BUSINESS
PROFIT GROWTH SLOWS AT BIG DRUGMAKERS Patent expirations and recalls hit sales and earnings at U.S. companies MICHAEL MCCOY, C&EN NORTHEAST NEWS BUREAU
S
ECOND-QUARTER GROWTH SLOWED
in the core pharmaceutical busi nesses of several big U.S. drug companies, forcing them to turn to cost-cutting measures and nondrug operations to prop up profits. Eu rope's drugmakers had a better quarter. The firms surveyed by C&EN posted a combined 16.4% increase in earnings com pared with the year-ago quarter, against a mere 2.5% gain for surveyed U.S. firms. Even with the belt-tightening, three ma jor drugmakers—Pfizer, Merck, and Eli Lil ly & Co.—posted declines in earnings from continuing operations in the second quarter compared with the same period a year ago. Pfizer, the world's biggest drug compa ny, is dealing with a rare profit decline after a lengthy stretch ofoften double-digit quar terly earnings gains. The company's secondquarter earnings fell 5.2% to $3.42 billion on a mere 1.2% sales gain to $12.4 billion.
Sales in Pfizer's human-health business were down 1% in the quarter and up just 2% in the first half because of patent ex pirations on key products and the April re call of the COX-2 inhibitor Bextra. With out these setbacks, notes Karen L. Katen, president ofthe business, first-half humanhealth revenues would have increased 18%. Pfizer is responding to its relatively weak performance with restructuring and costcutting initiatives in R&D, manufactur ing, sales, and information technology. "Pfizer is tearing down silos and stream lining processes," Katen says. "Unfortu nately, some of these organizational changes will result in job reductions." Merck continues to struggle in the wake of the 2004 recall of its own COX-2 drug, Vioxx. The company's second-quarter earn ings fell 23.0% to $1.36 billion on a 9.2% sales decline to $5.47 billion. Without the recall, sales would have been up 2%.
Raymond V. Gilmartin unexpectedly stepped down as Merck's chief executive officer on May 5, to be replaced by Richard Τ Clark, former head of the firm's manu facturing division. Clark says the compa ny will focus on launching the four vac cines in its pipeline, gaining approval for its late-stage therapeutic products, and in creasing efforts "to reduce Merck's cost structure over and above what has been achieved to date." Eli Lilly & Co. had a lackluster second quarter, even without the recall problems that plagued Pfizer and Merck. The com pany's earnings before special items slipped 1.4% to $728 million on a modest 3.1% sales increase to $3.67 billion. Lilly actually posted a net loss for the quarter of $252 million, thanks to a $1 bil lion special charge taken in June to settle claims that patients who took Zyprexa for schizophrenia weren't adequately warned that, like all atypical antipsychotics, it could cause diabetes. The legal cloud over the drug, Lilly's top seller, took its toll on the firm's top line as well: Second-quarter Zyprexa sales were $1.1 billion, down 10% compared with the same period last year. Schering-Plough, the drug industry's bas ket case for two years after patents expired on its Claritin antihistamine, continued to show signs of recovery in the second quar ter. Sales were up 17.9%, the most of any firm surveyed by C&EN, and the company
DRUG COMPANIES Second-quarter earnings growth slows irι the industry as Pfizer, Merckp and Lilly post declines SALES EARNINGS3 ($ MILLIONS)
US. Abbott Laboratories Baxter International Bristol-Myers Squibb Eli Lilly & Co. Johnson & Johnson
SECOND-QUARTER 2005 CHANGE FROM 2004 SALES EARNINGS
$909.1 17.5% 309.0 8.3 1.5 933.0 728.0 3.1 2,804.0 11.1
FIRST-HALF 2005 PROFIT MARGINb 2005 2004
SALES EARNINGS3 CHANGE FROM 2004 ($ MILLIONS) SALES EARNINGS
PROFIT MARGIN13 2005 2004
6.4% 26.1 3.1 -1.4 14.1
16.5% 12.0 19.1 19.8 22.0
18.2% 10.3 18.8 20.8 21.4
8.4% 23.4 -6.2 -2.5 15.8
16.8% 10.7 17.0 20.4 22.4
18.0% 9.4 18.1 21.7 21.5
Merck Pfizer Schering-Plough Wyeth TOTAL U.S.C
-23.0 5,467.5 1,360.9 -9.2 12,425.0 3,424.0 1.2 -5.2 2,532.0 217.7 17.9 nm 4,713.8 976.6 11.6 18.0 5.7% 2.5% $54,557.8 $11,662.3
24.9 27.6 8.6 20.7 21.4%
29.4 2,731.0 -7.1 -19.4 10,829.8 7,425.0 3.0 29.4 25,516.0 -2.2 def 4,900.0 467.0 19.2 nm 22.9 2,054.7 12.8 19.6 9,292.8 4.2% 22.0% $108,585.2 $23,837.5 6.3%
25.2 29.1 9.5 22.1 22.0%
29.1 30.7 def 20.3 22.4%
EUROPE AstraZeneca GlaxoSmithKline Novartis Roche Schering AG TOTAL EUROPE0
$6,132.0 9,468.0 7,799.0 na 1,721.7 $25,120.7
$1,224.0 16.0% 2,146.0 5.5 1,646.0 11.8 na na 226.8 7.7 $5,242.8 10.0%
50.0% 6.7 9.2 na 34.4 16.4%
20.0% 22.7 21.1 na 13.2 20.9%
15.4% 22.4 21.6 na 10.6 19.7%
$11,875.0 $2,267.0 14.6% 4,353.0 4.6 18,557.0 3,123.0 11.2 15,140.0 12,898.3 2,585.6 14.4 3,282.3 412.4 5.8 $61,752.6 $12,741.0 10.1%
40.4% 10.9 12.4 28.0 22.6 19.4%
19.1% 23.5 20.6 20.0 12.6 20.6%
15.6% 22.1 20.4 17.9 10.8 19.0%
TOTAL ALL COMPANIES0
$79,678.5
$16,905.1
7.0%
6.5%
21.2%
21.3%
$170,337.8 $36,578.5
7.7%
9.0%
21.5%
21.2%
$5,523.8 2,577.0 4,889.0 3,667.7 12,762.0
$10,906.5 $1,828.2 16.7% 533.0 8.1 4,960.0 9,421.0 1,603.0 -0.3 1,464.6 3.3 7,165.1 25,594.0 5,731.0 11.1
NOTE: European company results are converted at June 30 exchange rate, excep for AstraZeneca and Novartis, which report in ( lollars. a After-tax earnings from continuing operations, excluding significant extraordinary and nonrecurring item*;. b After-tax earnings as a percentage of sales. c For companies reporting. def = deficit, na = not available, nm = not meaningful.
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C & E N / AUGUST 2 2 . 2005
23
The Branched Long Alkyl Chain
Liquid FORM FltTB® Ox©©©!!™
FO-180 (C18-Alcohol)
Iso-Stearic Acid (C18-Acid)
• Branched, Saturated, Long alkyl chain • Liquid, Melting Points
