BUSINESS
EARNINGS AT DRUG FIRMS STILL SUNNY Major drug and biotech firms prosper with overall good growth in sales and earnings ANN M. THAYER, C&EN HOUSTON
C
ONSISTENT SALES AND EARNINGS
growth continues to be the hall mark of t h e pharmaceutical industry However, while average increases remain fairly constant from quarter to quarter, the individual financial performance of the world's lead ing drug producers is extremely mixed. In biopharmaceuticals, the trend is positive overall as new products bring in more rev enues, but a few of the profitable compa nies are seeing some slippage in their earn ings growth. Combined sales for 13 leading phar maceutical producers that reported both quarterly and half-year figures by C&EN press time rose 11% in the second quar ter to $68.2 billion. For the first half of 2001, sales for this group were up 10%, to $133 billion, compared with the same period last year. In both the quarter and first six months of 2001, net earnings rose
12%, to $13.0 billion and $25.5 billion, respectively. Merck contributed significantly to the group's overall sales growth. Its sales rose 25% in the quarter and 27% in the half. Abbott Laboratories reported a 22% jump in second-quarter sales and a 14% increase for six months, while sales growth for Bax ter International, Eli Lilly, and Pfizer was closer to the group average. The remain ing drug firms had only single-digit increases, except for Schering-Plough, where manufacturing and quality control problems kept sales flat. Growth in earnings was generally stronger all around, especially for Pfizer, which led the group with earnings growth of more than 30% in the second quarter and first half. Eight of the 13 companies reported double-digit increases for the quarter and seven for t h e half. AstraZeneca's second-quarter earnings dropped
3% because of the effect of exchange rates but came out 3% ahead for the half year. Not surprisingly, Schering-Plough's earn ings were flat for the quarter and down 5% over six months. Earnings growth arose from expanded businesses and cost savings related to merg ers and acquisitions. Such was the case at Pfizer, which took over Warner-Lambert; GlaxoSmithKline, created from Glaxo Wellcome and SmithKline Beecham; Abbott Laboratories, which purchased BASF's Knoll Pharmaceuticals; Johnson &Johnson, which acquired Alza; and Phar macia, which absorbed Monsanto's Searle business. Bristol-Myers Squibb should see the same effect when its purchase of DuPont Pharmaceuticals is completed. SALES GROWTH among major prod ucts—particularly those targeting high cholesterol, cardiovascular disease, dia betes, and depression—also drove earn ings growth. However, a recent court deci sion has opened the door to the launch of generic fluoxetine, the antidepressant sold by Eli Lilly under the trade name Prozac. Lilly's half-year sales of Prozac and the related product Sarafem were $1.32 bil lion. The company is now expected to face heavy competition and falling sales. New products and mergers are bring ing changes to the biopharmaceutical sec-
Drug company results Major pharmaceutical firms continue growth in second quarter and first half SALES EARNINGS* ($ MILLIONS) Abbott Laboratories 0
SECOND-QUARTER 2001 CHANGE FROM 2000 SALES EARNINGS
PROFIT MARGIN"
FIRST-HALF 2001 SALES EARNINGS3 CHANGE FROM 2000 ($ MILLIONS) SALES EARNINGS
PROFIT MARGIN" 2001 2000
$4,099.1
$705.4
17.2%
20.3%
$7,659.0
$1,440.3
American Home Products d
3,216.4-
477.0
6
16
14.8
13.6
6,665.6
1,210.6
7
16
18.2
16.8
AstraZeneca e
4,099.0
740.5
3
-3
18.1
19.2
8,090.0
1,536.0
3
3
19.0
18.9
Aventis f
3,913.4
468.2
8
21
12.0
10.7
7,543.4
688.2
10
2
9.1
9.8
Baxter International
1,870.0
253.0
10
13
13.5
13.2
3,627.0
467.0
11
13
12.9
12.6
Bristol-Myers Squibb 9
4,709.0
1,102.0
7
10
23.4
22.7
9,398.0
2,345.0
6
10
25.0
24.1
Eli Lilly h
3,033.5
827.7
16
24
27.3
25.4
5,839.2
1,634.5
15
8
28.0
29.8
GlaxoSmithKline 1
7,328.0
1,744.0
5
10
23.8
22.8
14,226.0
3,167.0
5
10
22.3
21.3
Johnson & Johnson 1
8,342.0
1,482.0
9
9
17.8
17.8
16,363.0
3,034.0
8
13
18.5
17.8
Merck k
11,893.1
1,815.4
25
5
15.3
18.2
23,238.2
3,472.7
27
8
14.9
17.6
Pfizer 1
7,686.0
1,890.0
10
31
24.6
20.7
15,156.0
4,019.0
7
33
26.5
21.4
Pharmacia" 1
5,424.0
844.0
5
20
15.6
13.5
9,940.0
1,267.0
6
20
12.7
11.3
Schering-Plough"
2,630.0
634.0
0
0
24.1
24.1
4,949.0
1,198.0
-1
-5
24.2
25.2
11%
12%
19.0%
18.8% $132,694.4 $25,479.3
10%
12%
19.2%
18.9%
TOTAL0
$68,243.5 $12,983.2
22%
3%
14%
5%
18.8%
20.5%
a After-tax earnings from continuing operations, excluding significant extraordinary and nonrecurring items, b After-tax earnings as a percentage of sales, c Includes results of BASF's drug business acquired on March 2, 2001. d Sold agrochemicals business to BASF in June 2000. Results for continuing operations includes animal health sales of $192 million for the quarter and $354 million for the half year, e Agrochemical operations put into Syngenta in November 2000. All results are for contin uing operations, f Does not include animal health and crop science businesses slated for divestiture, g Does not include beauty care and orthopedic devices businesses slated for divestiture, h Includes animal health sales of $164 million for the quarter and $320 million for the half year, i Created from merger of GlaxoWellcome and SmithKline Beecham in late 2000. Results for 2000 are pro forma, j Includes consumer product sales of $1.69 billion for the quarter and $3.47 billion for the half, and medical devices and diagnostics sales of $2.79 billion for the quarter and $5.54 billion for the half year, k Approximately 50% of sales from Merck-Medco managed health business. I Acquired Warner-Lambert in June 2000. Results for 2000 are pro forma. Includes animal health sales of $247 million for the quarter and $467 million for the half, and consumer product sales of $1.34 billion for the quarter and $2.61 billion for the half year, m Created on March 31, 2000, from the merger of Pharmacia & Upjohn and Monsanto. Includes agricultural sales of $2.01 billion for the quarter and $3.32 billion for the half year, η Includes animal health sales of $171 million for the quarter and $324 million for the half, and consumer product sales of $231 million for the quarter and $449 million for half year, ο Percentages calculated from com bined sales and earnings.
24
C & E N / AUGUST 2 0 , 2 0 0 1
HTTP://PUBS.ACS.ORG/CEN
Results for smaller firms Revenues and earnings for biopharmaceutical and small drug discovery firms are still strong . SEÇQNP-WA*TER2QQ1 REVENUES3 EARNINGS" CHANGES FROM 2000 1$ MILLIONS) REVENUES EARNINGS
Abgenix Amgen Biogen Bio-Technology General Cèlera Genomics
$16.0 986.7 260.7 28.2 27.4
$-U.8 321.9 71.9 6.0 -34.5
Celgene Cephalon Chiron Cor Therapeutics Corixa
23.9 56.2 261.2 38J 15.6
-2.4 -6.3 40.5 3.3 -18.8
Elan Genentech Genzymed Gilead Sciences ICOS
461.2 483.7 239.0 50.7 34.0
IDEC Pharmaceuticals Immunex Incyte Genomics Ligand Pharmaceuticals Medlmmune
nm 6% 0 7 nm
def 32.6% 27.6 21.3 def
def 33.1% 31.3 22.6 def
21 140 8 52 97
nm nm -29 nm nm
def def 15.5 8.7 def
163.7 101.4 62.0 -32.4 -5.3
25 23 28 1 73
59 27 18 nm nm
64.8 238.3 56.1 17.5 33.4
25.2 48.8 -9.9 -10.6 -9.2
66 12 22 77 -5
Millennium Pharm. NAB] Novo Nordisk Protein Design Labs QLT
59.1 65.3 706.8 12.7 20.5
-30.7 1.5 104.5 3.1 4.3
Sepracor Serono Shire Pharmaceuticals Sicor Vertex Pharmaceuticals
44.2 367.6 210.8 90.9 21.4
-37.3 104.2 53.1 18.3 -9.4
$4,992.0
$912.1
TOTAL6
30% 8 13 14 83
PROFIT MARGIN0 2001 2000
FlR$T-HA»rF ?001 REVENUES3 EARNINGS5 CHANGES FROM 2000 ($ MILLIONS) REVENUES EARNINGS
$30.5 1,888.3 497.7 61.9 89.4
$-22.4 626.8 144.0 15.4 -119.0
def def 23.8 def def
46.3 103.3 500.8 60.8 29.1
35.5 21.0 25.9 def def
27.9 20.2 28.1 def def
71 18 nm nm nm
38.9 20.5 def def def
27 13 14 -20 203
nm 15 8 -38 -54
29 15 32 25 -21
nm 42 66 99 nm
18%
14%
PROFIT MARGINC 2001 2000
64% 9 11 49 109
nm 10% -26 nm nm
def def 33.2% 32.9% 28.9 43.2 24.9 def def def
-2.3 -18.1 78.3 0.5 -45.3
34 140 9 41 67
nm nm -20 nm nm
def def 15.6 0.8 def
def def 21.3 def def
890.6 988.7 461.7 108.5 53.2
308.1 192.7 117.6 -54.1 -20.4
26 30 29 11 45
72 24 13 nm nm
34.6 19.5 25.5 def def
25.4 20.5 29.1 def def
37.7 19.5 def def def
121.4 456.1 107.2 34.5 278.6
46.0 888.7 -20.2 -22.2 69.4
84 16 24 67 16
342 1,106 nm nm 198
37.9 194.8 def def 24.9
15.8 18.8 def def 9.7
def 2.3 14.8 24.4 21.0
def 2.3 15.6 31.4 136.5
109.4 125.5 1,337.0 29.4 35.2
-64.9 2.2 224.7 9.8 12.5
17 11 17 4 334
nm 10 34 69 1,042
def 1.8 16.8 33.3 35.6
def 1.8 14.7 20.5 13.5
def 28.3 25.2 20.1 def
def 23.0 20.0 12.7 9.6
78.2 688.9 400.6 175.1 40.5
-85.3 176.2 96.6 31.7 -18.4
58 13 29 24 15
nm 40 48 123 nm
def 25.6 24.1 18.1 def
def 20.6 21.0 10.1 def
18.3%
18.8%
17.8%
16.7%
$9,828.4 $1,748.6
20%
29%
a Revenues for calendar year including product sales,, collaborative or contract R&D funding, royalties, but not int:erest or investment income, b After-tax earnings from continuing operations, excluding significant extr;aordinary and nonrecurring items, c After-tax earnings as a percentage of revenues, d Results for general division. e Percentages calculated from combined revenujes and earnings, def = deficit, nm = not meaningful.
tor as well. Gone from C&EN's survey of 30 leading biotechnology and smaller drug discovery companies are Alza; Aurora Biosciences, acquired by Vertex Pharmaceuticals; and BioChem Pharma, bought by Shire Pharmaceuticals. Other small companies have been gobbled up by Amgen, Bio-Technology General, Cèlera Genomics, Corixa, and Genzyme. Overall revenues for the group of 30 smaller companies rose 18% in the second quarter, to $4.99 billion, and 20% for the first half, to $9.83 billion. Combined earnings were up 14% in the second quarter, to $912 million, and jumped 29% to $1.75 billion for the six-month period. Abgenix, Cèlera, Cephalon, Corixa, IDEC Pharmaceuticals, Ligand Pharmaceuticals, and QLT had the highest growth in revenues. More than half of the companies had HTTP://PUBS.ACS.ORG/CEN
net profits, and most of these reported sub- I stantial growth in earnings as well. The exceptions were Biogen, Chiron, Protein Design Labs, and QLT. However, although earnings fell for the latter two companies in the second quarter, they advanced significantly for the full six-month period. QLT's anomalous four-digit percentage increase for the half was due to a very small profit in the same period last year. Biogen—among the top 10 biopharmaceuticalfirmsbased on revenues—had second-quarter earnings that were essentiallyflatcompared with the same period last year. Excluding a nearly $ 9 million gain from the sale ofsecurities in 2000, earnings would have been up 8% for the quarter. Earnings for the first six months fell 26% as a result of higher R&D spending and operating costs and a $90 million gain in
investment income infirst-quarter2000. Chiron's lower earnings—down 29% for the quarter and 20% for thefirsthalf— exclude one-time gains but reflect higher operating expenses. However, thefirmsays this year's second quarter is one in a continuing string of quarters where it has met or exceeded earnings expectations. Although earnings results among both major drug and biopharmaceutical producers varied widely profitability increased on average. Major drug producers had an overall profit margin, calculated as combined net earnings as a percentage of sales, of 19.0% for the second quarter and 19.2% for the first half. Likewise, the profit margins for smaller companies were 18.3% and 17.8%, respectively. Individual company profit margins were fairly evenly distributed around the averages. • C & E N / AUGUST
20. 2001
25
