BUSINESS
DRUG EARNINGS RISE IN SECOND QUARTER Product volumes aided sales, while earnings gained a bit less for the quarter and half year ANN M.THAYER, C&EN HOUSTON
S
T R O N G SECOND-QUARTER SALES
volumes c o n t r i b u t e d to solid gains in major drug firms' overall sales and earnings. Foreign currency exchange also helped b o o s t sales figures, as it h a d in t h e first quarter, for some companies. Still, despite two quarters of sound sales growth, earnings gains for t h e first half w e r e n o t as strong in the face of a challenging business environment. C o m b i n e d second-quarter sales for 15 major companies rose 9.9% to $77.7 billion, while n e t earnings were u p 8.5% to $14.6 billion. However, first-half earnings for t h e g r o u p g r e w just 2 . 8 % , to $30.2 billion, o n c o m b i n e d sales t h a t g a i n e d 8.0% t o $151 billion. Profit m a r g i n s — earnings as a percentage of sales —stabi-
lized around t h e 2 0 % m a r k for the group. Individual company results continued to be very mixed. Pfizer and Novartis b o t h reported sales up more than 2 0 % for the half, but for different reasons. Higher volumes and currency effects each contributed 8% to growth at Novartis. But its half-year earnings rose only 1.2% because of a $287 million charge related to a 2 0 0 2 loss at Roche; Novartis owns 32.7% of Roche stock. Pfizer's 2 0 0 3 results included just over two m o n t h s of Pharmacia's acquired business, which it did n o t have in comparable figures for 2 0 0 2 . Pfizer's half-year earnings of $5.12 billion exclude a $5.13 billion pretax merger charge. Including the charge, the company had a net loss of $3.59 billion for the quarter and earnings of $ 1.10 billion for the half.
J o h n s o n & J o h n s o n also posted strong sales and earnings for t h e half, excluding one-time acquisition-related charges. T h e company has been actively buying u p small drug discovery firms to expand its pipeline, and acquired or licensed biopharmaceutical products have b e c o m e significant contributors to its sales growth. Bristol-Myers Squibb, after several miserable quarters, finally recovered. Earnings soared 8 3 % in the second quarter o n sales t h a t increased 2 2 % . For t h e half year, it led its p e e r g r o u p w i t h 2 2 . 8 % earnings growth, including some special charges and gains. Even excluding these, the company's earnings still improved over previous quarters w h e n it reported declines. Eli Lilly and Merck b o t h had double-digit sales growth in t h e first half, b u t their earnings rose only 5.1% and 3.6%, respectively Having struggled in the past against generic competition, Lilly touted new product launches, including its recombinant osteoporosis drug Forteo. T h e drug competes against Merck's Fosamax, the market leader with six-month sales of $1.35 billion. Meanwhile, six o t h e r firms had singledigit sales growth and mixed earnings results for the half. A b b o t t Laboratories, AstraZeneca, and Roche all reported earnings declines, ranging from less than 1% for A b -
DRUG COMPANY RESULTS Companies posted strong sales and earnings growth in the second quarter SALES EARNINGS* ($ MILLIONS)
SECOND-QUARTER 2003 CHANGE FROM 2002 SALES EARNINGS
PROFIT MARGIN" 2002 2003
SALES EARNINGS* ($ MILLIONS)
FIRST-HALF 2003 CHANGE FROM 2002 SALES EARNINGS
PROFIT MARGIN" 2002 2003
0
Abbott Laboratories AstraZeneca Aventis Baxter International Bristol-Myers Squibb d
$4,723.6 4,436.0 4,795.5 2,163.0 5,052.0
$819.8 230.0 693.5 251.0 878.0
9.5% 6.3% 2.9 -39.0 -6.2 18.9 11.2 23.0 22.4 83.3
17.4% 5.2 14.5 11.6 17.4
17.9% 8.7 11.4 10.5 11.6
$9,304.1 $1,620.8 9,171.0 1,162.0 9,362.2 1,251.2 4,160.0 468.0 9,763.0 1,639.0
9.4% -0.3% 5.9 -13.0 16.1 -7.5 8.9 2.4 22.8 11.1
17.4% 12.7 13.4 11.3 16.8
19.1% 15.4 10.6 12.0 15.2
Eli Lilly 6 GlaxoSmithKline f Johnson & Johnson 9 Merck h Novartis'
3,088.2 8,706.0 10,332.0 5,525.4 6,203.0
692.2 2,257.0 2,110.0 1,784.5 1,316.0
11.3 -0.8 13.9 7.1 19.4
5.1 6.8 14.5 7.8 2.3
22.4 25.9 20.4 32.3 21.2
23.7 24.1 20.3 32.1 24.8
5,977.6 17,061.0 20,154.0 11,096.8 11,924.0
1,353.8 4,291.0 4,196.0 3,329.4 2,379.0
12.0 0.7 13.1 11.4 20.0
5.1 9.3 14.1 3.6 1.2
22.6 25.2 20.8 30.0 20.0
24.1 23.2 20.6 32.3 23.7
2,374.0 37.0 na 9.2 140.2 -9.2 182.0 -17.5 864.4 7.0
13.8 na -10.9 -71.2 44.1
23.8 na 10.4 7.8 23.1
28.6 na 10.6 22.3 17.1
18,518.0 10,243.4 2,665.3 4,411.0 7,435.6
5,117.0 23.1 1,169.7 5.9 285.0 -8.0 355.0 -18.1 1,583.6 4.0
13.2 -23.9 -10.4 -71.2 7.6
27.6 11.4 10.7 8.0 21.3
30.0 15.9 11.0 22.9 20.6
20.1%
20.4% $151,247.0 $30,200.5
20.0%
21.0%
Pfizer1 Roche k Schering AG Schering-Plough 1 Wyeth m TOTAL"
9,993.0 5,277.4 1,344.1 2,338.0 3,746.6
$77,723.8 $14,592.6
9.9%
8.5%
8.0%
2.8%
a A f t e r - t a x earnings f r o m continuing operations, excluding significant e x t r a o r d i n a r y and n o n r e c u r r i n g items, b A f t e r - t a x earnings as a percentage of sales, c Includes hospital and n u t r i t i o n a l product sales of $1.79 billion for the q u a r t e r and $3.64 billion for the half, d Includes n u t r i t i o n a l sales of $436 m i l l i o n for the q u a r t e r and $869 m i l l i o n for the half, e Includes a n i m a l health sales of $167 m i l l i o n for the q u a r t e r and $340 m i l l i o n for the half, f Includes c o n s u m e r product sales of $1.31 billion for the q u a r t e r and $2.52 billion for the half, g Includes c o n s u m e r product sales of $1.82 billion for the q u a r t e r and $3.61 billion for the half and m e d i c a l devices and diagnostics sales of $3.63 billion for the q u a r t e r and $6.99 billion for the half, h Excludes M e r c k - M e d c o managed health business slated for spin-off. i Includes a n i m a l health sates of $182 m i l l i o n for the q u a r t e r and $339 m i l l i o n for the half and n u t r i t i o n / b a b y - f o o d sales of $568 m i l l i o n for the q u a r t e r and $1.07 billion for the half, j Includes P h a r m a cia, acquired on A p r i l 16. Includes a n i m a l health sales of $383 m i l l i o n for the q u a r t e r and $652 m i l l i o n for the half and c o n s u m e r product sales of $ 7 4 1 m i l l i o n for the quarter and $1.34 billion for the half, k Excludes v i t a m i n s and fine c h e m i c a l s business pending sale. I Includes a n i m a l health sales of $171 m i l l i o n for the q u a r t e r and $313 m i l l i o n for the half and c o n s u m e r product sales of $240 m i l l i o n for the q u a r t e r and $517 m i l l i o n for the half, m Includes a n i m a l health sales of $214 m i l l i o n for the q u a r t e r and $396 m i l l i o n for the half and c o n s u m e r product sales of $553 m i l l i o n for the q u a r t e r and $1.09 billion for the half, n Percentages calculated f r o m combined sales and earnings for companies r e p o r t i n g both, na = not available.
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2003
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bott to nearly 24% for Roche. However, Roche's 2003 slide came from having had a $660 million gain on the sale of LabCorp shares in the same period in 2002. GlaxoSmithKJine barely registered high er sales—up just 0.7% for the half—but managed to achieve a 9 3 % increase in earn ings. It, too, faced generic competition and saw a $486 million drop in first-half sales of its antibiotic Augmentin. The company is predicting at least high-single-digit earn ings growth for 2003, despite the possible emergence of generic competition for its leading antidepressant, Paxil. WYETH REPORTED 7 6 % first-half earn ings growth and Baxter, 2.4%.^Wyeth not ed higher manufacturing costs and a less profitable product mix. And Baxter re cently announced a major restructuring to position it more competitively and enhance its long-term profitability It has already taken a $200 million charge to close plas ma operations and cut its workforce. Aventis was hard hit by currency trans lation, in contrast to other companies that reported positive effects. Its first-half sales declined 75% including translation effects but would have risen 5.2% without them. Nevertheless, the company's earnings jumped 16.1%, and it expects this trend to continue in 2003. Aventis' results comparison does not in clude its 2002 gain on selling Bayer its crop science joint venture with Schering AG. However, Schering included the gain and reported first-half sales down 8.0% and earnings off 10.4%. Schering-Plough recorded the sector's most dramatic deterioration. For the first half, its earnings plummeted 71.2% on a sales decline of 18.1%. Sales would have dropped 2 3 % without the benefit of ex change effects. The biggest factor was the loss of $1.23 billion in Claritin sales after the antihistamine became an over-the-count er product in December 2002. Schering-Plough's new chief executive officer, Fred Hassan, said the company's results reflect ongoing competitive pres sures. They also reinforce the importance of his action plan to "stabilize and repair Schering-Plough and then set the stage for a turnaround." The company represents an extreme case because of an unfortunate confluence ofmany negative factors. Even though they fared better in the first half, many ofthe ma jor drug companies face one or more sim ilar business, legal, or manufacturing chal lenges. And about one-third of the group is predicting that 2003 earnings will be down compared with 2002. • H T T P : / / W W W . C E N - O N L I N E . ORG
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