BUSINESS
DRUG COMPANY EARNINGS RISE Results for individual firms vary from a loss to significant growth; U.S. makers lead Europe
P
HARMACEUTICAL COMPANIES
generally had mixed financial growth in the first quarter, with some showing double-digit increases in both sales and earnings. Others, especially in Europe, saw sales and earnings decline. Total earnings for nine U.S. pharmaceutical companies regularly surveyed by C&EN increased 21.9% to $11.6 billion on a 17.7% sales increase to $51.6 billion, increasing the aggregate profit margin for the group to 22.4% from 21.7% in the same period last year. Five European pharmaceutical companies did not fare so well. Combined earnings for these companies declined a slight 1.4% to $4.99 billion, despite a 2.9% increase in sales to $25.7 billion. Aggregate profitability for the five declined to 19.4% in this year's first quarter from 20.3% in the same three months a year ago. In t h e U.S., t h e sales and earnings growth came against a backdrop of improving demand and prices. Shipments of pharmaceuticals and medicines, according to the Commerce Department, improved 6.4% over the same period in 2003, while Labor Department data put the price increase at 4.0%. Also helping U.S. producers, but hurting European firms, was the weakening U.S. dollar. For instance, Abbott says total sales were favorably impacted by 4.9% as a result of the effect of exchange rates. On the other hand, although not quantifying how much the effect was, GlaxoSmithKline says the "weak U.S. dollar significantly impacted performance" in pound sterling terms. U.S. CUMULATIVE RESULTS were hurt by Schering-Plough, which had a loss of $3.0 million against earnings of $173.0 million in the previous year's quarter. This came on a 5.7% decline in sales to $1.96 billion. T h e troubled company says the lower financial results were primarily due to continued sales declines in several key profit-generating products; significant investments in sales and marketing support; and additional spending 22
C & E N / MAY 1 7, 2004
in connection with consent decree, compliance, and quality-related obligations. Chief Executive Officer Fred Hassan says: "Schering-Plough's first-quarter results reflect the serious challenges facing the company As we've said previously, 2 0 0 4 will be a year of difficult financial comparisons." Bristol-Myers Squibb and Merck had single-digit increases in earnings, and Baxter International had a 12.9% decline. The way to the large increase in earnings for the U.S. companies was headed by industry heavyweight Pfizer, where earnings from continuing operations, excluding unusual items, jumped 58.3% to $3.98 billion on a 4 6 . 8 % sales rise to $12.5 billion. Without Pfizer, US. earnings would have been up just 8.8% on a 10.7% rise in sales, lowering the aggregate profit margin for those eight firms to 19.4% from 19.8%. Pfizer C E O Hank McKinnell says, "Pfizer's results in the first quarter re-
flect the continued strong performance of the company's deep and broad product portfolio, including the contribution of products added through our successful acquisition of Pharmacia a year ago." In Europe, earnings growth was led by Novartis, with a 21.6% increase to $1.29 billion on a 16.0% sales rise to $6.64 billion. CEO Daniel Vasella says: "I am pleased that our team is continuing to strengthen our operational excellence, turning in good results driven by dynamic growth of our novel medicines. Based on our excellent pipeline and a broad, young product portfolio, we exp e c t to o u t p a c e t h e m a r k e t in sales growth and continue to gain market share. Barring unforeseen events, we anticipate delivering record full-year operating and net income." GlaxoSmithKline, Europe's largest drug company, however, had an 11.4% earnings decline to $2.04 billion as sales fell 6.4% to $7.63 billion. But it still held its place as the profitability leader among the European firms with a profit margin of 26.8%, down from 28.3% in the first quarter of last year. Calling 2 0 0 4 a year of transition, ChairmanJ. P. Gamier says, "The next two quarters will continue to be challenging, but in the fourth quarter we expect to see a return to earnings growth."-WILLI AM J. ST0RCK
DRUG COMPANIES First-quarter results remged from good to not so good SALES EARNINGS3 ($ MILLIONS)
U.S. Abbott Laboratories Baxter International Bristol-Myers Squibb Eli Lilly Johnson & Johnson
CHANGE FROM 2003 SALES EARNINGS
PROFIT MARGIN6 2004 2003
$896.4 189.0 810.2 762.7 2,493.0
13.9% 10.6 9.6 16.9 17.7
11.9% -12.9 1.9 15.3 19.6
17.2% 8.6 15.6 22.6 21.6
17.5% 10.9 16.8 22.9 21.2
Merck Pfizer Schering-Plough Wyeth TOTAL U.S.C
1,618.6 5,630.8 3,976.0 12,487.0 -3.0 1,963.0 844.3 4,014.8 $51,637.6 $11,587.2
1.1 46.8 -5.7 8.8 17.7%
4.8 58.3 nm 17.4 21.9%
28.7 31.8 def 21.0 22.4%
27.7 29.5 8.3 19.5 21.7%
EUROPE AstraZeneca Aventis GlaxoSmithKline Novartis Schering AG TOTAL EUROPE0
$5,074.0 4,931.0 7,631.0 6,639.0 1,419.4 $25,694.4
$803.0 695.0 2,043.0 1,293.0 157.0 $4,991.0
7.2% -0.6 -6.4 16.0 1.0 2.9%
-14.3% 14.7 -11.4 21.6 3.0 -1.4%
15.8% 14.1 26.8 19.5 11.1 19.4%
19.8% 12.2 28.3 18.6 10.8 20.3%
TOTAL ALL COMPANIES0
$77,332.0 $16,578.2
12.3%
13.8%
21.4%
21.2%
$5,216.1 2,209.0 5,181.0 3,376.9 11,559.0
NOTE: European currencies are converted at March 31, 2004, (exchange rate, a After-tax earnings from continuing operations, excluding significant extraordinary and nonrecurring items, b Afte r-tax earnings as a percentage of sales, c For companies reporting, def = deficit. nm = not meaningful.
HTTP://WWW.CEN-ONLINE.ORG
