business
Product Prospects Propel Drag Firms Major drugs boost first-quarter pharmaceutical sales and earnings
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n the first few months of 1998, pharmaceutical products—and even compounds in extremely early testinghave garnered tremendous attention and generated much excitement. It has been difficult to avoid hearing about Pfizer's new anti-impotence drug, Viagra, or about EntreMed's antiangiogenesis agents reported to eradicate tumors in mice. New products are driving sales and earnings growth at drug producers. In the first quarter of 1998, combined sales for 12 leading drug firms reached $38.9 billion, up 7% from the same quarter of last year. Net earnings rose 14% to a combined $7.12 billion. Profitability also improved, with the first-quarter 1998 profit margin hitting 18.3%, up from 17.2% in 1997. Earnings for all but two major drug producers surveyed by C&EN showed double-digit growth in the quarter. For U.K.based Pharmacia & Upjohn, which has been struggling with reorganization and management changes, earnings dropped 3%. And SmithKline Beecham, also in the U.K., reported a modest 8% growth in earnings. The companies with the most substantial sales and earnings increases—BristolMyers Squibb, Eli Lilly, Pfizer, ScheringPlough, and Warner-Lambert—all have major products, many of them new. All five firms sawfirst-quartersales increase by 10% or more compared with 1997. Several products with more than $ 1 billion in estimated annual sales are driving their growth. Warner-Lambert, New York City, reported the highest sales growth of 25% and earnings growth of 37% in the first quarter. Sales of its cholesterol-lowering product Iipitor were $378 million, giving it a 32% market share. Pfizer, which comarkets the drug, calls it the most successful new product launch ever in the U.S. drug industry, with about $1.4 billion in sales in the first 14 months on the market. Pfizer's first-quarter results do not yet reflect the impact of Viagra, which it launched in April. However, industry sources now are calling it the fastest selling prescription drug in history. Still, 26
MAY 18, 1998 C&EN
first-quarter sales rose 11% overall, with major contributions from Pfizer's heart drug Norvasc ($567 million), antidepressant drug Zoloft ($460 million), and antibiotic Zithromax ($306 million). Indianapolis-based Eli Lilly's earnings growth was driven by sales of its antidepressant Prozac, which rose 10% to hit $618 million, and antipsychotic agent Zyprexa, which reached $287 million, a 172% increase. Likewise, Schering-Plough, Madison, N.J., saw sales of Claritin—an antihistamine—increase 23% to $436 million for the quarter. Sales for Bristol-Myers Squibb, New York City, rose 10% in the first quarter. Its leading product, Pravachol, is also a cholesterol-lowering drug, and sales of it increased 19% to H44 million. The company's anticancer drug Taxol posted sales of $251 million, an increase of 15%. Bristol-Myers Squibb is working with Rockville, Md.-based EntreMed to develop one of the antiangiogenesis proteins. Positive—although very early stage—results in animal tests have drawn the small company into the spotlight. However, like many
of the hundreds of small companies developing potential products, it has yet to rank among biopharmaceutical producers. For the group of 30 leading biopharmaceutical companies—those with estimated annual revenues above $20 million surveyed by C&EN—combined revenues reached $2.01 billion in the first quarter, up 18% over last year. Overall earnings soared 96% to almost $292 million. The combined profit margin for the group also jumped from 8.7% infirst-quarter1997 to 14.5% in first-quarter 1998. A total of 15 firms reported net profits for the quarter, up from nine last year. An exception is Interneuron Pharmaceuticals, Lexington, Mass., which had revenues of only $1.4 million in the first quarter, down from $19.8 million in 1997. The drop came because its product—the antiobesity drug Redux (dexfenfluramine), which was marketed by Madison, N.J.based American Home Products—was withdrawn in September 1997. Nearly two-thirds of the top 30 biopharmaceutical firms have products on the market. Most of the profitable biopharmaceutical firms also fall within this group of 19. The remaining companies get their revenues primarily from collaborative research funding. Only Amgen, Thousand Oaks, Calif., has products that should exceed $1 billion in annual sales. In the first quarter, its white-blood-cell stimulant Neupogen had sales of $261 million, and its red-blood-cell stimulant Epogen racked up $304 million. Several firms have products that are expected to surpass the $200 million mark in
Drug firms have double-digit earnings increase in first quarter FIRST-QUARTER 1998 Earnings8 ($ millions)
Change from 1997
Profit margin"
Sales
1998
1997
Earnings
10% 13 10 14
19.4% 17.8 11.2 20.9
17.8% 16.0 10.3 20.0
Abbott Laboratories American Home Products Baxter International Bristol-Myers Squibb
3,044.9 3,666.4 1,468.0 4,446.0
589.6 651.4 164.0 927.0
2% 2 2 10
Eli Lilly Johnson & Johnson Merck Pfizer
2,269.1 5,783.0 6,058.8 3,339.0
528.3 1,010.0 1,164.4 692.0
16 1 9 11
22 11 14 15
23.3 17.5 19.2 20.7
22.2 15.9 18.3 20.1
Pharmacia & Upjohn Schering-Plough SmithKline Beecham Warner-Lambert
1,586.0 1,908.0 3,115.0 2,218.9
189.0 450.0 475.0 279.3
-3 22 4 25
-3 20 8 37
11.9 23.6 15.2 12.6
11.9 23.9 14.6 11.5
$38,903.1
$7,120.0
14%
18.3% 17.2%
TOTAL
7%
a After-tax earnings from continuing operations, excluding significant extraordinary and nonrecurring items, b After-tax earnings as a percentage of sales.
First-quarter revenues, earnings upfor30 major biotech firms FIRST-QUARTER 1998 Revenues8
Earnings15
($ millions)
Agouron Pharmaceuticals Amgen ArQule Axys Pharmaceuticals BioChem Pharma
0
Change from 1997 Revenues
Earnings
nm 4% nm nm 79
Profit margin0 1998
1997
10.0% > def 30.9 31.3% def 1.8 def def 29.4 19.9
$ 134.5 605.4 5.7 8.4 53.6
$ 13.5 187.3 0.1 -10.1 15.8
Biogen Bio-Technology General Centocor Chiron Cor Therapeutics
121.4 17.4 56.9 268.9 8.4
27.8 3.4 1.4 54.5 -5.3
22 18 26 -4 33
64 0 -58 256 nm
22.9 19.5 2.5 20.3 def
17.1 23.0 7.3 5.5 def
Genentech Genzyme Gilead Sciences Icos IDEC Pharmaceuticals
264.7 154.1 13.6 6.6 18.1
41.0 24.9 -7.4 -8.2 3.9
3 7 147 200 170
30 17 nm nm nm
15.5 16.2 def def 21.5
12.3 14.7 def def def
Immunex Incyte Pharmaceuticals Interneuron Pharmaceuticals6 Isis Pharmaceuticals Liposome Co.
41.9 30.4 1.4 6.9 17.1
-9.0 3.6 -23.4 -11.5 -5.1
6 69 -93 23 8
nm 620 nm nm nm
def 11.8 def def def
def 2.8 def def def
Medlmmune Millennium Pharmaceuticals Myriad Geneticsd NeoRx NeXstar Pharmaceuticals
59.3 21.0 5.7 7.5 28.7
13.2 -4.4 -2.6 4.7 -2.6
487 91 111 178 37
nm nm nm nm nm
22.3 def def 62.7 def
def def def def def
Regeneron Pharmaceuticals Scios Sequus Pharmaceuticals U.S. Bioscience Vertex Pharmaceuticals
8.3 14.3 12.8 10.3 7.2
-3.8 1.3 -3.0 -0.1 -8.4
34 72 54 145 53
nm nm nm nm nm
def 9.1 def def def
def def def def def
$2,010.5
$291.5
TOTAL
248% 5 73 25 21
18%
96%
14.5°/ > 8.7%
a Revenue results include collaborative or contract research funding, royalties, and interest income as well as product sales, b After-tax earnings from continuing operations, excluding significant extraordinary and nonrecurring items, c After-tax earnings as a percentage of sales, d Fiscal year ends June 30. e Fiscal year ends Sept. 30. def = deficit, nm = not meaningful.
annual sales. Genentech, South San Francisco, has a tissue plasminogen activator with $56 million infirst-quartersales and human growth hormone products at $51 million. In its first full quarter on the market, the anticancer drug Rituxan generated sales of $38 million for Genentech and its partner IDEC Pharmaceuticals. For many otherfirms,their leading products are newer and continue to show market growth. Cambridge, Mass.-based Biogen's sales of Avonex, for multiple sclerosis, increased 45% to $76 million in the first quarter. Medlmmune, Gaithersburg, Md., saw sales of its two immune globulin products increase more than fourfold to $42.9 million. And sales of the anti-HIV drug Viracept increased to $112 million for Agouron Pharmaceuticals of La Jolla, Calif.
Performance of China's petrochemical firms declines in 1997
Other companies have developed products that are being marketed by major drug partners. For example, BioChem Pharma, Laval, Quebec, saw royalties increase 39% as Glaxo Wellcome's sales of its anti-HIV drug 3TC increased 41% to $185 million in the first quarter. Likewise, Centocor benefited as Eli Lilly's sales of its heart drug ReoPro increased 35% to $70 million. The excitement around new drug products also helped support strong overall stock market performance for pharmaceutical and some biopharmaceutical firms in 1998. Drug developers can be expected to cash in on this enthusiasm to raise capital for funding new product development and for the continuing boost to their sales and earnings from new product launches. Ann Thayer
Thefinancialperformance of China's four petrochemical producers that are listed on international stock exchanges further worsened in 1997. The companies mostly point to lower sales prices for their lackluster results. In the coming year, the companies hope that cost-cutting, more assertive marketing, and the continued strength of China's economy will improve their financial results. Although few in number, these Chinese chemical firms—Shanghai Petrochemical, Jilin Chemical Industrial, Beijing Yanhua Petrochemical, and Yizheng Chemical Fibre—provide insights into the health of China's government-owned chemical industry. All four are majority owned by the government, through state-owned companies such as China Petrochemical Corp. (Sinopec), but their desire to raise funds on international stock markets obligates them to divulge more than nonlisted firms. Shanghai Petrochemical reported nearly unchanged sales of $1.42 billion for 1997. But its after-tax profit dropped 27% from the previous year to $87.5 million. In 1997, the firm did not report any extraordinary loss, unlike in 1996 when it had to write off $20 million. That charge stemmed from being forced by the local government to give company-owned houses to its employees. If this extraordinary item is added back into the 1996 net profit, Shanghai Petrochemical's net profit dropped 37% in 1997. The firm explains that prices for syntheticfibersdropped 8.3%; resins and plastics, 6.6%; and intermediate chemicals, 15%, and it had to pay more for its main raw material, crude oil. But Shanghai Petrochemical expects to endure less cut-throat competition from producers in the rest of Asia in the near future. Much of the chemicals that China imports are smuggled into the country; they are therefore sold at lower prices than true imports, on which tariff duties are paid. Shanghai Petrochemical says, "The government is expected to take stronger measures against illegal imports of petrochemical products." Polyester producer Yizheng Chemical Fibre reported an 80% drop in after-tax profit, and its sales were lower by 10%. The main factor, Yizheng says, is an ongoing oversupply of polyester capacity in Asia, MAY 18, 1998 C&EN 2 7
