BUSINESS
DRUG FIRMS REPORT MODERATE GROWTH First-quarter 2003 brought sales gains for drugmakers, while earnings were mixed ANN M. THAYER, C&EN HOUSTON
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ALES GROWTH FOR THE WORLD'S
major pharmaceutical companies continued in early 2003 at a pace slightly above the average set the previous year. Combined first-quarter sales for 14 leading drug firms rose to $68.3 billion, up 6.5% compared with the first quarter of 2002. Half the companies reported healthy sales growth of between 9 and 21%, based in part on the strength of new products. Among the launches were Abbott Laboratories' arthritis drug Humira, AstraZeneca's oncology drug Iressa, Eli Lilly's Strattera for attention deficit hyperactivity disorder and Forteo for osteoporosis, and the anticholesterol drug Zetia from Merck and Schering-Plough. Johnson & Johnson continued its pattern of stable growth with sales up 12.3% to $9.82 billion and earnings up 137% to $2.09 billion. Separately, its three health care businesses had equally strong sales increases: Consumer health care grew 11.7%, pharmaceuticals were up 11.6%, and medical devices and diagnostics gained 13.7%. There were a few laggards, such as Aventis, where sales in its core health care businesses declined 8.8% to $4.37 billion. However, excluding the effect of currency translations, sales were up 3.4%, and it had a solid 12.8% gain in earnings. Similarly, ScheringAG's sales dropped 6.7% but were up 6%, excluding exchange effects. In an industry used to double-digit growth in sales, Bristol-Myers Squibb, GlaxoSmithKline, and Wyeth posted just single-digit growth. Generic competition continues to be a factor for yet another year at Bristol-Myers, while it only started to hurt GlaxoSmithKline's sales in the second half of last year. Meanwhile, negative study results released in 2 0 0 2 were still causing Wyeth's hormone-replacement product sales to plunge in early 2003. Industry consolidation brought a change to C&EN's quarterly survey when Pharmacia dropped from the list. It did not report 2003 results before being acquired by Pfizer in mid-April and is not yet included in Pfizer's figures. On its own, HTTP://WWW.CEN-ONLINE.ORG
Pfizer's sales climbed 10% to $8.53 billion, and earnings rose 6.4% to $2.46 billion. Roche and Sanofi-Synthelabo also aren't listed since they only reported sales, and not earnings, for the quarter. Sanofi's sales jumped 13.4% to $2.21 billion. Roche's sales for its core pharmaceuticals and diagnostics business increased just 2.6% to $5.01 billion, but were up 15% excluding exchange effects. Sales in its vitamins and fine chemicals unit dropped 14%. Compared with sales, earnings results among the major firms were very mixed— about two-thirds reported declines. Schering-Plough's earnings plummeted 71% to $173 million on sales down 19% to $2.07 billion. The change came largely from its antihistiamine Claritin shifting from being a more lucrative prescription drug to an over-the-counter product. Wyeth's earn-
ings fell 175% to $719 million because of higher manufacturing costs and a shift away from high-margin products. This figure excludes Wyeth's after-tax gain of $559 million from selling its stake in the biopharmaceutical firm Amgen. Baxter reported a large earnings decline, at 14.2%, attributed mostly to competitive pricing in the market for blood-plasma-derived products. Bristol-Myers and Schering AG also had slumping earnings in the quarter, although both included special charges. Bristol-Myers' earnings were for closing manufacturing facilities, settling litigation, and restructuring an alliance, whereas Schering's 2 0 0 2 results were boosted by $25 million from its former stake in Aventis CropScience. Merck's earnings decreased about 1%, while at Novartis they were essentially unchanged. Novartis' problems came from its 32.7% stake in Roche and a one-time charge in the first quarter of 2003 related to Roche's 2002 loss; without the charge, Novartis' earnings would have been up 27%. Meanwhile, Merck had a $90 million charge for acquired R&D after purchasing 95% of itsJapanese affiliate Banyu Pharmaceutical. The overall increase in sales and earnings decline means profitability fell slightly in the first quarter. The group's 2003
DRUG COMPANY RESULTS Sales rose, but earnings slipped in the first quarter of 2003 EARNINGS'1 ($ MILLIONS)
FIRST-QUARTER 2003 CHANGE FROM 2002 SALES EARNINGS
0
$4,580.5 4,735.0 4,367.0 1,997.0 4,711.0
$801.0 937.0 533.5 217.0 761.0
9.3% 9.0 -8.8 6.5 1.1
Eli Lilly6 GlaxoSmithKlinef Johnson & Johnson9 Merckh Novartis'
2,889.4 8,355.2 9,821.0 5,571.4 5,721.0
661.3 2,033.6 2,085.0 1,545.0 1,063.0
12.8 2.2 12.3 16.0 20.6
PfizerJ Schering AG Schering-Ploughk Wyeth1
8,525.0 1,274.9 2,074.0 3,689.1
2,460.0 139.7 173.0 719.2
10.0 -6.7 -18.9 1.3
Abbott Laboratories AstraZeneca Aventis Baxter International Bristol-Myers 5quibbd
T0TALm
$68,311.5 $14,129.3
6.5%
-6.2% -2.2 12.8 -14.2 -11.1
PROFIT MARGIN" 2003 2002
17.5% 19.8 12.2 10.9 16.2
20.4% 22.0 9.9 13.5 18.4
5.1 12.1 13.7 -0.8 -0.1
22.9 24.3 21.2 27.7 18.6
24.6 22.2 21.0 32.4 22.4
6.4 -9.9 -71.2 -17.5
28.9 11.0 8.3 19.5
29.8 11.4 23.5 23.9
20.7%
22.2%
-0.7%
a After-tax earnings from continuing operations, excluding significant extraordinary and nonrecurring items. b After-tax earnings as a percentage of sales, c Includes hospital product sales of $910 million and nutritional product sales of $947 million, d Includes nutritional sales of $433 million, e Includes animal health sales of $173 million, f Includes consumer product sales of $1.21 billion, g Includes consumer product sales of $1.79 billion and medical devices and diagnostics sales of $3.36 billion, h Excludes Merck-Medco managed health business slated for spin-off. i Includes animal health sales of $157 million and nutrition/babyfood sales of $479 million, j Includes animal health sales of $269 million and consumer product sales of $596 million. Excludes Pharmacia, acquired on April 16. k Includes animal health sales of $143 million and consumer product sales of $302 million. I Includes animal health sales of $182 million and consumer product sales of $532 million, m Percentages calculated from combined sales and earnings.
C & E N / MAY 1 9. 2003
23
BUSINESS profit margin—calculated as combined earnings as a percentage of sales—was 20.7%, down from 22.2% in the first quarter of 2 0 0 2 . However, 2003 brought a slight improvement over most of 2002; the combined profit margin slipped to 19.8% in the fourth quarter and was 20.3% for the full-year period. MOST COMPANIES make their predictions for the coming year during the first quarter. And after just one quarter, all the major drug producers say they are on target to reach their earnings goals. Baxter, for example, estimates earnings-per-share growth of 8 to 12%, while Merck predicts its growth will be in the double digits. GlaxoSmitliKline and Schering AG are predicting only "high single digit" earnings growth for 2003. GlaxoSmithKline's prediction depends on the failure of generic competition to its antidepressant drug Paxil to emerge in the U.S. The timing is uncertain because the firm is appealing court decisions that could lead to a generic form reaching the market in September. Other companies such as Lilly and Novartis are a bit more bullish that they'll see strong earnings growth in 2003 from new products. Based on the first quarter alone, Abbott raised its estimate for Humira's first full year of sales by 30%, to $200 million. Similarly, AstraZeneca just won U.S. regulatory approval for its anticancer drug Iressa; it already saw sales of the drug grow rapidly after a fourth-quarter 2002 launch inJapan. Surprisingly, Wyeth was actually a standout, despite its more than 17% earnings decline, because it exceeded analysts expectations for the first quarter. Rapidly growing sales of new products, including the antidepressant Effexor and the antiulcer drug Protonix, more than offset plummenting hormone product sales. Wyeth is on track for near-double-digit earnings growth this year. This year will also see a new industry leader emerge from the merger of Pfizer and Pharmacia. The new Pfizer will significantly outrank other companies not only in terms of pharmaceutical sales and market share but also in marketing and R&D muscle. However, the integration of Pharmacia is already leading to substantial shifts in R&D and other operations as Pfizer attempts to wring out $2.5 billion in cost savings by 2005. If Pfizer comes through the process successfully and competitively— and analysts are predicting a more than 15% increase in 2003 earnings per share— it may incite further pharmaceutical industry consolidation. • 24
C & E N / MAY 19, 2003
BIOPHARMACEUTICAL SALES, EARNINGS SOAR This year is bringing a major turnaround for biotech firms after earnings fell in 2 0 0 2 ANN M. THAYER, C&EN HOUSTON
T
H E O U T L O O K FOR T H E B I O -
pharmaceutical industry got brighter during the first quarter of 2003. Last year, companies were unable to halt quarter-after-quarter earnings declines despite modest revenue growth. However, in the first three months of this year, earnings jumped more than 50% on revenues that grew oneand-a-half times as fast as last year. Combined revenues for 30 leading biopharmaceutical companies rose 30.3% to $6.98 billion in the first quarter. This helped drive up overall earnings for the group by 51.7% to $1.13 billion. And the overall profit margin—earnings as a percentage of revenues—climbed to 16.2% from 13.9% in the same period last year. The standouts are easily spotted with their triple-digit revenue growth. Acambis' revenues leapt more than 700% to $67.1 million in the first quarter. The gain came largely from revenues under the company's contract with the U.S. Centers for Disease Control & Prevention to produce smallpox vaccines. The UK.-based company also had a $13.8 million first-quarter profit after reporting a loss in the comparable 2002 period. Neurocrine Biosciences reported a 654% jump in revenues based almost entirely on $34.4 million in collaborative R&D funding from Pfizer. Meanwhile, product sales contributed to a 111% increase in Gilead Sciences' revenues, to $ 165 million, and a 115% gain at InterMune, to $40.4 million. Although InterMune reported a loss, Gilead had a net profit of $50.5 million, excluding special charges for acquiring Triangle Pharmaceuticals. With the charges, it reported a huge loss of $438 million. Another 21 companies had double-digit rates of revenue growth between 11 and 75%. At the top end was industry leader Amgen, where new and acquired products fueled a 74.6% increase in sales to $1.76 billion and a 64.1% gain in earnings to $558 million. Amgen is forecasting that its 2003 sales will break the $7 billion mark, up from $5-52 billion last year. Sales of the arthri-
tis drug Enbrel, acquired with its purchase of Immunex, were boosted by new supply and should surpass $1.2 billion this year. Other industry stalwarts—including Genentech, Chiron, Genzyme, Novo Nordisk, and Serono—continued to record strong sales and earnings growth. Chiron's blood testing business was a major contributor, while Novo's positive returns were distributed across its hemostasis management, diabetes care, and growth hormone businesses. Sales of newer products were key factors for Genentech, Genzyme, and Serono. SIMILARLY, IDEC Pharmaceuticals, QLT, and Medlmmune had more than 30% sales growth from products launched in the past few years. Excluding a $1.2 billion special charge last year for acquiring Aviron, MedImmune's first-quarter 2003 earnings were up nearly 60% to $ 113 million. The acquisition could bear fruit this year with the anticipated approval of Aviron's FluMist influenza vaccine. Protein Design Labs and SangStat Medical had triple-digit hikes in earnings, but these are predicated on very small profits in the year-ago period. These two companies also increased their profit margins in the first quarter. Product sales helped Celgene and NAB I Biopharmaceuticals just turn the corner to profitability versus reporting losses in the same period last year. Biogen, although comfortable with a 23.4% profit margin, faced increased competition to its established products. As a result, the company reported only modest gains in revenues and earnings. However, it launched a new psoriasis product, Amevive, in February and expects it to become an important product despite emerging competition. Seeing the opposite trend from most others, Cephalon's revenues were up 30%, but earnings fell 15%, excluding charges recorded in 2 0 0 2 . Including these charges—for extinguishing debt, changing inventory accounting, and purchasing investors' interests in a joint venture—the company went from a loss of $2.9 million HTTP://WWW.CEN-ONLINE.ORG
