmithKline, the only company sales for the first nine months of sonal and pandemic flu vaccines in seven two companies with effective flu therapies, 2009 improved 1.5%, while earnings gained major geographic markets (France, Gerramped up manufacturing to meet demand 4.5%. Although earnings growth may slow many, Italy, Japan, Spain, the U.K., and the from governments stockpiling the drugs. at times, the drug industry remains highly U.S.) to expand to more than $4 billion in Along with anticipated sales of about profitable; the group’s profit margin was the 2009–10 flu season, compared with 440 million doses of H1N1 vaccine this year, stable at about 24%. $2.8 billion in the previous season. GSK’s sales of its inhaled antiviral agent This year, pharmaceutical industry At AstraZeneca, U.S. sales of 2009 H1N1 Relenza jumped to $715 million in the first efforts have been focused on the need vaccine totaled $152 million in the third nine months of 2009, compared with $86
A MIXED BAG FROM PHARMA
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BUSINESS
PHARMACEUTICAL RESULTS
Third-quarter sales and earnings rose for both the pharmaceutical and biotech sectors THIRD-QUARTER 2009 EARNINGSa CHANGE FROM 2008 ($ MILLIONS) SALES EARNINGS
SALES
Abbott Laboratories AstraZeneca Bristol-Myers Squibb Eli Lilly & Co. GlaxoSmithKline Johnson & Johnson
$7,761 8,200
$1,429 2,438
5,487 5,386 10,948 15,081
1,046 1,312 2,216 3,345
Merck & Co. Novartis Pfizer Roche Sanofi-Aventis Schering-Plough
6,050 11,086 11,621 11,984 10,838 4,499
1,914 2,112 3,461 na 3,264 708
$108,941
$23,245
3.5%
$3,812 1,121 695 549 1,058 1,801
$1,518 326 260 127 84 730
$9,036
$3,045
TOTAL BIG PHARMAc Amgen Biogen Idec Celgene Cephalon Genzyme Gilead Sciences TOTAL BIOTECHc
3.5% 5.5
NINE MONTHS 2009 PROFIT MARGINb 2009 2008
15.6% 27.4
18.4% 29.7
16.5% 24.6
4.4 5.2 14.9 -5.3
14.9 22.0 29.5 1.1
19.1 24.4 20.2 22.2
1.8 3.2 -2.9 9.7 8.0 -1.7
11.7 1.4 -17.2 na 15.9 4.6
SALES EARNINGSa ($ MILLIONS)
CHANGE FROM 2008 SALES EARNINGS
$21,975 23,859
$3,960 7,096
1.8% 1.9
17.3 21.0 18.0 20.8
15,886 15,391 31,222 45,346
3,113 3,852 6,161 10,060
31.6 19.1 29.8 na 30.1 15.7
28.8 19.4 34.9 na 28.1 14.8
17,335 31,341 33,472 35,198 32,140 13,539
5,222 6,131 10,377 na 9,776 2,489
7.5%
24.0%
22.9%
$316,704
$68,237
1.5%
-1.6% 2.6 17.4 10.2 -8.8 31.4
16.1% 13.2 39.8 36.6 -44.4 38.8
39.8% 29.1 37.4 23.1 7.9 40.5
33.8% 26.3 31.4 18.7 13.0 38.4
$10,833 3,250 1,929 1,617 3,435 4,979
$3,949 850 681 338 399 1,999
5.2%
19.3%
33.7%
29.7%
$26,043
$8,216
PROFIT MARGINb 2009 2008
12.1% 26.8
18.0% 29.7
16.4% 23.9
3.5 3.2 16.2 -6.6
21.6 25.8 8.3 -1.7
19.6 25.0 19.7 22.2
16.7 20.5 21.2 21.1
-2.7 -0.1 -6.9 9.3 7.2 -4.3
-4.9 -7.9 -13.4 na 20.1 6.1
30.1 19.6 31.0 na 30.4 18.4
30.8 21.2 33.3 na 27.1 16.6
4.5%
24.2%
23.3%
-3.7% 7.3 18.6 12.8 0.1 27.4
5.0% 5.3 31.5 33.6 19.5 32.5
36.5% 26.2 35.3 20.9 11.6 40.1
33.4% 26.6 31.8 17.6 9.7 38.6
5.5%
14.4%
31.5%
29.1%
NOTE: European company results are converted at Sept. 30 exchange rates, except those for AstraZeneca and Novartis, which report in U.S. dollars. a After-tax earnings from continuing operations, excluding significant extraordinary and nonrecurring items. b After-tax earnings as a percentage of sales. c For companies reporting. Percentages are calculated from combined sales and earnings. na = not available.
million in the same period in 2008. The company’s total sales for the first nine months grew 16.2% to $31.2 billion, driven by double-digit gains in emerging markets that offset declining U.S. pharmaceutical sales. The clear winner in the new market for H1N1 flu-related drugs is Roche, according to Decision Resources analysts. Because Roche’s Tamiflu is not inhaled like GSK’s Relenza, it is easier to use and stockpile. It also does well in consumer markets. In the first nine months of this year, Tamiflu sales skyrocketed 362% to almost $2 billion. The drug has become the company’s fourth-largest seller after three anticancer drugs it gained in acquiring Genentech earlier this year. For drug companies that lack flu-related products, it has been pretty much business as usual. Several such firms have used acquisitions to expand their portfolios and market reach. At the end of the quarter, Abbott Laboratories, for example, announced a $7.6 billion deal to acquire Solvay Pharmaceuticals and further diversify its business into emerging markets.
Abbott and other U.S. drug companies, including Eli Lilly & Co. and BristolMyers Squibb, reported single-digit sales growth for the third quarter coupled with double-digit profit growth. Bristol-Myers attributed its growth to its expanding biopharmaceuticals business, which includes antibody developer Medarex, bought for $2.1 billion on Sept. 1. The two biggest mergers—Pfizer joining with Wyeth and Merck & Co. with Schering-Plough—closed after the end of the quarter. Merck and Schering-Plough separately reported earnings before completing their $41 billion merger on Nov. 3. Merck beat analyst expectations with higher-than-expected sales and earnings for the third quarter. For the nine months, however, sales were down 2.7% and earnings dropped 4.9%.
Schering-Plough’s sales slipped 1.7% for the quarter and 4.3% for the nine-month period. However, the company managed to come in with earnings up 4.6% for the quarter and 6.1% over nine months. “We powered through—even in the face of tough global economic and currency headwinds,” said Fred Hassan, ScheringPlough’s chief executive officer at the time. Although he assisted with planning the integration of the two drug firms, Hassan does not have an executive position with Merck going forward. Pfizer completed its $68 billion acquisition of Wyeth on Oct. 15. Because of the timing, Wyeth did not report third-quarter results. Pfizer did, but its results do not include Wyeth. Along with Johnson & Johnson, which just recently announced a restructuring plan to improve its opera-
Overall, the economic downturn has not afflicted the pharmaceutical sector as severely as it has other industries. WWW.CEN-ONLINE.ORG
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tions, Pfizer was among the industry’s poorest performers. For the third quarter, Pfizer’s earnings dropped 17.2% to $3.5 billion on sales down 2.9% to $11.6 billion. Nine-month figures were no better: Sales declined 6.9% and earnings dropped 13.4%. The company attributed much of the decline to the effect of foreign exchange rates and lower demand, particularly in the U.S. With the integration of Wyeth, Pfizer will take on a new operating model that reorganizes it into five business units. The acquisition should enhance Pfizer’s revenues and earnings as well as diversify its product lines into biologics and vaccines, according to Deutsche Bank stock analyst Barbara Ryan.
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WHETHER PART of a large drug company or the basis of a small
one, biotechnology-derived drugs are generally considered a growth area. The sector didn’t disappoint in the quarter, as reflected by the combined sales and earnings of six leading biotech companies that C&EN tracks. The combined profit margin for this group is around 30%. A standout among the six was Gilead Sciences. Its third-quarter revenues grew 31.4% to $1.8 billion while earnings climbed 38.8% to $730 million. Gilead’s antiviral drugs, which largely target the HIV market, contributed significantly to its growth. The company is also one of the few smaller companies to benefit from H1N1related sales. As the discoverer of Tamiflu, Gilead derives royalty income on Roche’s sales. That amounted to $114 million, a 13-fold jump compared with 2008. Among the remaining five biotech firms that C&EN tracks, the two larger firms—Amgen and Biogen Idec—posted negative and modest sales growth, respectively, but enjoyed solid earnings growth for the quarter and nine-month period. In contrast, expanding sales helped Cephalon, which launched a new wakefulness drug, and Celgene, which saw its oncology drugs gain market share. The third quarter was particularly tough for Genzyme, which had to halt production of some leading products because of contamination at its Allston, Mass., plant. Not only did sales in the quarter drop 8.8%, but earnings plummeted 44.4% because of lost revenues and increased costs for remediating the facility. The company has restarted some operations and anticipates resuming shipments in the fourth quarter. Like Genzyme, many pharmaceutical and biotech companies are looking forward to better times in the fourth quarter. The economy has begun to show signs of life in the past few months, and several companies have raised their earnings outlook for the full year. Among these are Abbott, AstraZeneca, Bristol-Myers, Lilly, Roche, and Amgen. Overall, the economic downturn has not afflicted the pharmaceutical sector as severely as it has other industries. That’s not to say that drug companies haven’t seen the need to make changes in their businesses. J&J, GSK, Lilly, and Bristol-Myers have restructuring or cost-cutting programs under way. And large-scale cuts in personnel are still coming as Merck absorbs Schering-Plough and Pfizer absorbs Wyeth (see page 5). Over the past year, companies on both sides of the Atlantic have been responding to marketplace shifts such as increased pricing pressure and potential health care reform in the U.S. GSK has responded with particular force. “The dynamics of GSK’s business are changing,” pointed out CEO Andrew Witty in the company’s earnings report. He stated bluntly that his strategy is designed “to grow and diversify the business away from a dependency on ‘white pill/Western markets.’ ” ■ WWW.CEN-ONLINE.ORG
At ALTANA, service starts with getting to know exactly what our customers‘ goals and specific requirements are. We engage in permanent dialog with them to implement forward-looking solutions. Specialty chemicals are our business. A business we pursue with passion and dedication in more than 100 countries. Four specialized divisions work together to ensure that ALTANA‘s unrivalled competence and service excellence continue to improve and expand. With a clear vision of what our customers expect of us, it is our ambition at all times to develop solutions that turn opportunities into future reality.
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