BUSINESS become the subject of regulatory scrutiny Revenues of more than $2 billion will be reallocated and are expected to shift 2002 results upward and prior years down.
EARNINGS FALL AT MAJOR DRUG FIRMS Third-quarter and nine-month results fail to improve as sales of major products slow ANN M. THAYER, C&EN HOUSTON
S
ALES AND EARNINGS FOR T H E
world's major drug producers have been taking a severe beat ing from competing generic drugs. According to IMS Health, generics account for nearly 45% of all pre scriptions and are enjoying an annual growth rate of 13%. Meanwhile, beginning in thefirstquarter of this year, brand-name drug producers saw their earnings growth fall into the single digits, then slow to zero, and, in the most recent quarter, actually decline. Combined third-quarter sales for 15 global pharmaceutical producers rose to $68.8 billion, up 4.0% compared with the same period last year. However, overall earnings for the group declined 2.8% to $14.0 billion. The situation was only slight ly better for the first nine months of
2002—sales were up 4.7% to nearly $204 billion, while earnings slipped 0.9% to $43.1 billion. Roche is not included be cause it reported only nine-month sales, which were flat at $14.8 billion. Bristol-Myers Squibb led the group's decline. Sales for the quarter fell 12.1% and earnings plummeted 59.5%. Similarly ninemonth sales were down 13.0% and earnings plunged 57.4%. Excluding Bristol-Myers, combined nine-month results for the re maining 14 companies would have been a 6.1%risein sales and 4.2% gam m earnings. Bristol-Myers' problems stemmed from a 32% drop in its U.S. pharmaceutical sales caused by wholesaler inventory workdowns and generic competition for three major products. The company is restating results going back to 2000 for periods af fected by the inventory buildup, which has
GENERIC COMPETITION has been formi dable for Eli Lilly where patent protection for the antidepressant Prozac expired in August 2001. Within two months, the firm lost over 70% of sales to competing gener ics, IMS Health reports. The drop-off con tributed to a 6.8% decline in nine-month sales and a 14.1% drop in earnings. Ex cluding Prozac, Lilly's sales were up 7% for the quarter and nearly 9% over nine months. Schering-Plough's problem has been its Claritin antihistamine. The drug is soon expected to shift to over-the-counter sta tus, and the company has been trying to convert patients to a related drug called Clarinex. Although Clarinex sales are growing, Claritin sales dropped 51% in the quarter as wholesalers reduced invento ries. Overall, third-quarter sales were up just 1.9%, while earnings dropped 28.6%. Wyeth's product sales were down slight ly for the quarter—just 2.1%—but earn ings sank 30.8%. Over nine months, the picture was a bit brighter, with sales up 4.6% and earnings down 4.3%. However, it's the downward trend that is expected to
SEESAW Sales edged up, but earnings fell in third-quarter and nine-month periods SALES EARNINGS3 ($ MILLIONS)
Abbott Laboratories0 AstraZeneca Aventisd Baxter International Bristol-Myers Squibbe
$4,341.2 4,350.0 4,149.3 2,102.0 4,171.0
THIRD-QUARTER 2002 CHANGE FROM 2001 SALES EARNINGS
$751.6 3.8% 675.0 10.1 672.5 2.4 316.0 10.6 499.0 -12.1
9.6% -9.6 14.1 16.2 -59.5
PROFIT MARGIN6
NINE-MONTHS 2002 SALES EARNINGS3 CHANGE FROM 2001 SALES EARNINGS ($ MILLIONS)
17.3% 15.5 16.2 15.0 12.0
8.5% 11.8% 16.4% $12,845.4 $2,376.9 8.8 9.2 13,153.0 2,010.0 18.9 21.7 7.3 12,772.3 1,871.8 14.6 9.9 11.9 6,074.0 769.0 14.3 12,306.0 1,524.0 -13.0 -57.4 26.0
PROFIT MARGIN6 2002 2001
18.5% 15.3 14.7 12.7 12.4
18.0% 15.3 12.9 12.4 25.3
Eli Lillyf GlaxoSmithKlineS Johnson & Johnsonh Merck' NovartisJ
2,785.6 7,744.0 9,079.0 5,426.1 5,059.0
738.5 1,519.0 1,817.0 1,767.3 1,111.0
-3.1 7.7 12.7 -0.3 -1.5
2.1 10.2 17.0 -6.1 4.3
26.5 19.6 20.0 32.6 22.0
25.2 19.2 19.3 34.6 20.7
8,121.9 23,005.0 26,895.0 15,388.1 15,346.0
2,026.2 5,933.0 5,494.0 4,980.9 3,546.0
-6.8 7.4 11.6 -1.5 3.7
-14.1 -2.3 17.2 -5.2 3.5
24.9 25.8 20.4 32.4 23.1
25.5 27.1 19.5 33.6 23.1
Pfizerk Pharmacia1 Schering AG Schering-Plough™ Wyethn
8,725.0 3,579.0 1,197.0 2,421.0 3,623.7
2,452.0 11.5 594.0 1.4 81.0 3.6 429.0 1.9 626.7 -2.1
12.2 3.7 22.7 -28.6 -30.8
28.1 16.6 6.8 17.7 17.3
27.9 16.2 5.7 25.3 24.5
25,177.0 10,259.0 3,707.0 7,810.0 10,770.0
6,972.0 1,513.0 357.0 1,662.0 2,098.5
9.3 1.0 4.9 7.0 4.6
12.3 6.3 9.2 -7.7 -4.3
27.7 14.7 9.6 21.3 19.5
26.9 14.0 9.3 24.7 21.3
20.4%
21.9% $203,629.7 $43,134.3
21.2%
22.4%
TOTAL0
$68,752.9 $14,049.6
4.0%
-2.8%
4.7% -0.9%
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 $934 million for the quarter and $2.75 billion for nine months, and nutritional product sales of $804 million for the quarter and $2.51 billion for nine months, d Excludes crop science and animal nutrition businesses divested during the second quarter, e Includes nutritional sales of $456 million for the quarter and $1.41 million for nine months, f Includes animal health sales of $168 million for the quarter and $498 million for nine months, g Includes consumer product sales of $1.23 billion for the quarter and $3.48 billion for nine months, h Includes consumer product sales of $1.66 billion for the quarter and $4.91 billion for nine months, and medical devices and diagnostics sales of $3.14 billion for the quarter and $9.27 billion for nine months, i Excludes Merck-Medco managed health business, which is slated for spin-off. j Includes animal health sales of $148 million for the quarter and $473 million for nine months, and nutrition/baby-food sales of $542 million for the quarter and $1.72 billion for nine months, k Includes animal health sales of $280 million for the quarter and $794 million for nine months, and consumer product sales of $1.28 billion for the quarter and $3.88 billion for nine months. I Excludes Monsanto agricultural operations spun off Aug. 13, but includes animal health sales of $131 million for the quarter and $372 million for the nine months, m Includes animal health sales of $162 million for the quarter and $483 million for nine months, and con sumer product sales of $119 million for the quarter and $506 million for nine months, η Includes animal health sales of $128 million for the quarter and $484 million for nine months, and consumer product sales of $599 million for the quarter and $1.59 billion for nine months, ο Percentages calculated from combined sales and earnings.
28
C&EN / NOVEMBER
18, 2002
HTTP://PUBS.ACS.ORG/CEN
TOM A H
continue; sales of the compan/s hormone replacement products began dropping off precipitously after negative clinical trial results were released in July. Merck emphasizes five products as drivers of its growth, but lists another six drugs that have gone offpatent. Despite an 8 % gain in sales for thefivenewer products, the firm's overall drug sales slipped 0.3% and earnings fell 6.1% in the quarter. For the first nine months, earnings were off 5.2% on sales down 1.5%. More positive results were posted by Abbott Laboratories, AstraZeneca, Aventis, Baxter International,Johnson &Johnson, and Pfizer. Baxter's gains of 10% or more in the quarter and nine-month peri ods were driven by its medication and ex panding bioscience products businesses. Johnson & Johnson's diversified busi ness mix contributed to stable double-dig it sales and earnings growth. Sales for the quarter and nine months were up about 12%, and earnings during both periods soared about 17%. Strong performance for its pharmaceutical, medical device, and di agnostic operations offset more modest growth in consumer products. PFIZER'S SALES and earnings growth remained steady—hitting double digits in the quarter and nearly as high for nine months. Eleven products accounted for 82% of its sales and together grew 17% in the quarter. The company sells eight of the world's 30 largest selling drugs. Nine prod ucts are expected to contribute more than $1 billion each to Pfizer's 2002 sales, in cluding four at more than $2 billion, two at $3 billion, and one—the cholesterol-lower ing drug Lipitor—at more than $7 billion. While Pfizer's prospects clearly are good, the outlook from others for the full year is mixed. Baxter, GlaxoSmithKline, Abbott, Aventis, AstraZeneca, Johnson & Johnson, and Pharmacia anticipate that earnings per share in 2002 will be higher than in 2001. Lilly Bristol-Myers, Novartis, and Wyeth expect declines. Merck and Schering-Plough foresee no change in the short term. However, the recent approval of the cholesterol-lowering drug Zetia, which they are comarketing, is expected to improve long-term earnings. Profitability for drug firms, which has declined slightly in terms of earnings as a percentage of sales, hinges on products. And producers must launch new ones to fight the pressure from generic competi tion. Agood example is Pfizer, which is in the process of rolling out five new prod ucts on its own and a sixth with partner Pharmacia. • HTTP://PUBS.ACS.ORG/CEN
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