Issue Date: March 15, 2004
DRUG FIRMS SLOW AT YEAR'S END
U.S. and european drug firms overall didn't fare well in the fourth quarter. Sales growth was fairly good, but the increase in earnings was lackluster, at best, trailing by far the 20.5% year-to-year growth seen in the third quarter.
During the last quarter of 2003, earnings from 14 major U.S. and European pharmaceutical companies increased just 4.3% over the same period a year earlier, to $14.8 billion. This slight increase came on a 14.9% rise in sales to $83.1 billion.
In the quarter, U.S. pharmaceutical companies outperformed their European counterparts. Nine U.S. companies surveyed by C&EN saw their combined sales grow 18.8%, when compared with the fourth quarter of 2002, to $54.4 billion. However, earnings from continuing operations for the companies, excluding unusual items, increased just 8.2% to $10.5 billion. The aggregate profit margin for the nine firms fell to 19.3% from 21.2%.
Meanwhile, in Europe, five of seven firms--Roche and Sanofi-Synthélabo did not report comparable data--had a combined sales increase of 8.1% to $28.6 billion, but a 4.1% decline in earnings to $4.3 billion. Profitability dropped to 15.1% from 17.0%.
The U.S. numbers would have been much better had it not been for Schering-Plough, which had a 97.0% earnings decline to $14.0 million on a 17.8% sales decline to $1.9 billion. Excluding the results from that troubled company, combined earnings from the other eight firms increased 13.4% to $10.5 billion on a 20.8% sales rise to $52.5 billion.
Schering-Plough had earlier indicated that fourth-quarter comparisons would be affected by "unusual dynamics of its hepatitis C" business as well as the loss of revenues from Losec (omeprazole) ulcer medication in Europe because its marketing agreement with AstraZeneca ended in the third quarter.
Fred Hassan, the company's chief executive officer, says: "We are making good progress in stabilizing our allergy franchises and building market share in the cholesterol treatment market in spite of a new competitor. As planned, 2004 will be a year of repair and cleanup, bridging to an expected turnaround in 2005."
Schering-Plough finished the full year with an 81.1% decline in earnings to $467 million and an 18.1% sales decline to $8.3 billion.
THE BIGGEST U.S. turnaround in the quarter was at Baxter International, where earnings jumped 45.9% to $378 million on a 12.2% sales increase to $2.5 billion as its medication delivery sales rose 14% to $1.1 billion and its bioscience sales, 11% to $938 million.
In Europe, Aventis, which is now under fire from a hostile takeover bid from Sanofi-Synthélabo, more than doubled its earnings from the year-earlier quarter with an increase of 115.2% to $586 million. However, sales declined 3.2% to $5.9 billion.
Like Baxter, Aventis' earnings growth for the quarter was much better than that for the full year. During all of 2003, the firm had a 9.1% earnings decline to $2.4 billion on a 13.6% drop in sales to $22.4 billion.
In the face of the hostile bid, Aventis used its earnings announcement to boast about its progress, including five new products submitted for approval and four additional pipeline launches expected in 2004. It also said it is targeting 2004 sales growth at 6 to 7% and earnings per share growth in the midteens.
And Chairman Igor Landau could not resist taking a swipe at Sanofi, saying that the Aventis earnings announcement "highlights how Sanofi's offer fundamentally undervalues Aventis. It is very clear: They need us, we don't need them."
Other drug companies are optimistic about 2004 and beyond. AstraZeneca says, "Continued good performance from the company's newer products should deliver strong sales and profit growth over the next several years." The firm predicts earnings per share in the $2.00 to $2.15 range for this year, compared with the $1.78 earned in 2003.
Eli Lilly, in 2004, expects sales growth to be in the low double digits with gross margins as a percentage of sales to be essentially flat when compared to 2003. Marketing and administrative expenses will also grow in the low double digits, and R&D expenses show a percentage increase in the midteens.
Thus, Lilly expects earnings per share to be between $2.80 and $2.85 in 2004. This compares with earnings of $2.58 per share last year. This forecast, Lilly says, takes into account ongoing competitive pressures on Zyprexa (olanzapine) for treatment of schizophrenia and depression, which the company says it will continue to monitor.
And at industry leader Pfizer, David L. Shedlarz, chief financial officer, says, "The many successes of the past year help give Pfizer a strong platform for growth in 2004, given the dimensions of our product portfolio, our operational capabilities, and our financial depth and flexibility."
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