BUSINESS and Pfizer. All four companies—along with Aventis, Baxter International, and Johnson & Johnson—showed strong sales and earnings growth. And most said they expect this trend to continue. For several companies—including GlaxoSmithKline, Schering-Plough, Pharmacia, and Wyeth (formerly American Home Products)—pharmaceutical sales were strong, but declines in over-the-counter medicine, consumer product, or other businesses slightly moderated results. The situation was similar at Roche, which did not report earnings but said its sales rose 5%. And Schering-Plough, under market and regulatory pressure, moved to shift its leading antihistamine Claritin to less lucrative over-the-counter status. ALTHOUGH SOME of its nondrug sales were down, Pfizer still had strong overall sales and earnings growth. Nine products, with 17% combined sales growth, represented 83% of the company's $6.80 billion in drug revenues. It sells eight of the world's top 30 medicines and 10 products that lead their therapeutic areas. Like Merck, Pfizer's management said it expects to apply for 15 new drug approvals by 2006. Baxter, like some other better performing companies, is anticipating future sales growth "in the low teens,' and earnings-per-share growth in the 'midteens,'" according to Harry MJansenKraemerJr., the firm's CEO. Its sales were up 11%, to $1.95 billion, fueled by increases in its recombinant and plasma-derived hemophilia products and gains in vaccines. Novartis, Aventis, Schering AG, AstraZeneca, and Pharmacia were clearly focused on developing their drug businesses after selling, or planning to sell, agribusiness operations. With cash on hand, Aventis recently signed a $480 million licensing agreement with antisense drug developer Genta (C&EN, May 6, page 10). Like its peers, Aventis said that partnerships, targeted acquisitions, and the in-licensing of late-stage compounds are significant elements of its strategy for sales growth. For the typical global drug producer with about $15 billion in annual sales, doubledigit growth requires at least $ 1.5 billion in new sales each year—and that's assuming no further attrition in patent-protected products. While a blockbuster or two can provide such success, launching these products is a costly, time-consuming, and risky endeavor. So it's a waiting game as each passing day brings in more data on whether product development pipelines and bets on in-licensed drugs will return pharmaceuticals to historic growth levels. • 26
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MIXED BAG FOR BIOPHARMA FIRMS First-quarter sales and other revenues rose, but so did R&D expenses and net losses ANN M. THAYER, C&EN HOUSTON
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their major drug company colleagues—face significant challenges in bringing new medicines to the market. But unlike the major drug producers, which already have substantial product sales to sustain them, the smaller drug developers are burning through more limited resources in time-consuming, cosdy and risky R&D efforts to create new drugs. And while the major drug firms may worry about generic competition to their blockbusters, many biopharmaceutical companies are just hoping to find a bigselling product. Most leading biopharmaceutical makers have succeeded in creating at least one significant product. And these products have supported overall industry revenue and earnings growth for the past few years. However, the first quarter of 2002 marked a point at which maturing products and increased spending halted earnings growth. Revenues for a group of 30 leading biopharmaceutical companies rose 15%, to a total of $5.42 billion, compared with the first quarter of last year. However, combined earnings dropped 14% to $750 million. In the group, 16 companies reported net profits, excluding special charges, down from 18 in 2001. And the industry profit margin—combined earnings as a percentage of revenues—fell from 18.4% to 13.8% this past quarter. Several industry leaders—such as Amgen, Biogen, Chiron, and Genentech—continued to show both sales and earnings growth. In particular, Amgen and Genentech again posted stable double-digit gains based on established products. Other smaller companies—including IDEC Pharmaceuticals, Enzon, and Shire Pharmaceuticals —boosted their revenues and earnings with new or growing product sales. Similarly, new product sales gave Celgene, Cephalon, Gilead Sciences, InterMune, Ligand Pharmaceuticals, Medlmmune, Millennium Pharmaceuticals, Scios, and Sepracor revenue hikes of 30% or more, while Vertex Pharmaceuticals' rev-
enues were up just 16%. However, with the exception of Medlmmune and Cephalon, all of these companies continued to report net losses. In many cases, the losses grew in the quarter. InterMune, created three years ago as a spin-off of Connetics to develop and commercialize Genentech's Actimmune interferon gamma, had product sales that jumped 242% to $18.8 million. In contrast, a comparable increase of 291% at Isis Pharmaceuticals was due to expanded funding from R&D alliances. Incyte Genomics, along with ICOS and Celera Genomics, also depended on licensing and partnership fees, but Incyte's revenues fell while the others' grew. FIRST-QUARTER financial results also raised questions about what happened to the businesses of several prominent biopharmaceutical companies. For example, Genzyme reported just a 9% increase in revenues, to $242 million, and an 18% decline in earnings to $45.5 million. Wholesaler inventories and work on expanding manufacturing capacity negatively affected the revenue stream for its kidney disease drug Renagel. And two companies with marketed products saw revenues fall. Bio-Technology General reported a 34% drop in revenues and an 89% plunge in earnings owing to purchasing patterns for some of its products. The company anticipates doing better later in the year but says it won't be as profitable as it was in 2001. Product sales actually were up at NABI Pharmaceuticals, while the divestiture of most of its antibody business led to lower overall revenues. Immunex posted revenues up 25%, to $272 million, primarily because of increased product sales. However, net earnings dropped 12% to $34.9 million as the company's tax rate changed from 15% in the first quarter of 2001 to 31% in 2002. In December 2001, the company agreed to be acquired by Amgen, with an anticipated closing date inJune for their $16 billion record-setting deal. HTTP://PUBS.ACS.ORG/CEN
market since 1996 and, according to Biogen, is the leading MS treatment worldwide. Biogen's total revenues gained 22% in the first quarter to reach $288 million. Although Biogen is confident about competing with Serono, it has adjusted its 2002 earnings-per-share estimate downward by about 8% because of anticipated higher costs for marketing Avonex and for a collaboration on another product. Last month, Biogen also initiated the first longterm study to compare Rebif and Avonex. Consolidation has become another way AT THE SAME TIME, Rebif is positioning Serono for new growth. Serono was already to compete in the biopharmaceutical arecompeting with Biogen's Avonex product na. Several companies announced or comoutside the U.S., but now the two are fac- pleted acquisitions of small drug discovery ing off in the U.S., where Biogen had mar- and technology companies in recent ket exclusivity. Avonex has been on the months. For example, Chiron purchased Matrix Pharmaceutical and PathoGenesis, Bio-Technology General acquired Myelos, BIOPHARMACEUTICAL COMPANIES \fertex Pharmaceuticals bought Aurora BioRevenues rise, but earnings fall in first quarter for smaller drug and sciences, ArQule purchased Camitro, and discovery firms Medlmmune acquired Aviron. Some earlier deals were reflected in comFIRST-QUARTER 2002 REVENUES EARNINGS CHANGE FROM 2001 PROFIT MARGIN pany results for the first time last quarter. ($ MILLIONS) REVENUES EARNINGS 2002 2001 Cephalon acquired French drug producer 33.8% 33.8% Amgen 12% 12% $1,008.5 $340.9 Group LaFon in late 2001 and gained sev2.2 def ArQule -5.8 nm 14.0 1 eral products. It also purchased full rights 29.8 25.6 Biogen 4 73.7 22 288.3 to the neurology drug Gabitril in January, 4.8 30.1 Bio-Technology General -89 1.0 -34 20.7 adding $10 million in quarterly revenues. def def Celera Genomics nm -28.5 30.5 30 Millennium Pharmaceuticals gained its 0.4 def Celgene 30.7 37 nm -0.8 first product with its February purchase def 7.0 7.8 Cephalon 137 nm 111.5 of Cor Therapeutics, which used to appear 15.8 16.3 Chiron 41.2 9 252.0 5 in C&EN's sales and earnings table. Mil13.7 33.6 Elan 60.9 -58 443.6 3 lennium's first-quarter results include about 55.6 61.6 Enzon 12.2 100 122 19.8 six weeks of combined operations. While strategic alliance revenues fell nearly 8% 20.3 18.4 118.7 Genentech 18 30 585.2 in the quarter, the company recorded $22 18.8 25.0 Genzymed 45.5 242.1 9 -18 def Gilead Sciences def -3.9 nm 78.4 36 million in revenues from Cor's platelet def def IC0S -39.2 nm 19 22.5 anticoagulant Integrilin. Schering-Plough 37.3 36.8 IDEC Pharmaceuticals 29.7 79.7 43 41 comarkets Integrilin, which had sales of $68.0 million in the first quarter of 2002, Immunex 12.8 18.3 34.9 272.0 25 -12 a nearly 79% gain from last year. Incyte Genomics def def 29.0 -13.4 -43 nm Biopharmaceutical and small drug disInterMune def def 18.8 -26.4 nm 242 covery companies continue to be chalIsis Pharmaceuticals def def 18.0 -18.0 291 nm Ligand Pharmaceuticals 24.9 def def 46 nm -6.6 lenged in expanding their businesses, conducting successful clinical trials, and 22.4 32.1 Medlmmune 73.8 34 -6 329.6 overcoming regulatory hurdles. After a long Millennium Pharmaceuticals def def -56.3 68.6 36 nm stretch of positive sales and earnings def NABI Biopharmaceuticals -0.7 nm 41.0 -32 1.2 growth, the first quarter was a reality check Novo Nordisk 15.0 19.1 100.1 -19 666.0 2 on how hard this can be. QLT 17.0 4.1 55.7 24.1 62 -51 "The biotech industry will continue to Scios def partner, collaborate, and, in some cases, def 16.4 -25.2 nm 38 Sepracor def def 56.8 -73.8 68 nm merge to bridge technological gaps and 22.4 Serono 341.9 20.3 69.5 6 -3 achieve more integration in an effort to 23.4 Shire Pharmaceuticals 22.1 243.2 56.8 30 37 build novel therapeutics," predicts G. def Vertex Pharmaceuticals 40.7 -22.1 def 16 nm Steven Burrill, chief executive officer of 6 the merchant bank Burrill & Co., about TOTAL $5,418.5 $750.1 13.8% 18.4% -14% 15% the coming year. a Revenues for calendar year including product sales, collaborative or contract R&D funding, and royalties, "We're on the threshold of seeing many but not interest or investment income, b After-tax earnings from continuing operations, excluding significant extraordinary and nonrecurring items, c After-tax earnings as a percentage of revenues, d Results for of the promises of biotech materialize, and general division, e Percentages calculated from combined revenues and earnings, def = deficit, nm = not 2002 is going to be a far more prosperous meaningful. year than 2001," he predicts. •
Elan also had mixed results: Revenues rose just 3% to $444 million, and earnings fell 58% to $60.9 million. Increased expenses for sales and marketing, higher R&D spending, and a substantial loss on investments —instead of the significant gain seen in first-quarter 2001—contributed to the net decrease. The company's outlook has been complicated because regulators are now scrutinizing its accounting practices for several joint ventures. Novo Nordisk and Serono, both based in Europe, had small, single-digit growth in revenues but very different changes in earnings. Sales at Novo were up 2% to $666 million, based on larger volumes and an improved mix in its diabetes products. However, this was not enough to meet ex-
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pectations. The company said timing issues in launching products in emerging markets, inventory buildup and restocking, and competition caused a 19% slump in earnings to $100 million. Serono also saw revenues grow just 6%, to $342 million, while earnings dropped 3% to $69.5 million. The dip camefromincreased expenses and investments related to the launch of its multiple sclerosis (MS) drug Rebif in the U.S. in March.
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