Drug companies show big earnings gains After being almost counted out just a few years ago by many securities analysts and business journalists, including some at C&EN, the drug industry seems to be recovering quite nicely. Even the industry's chronically falling profit margins seem to have turned around. Third-quarter sales for pharmaceutical companies surveyed by C&EN rose 16% and net income for the companies increased 21% over comparable figures for third-quarter 1977. For the first nine months of 1978, earnings have increased 23% and sales 16% over the 1977 period. The biggest increase for a single company in both third-quarter sales and earnings was that of SmithKline. Third quarter sales for this Philadelphia-based firm climbed 40% to 285.1 million from the $203.9 million recorded in the third quarter a year ago. Earnings, meanwhile, skyrocketed 98% to $46.8 million in third-quarter 1978 from just $23.5 million in the third quarter last year. The third quarter continues an almost unbelievable performance for SmithKline this year; in the first nine months of 1978, the company has had a sales increase of 46% to $797.8 million over last year's figure of $547.1 million. Earnings for the first nine months of 1977 have increased 96% to $116.9 million from last year's threequarter amount of $59.6 million. SmithKline attributes much of the increase to its new antiulcer drug Tagamet. Another reason for the increase is the rapid expansion of international operations, according to Robert F. Dee, chairman and chief executive officer. Companies having earnings gains far outnumbered those with declines in the third quarter. Only two companies' earnings decreased in the third quarter of 1978 compared to the same period in 1977. ICN Pharmaceuticals, which has
been having a hard time of it lately, had a 55% decline in net income to $164,000 in the third quarter from $363,000 in last year's third quarter. Richardson-MerrelPs earnings also posted a decline in the quarter, dropping 39% to $12.6 million from $20.8 million in the same quarter last year. Richardson-Merrell's performance suffered greatly from a recall of its Sinex Regular and Sinex Long-acting nasal sprays. The recalls came after unacceptable levels of bacteria were found in certain lots. According to the company, the recall pulled net earnings down almost $11.4 million. Besides the large earnings gain at SmithKline, other big earnings increases were posted by Upjohn, up 66% over last year, and Allergan Pharmaceuticals, up 51%. Most of the other companies recorded gains of 12 to 28% over year-earlier levels. Most of the companies are predicting that the fourth quarter will be good, but not quite as good as the rest of the year. For example, Ward S. Hagan, president and chief executive officer of WarnerLambert, told a group of securities analysts in Tokyo that while earnings for the company were up 13% in the third quarter and 11% for the first nine months, the company expects to finish the year about 10% ahead of last year's earnings levels. Profit margins for the companies surveyed also took a healthy turn. Combined profit margins increased to 10.6% in the third quarter of 1978 from 10.1% in the third quarter last year. Falling profit margins had been a prime concern for drug companies over the past decade. The healthy state of the drug industry is reflected in more than these figures. According to Moody's Investor Service, stock prices for the drug industry have increased 33.2% between August 1977 and August 1978, indicating that Wall Street is anything but pessimistic about the industry. William J. Storck, C&EN New York
Drug companies' profitability surges above 1977 I
3rd Qtr earnings 3
3rd Qtr sales
% I
1978
Abbott A. H. Robins Allergan Eli Lilly ICN Pharmaceuticals Marion Laboratories0 Merck & Co Morton Norwich0 Pfizer Richardson-Merrell0 Schering Plough SmithKline Squibb Upjohn Warner-Lambert TOTAL I
14
$353.1 85.2 16.5 416.1 20.5 26.4 495.8 176.8 589.7 287.1 272.7 285.1 406.9 326.7 730.1
1977
change
$309.6 14% 74.3 15 13.3 24 355.6 17 20.9-2 23.0 15 429.8 15 167.9 24 505.4 17 236.7 21 234.1 16 203.9 40 362.5 12 277.2 18 646.0 13
1978
$35.5 8.0 2.9 59.8 0.2 1.7 78.4 15.8 54.9 12.6 52.1 46.8 35.2 33.3 60.8
1977
change
$27.7 28% 6.3 27 1.9 51 47.7 25 0.4-55 1.5 13 69.9 12 12.8 5 47.0 17 20.8 - 3 9 46.5 12 23.5 98 32.1 10 20.0 66 53.7 13
$4488.7 $3860.2 16% $498.0 $411.8
I
1978
1977
10.1% 9.4 17.6 14.4 0.9 6.4 15.8 8.9 9.3 4.4 19.1 16.4 8.7 10.2 8.3
8.9% 8.5 14.3 13.4 1.9 6.5 16.3 7.6 9.3 8.8 19.9 11.5 8.9 7.2 8.3
NEW PLANTS • Chlorine—B.F. Goodrich has switched location for its large chlorine-ethylene dichloride complex from Bayport, Tex., to Convent, La., because of delays at former site, announced a year ago (C&EN, Aug. 1, 1977, page 5). Planned capacities remain 800 tons per day of chlorine, 880 tons per day of coproduct caustic soda, and 800 million lb a year of ethylene dichloride. Two-plant facility will be co-owned with Bechtel. New site will enable closer adherence to original timing, which put startup in first-quarter 1980. • Industrial gases—Liquid Carbonic is building air separation plant in Irwindale, Calif., to be on stream in 1979. Design capacities are combined 305 tons per day of liquid oxygen, nitrogen, and argon. • Herbicides—American Cyanamid has awarded C-E Lummus subsidiary of Combustion Engineering contract for 30 million lb-per-year plant near Hannibal, Mo., to produce Cyanamid's dinitroaniline-type Prowl herbicide. Initial production is scheduled for 1980. • Pharmaceutical chemicals— $15 million plant for bulk pharmaceuticals and fine chemicals for cosmetic and drug markets is being built at Petersburg, Va., by Infracorp Ltd., newly formed company owned jointly by C. H. Boehringer Sohns of Ingelheim, West Germany, and Lee Laboratories, a joint venture of Boehringer and A. H. Robins of Richmond, Va. Constructed by C-E Lummus, initial production is slated for January 1979. • Pigments—Harshaw Chemical has started $6 million expansion of cadmium pigment operations at Louisville, Ky. Scheduled for startup in September 1979, project will double unspecified capacity. • Prenyl alcohol—Air Products is modifying plant at Middlesex, N J . , to allow production of this acetylenic chemical (2-methyl-2-buten-4-ol) used in insecticides, flavors, and fragrances. Initial capacity will be 750,000 lb to more than 1 million lb per year.
2 1 % 10.6% 10.1%
a After tax. b After tax income as a percentage of sales, c First-quarter fiscal year 1979.
C&EN Oct. 30, 1978
Profit margin b
%~~
CHECKOFF
I
• Sodium hypophosphite—Stauffer Chemical plans to quadruple capacity for this reducing agent, used in plating nickel on plastics, to 8 million lb per year by May 1979 at Nashville, Tenn.
