Pharmaceutical companies generally had mixed financial growth in the first quarter, with some showing double-digit increases in both sales and earnings. Others, especially in Europe, saw sales and earnings decline.
Total earnings for nine U.S. pharmaceutical companies regularly surveyed by C&EN increased 21.9% to $11.6 billion on a 17.7% sales increase to $51.6 billion, increasing the aggregate profit margin for the group to 22.4% from 21.7% in the same period last year.
Five European pharmaceutical companies did not fare so well. Combined earnings for these companies declined a slight 1.4% to $4.99 billion, despite a 2.9% increase in sales to $25.7 billion. Aggregate profitability for the five declined to 19.4% in this year's first quarter from 20.3% in the same three months a year ago.
In the U.S., the sales and earnings growth came against a backdrop of improving demand and prices. Shipments of pharmaceuticals and medicines, according to the Commerce Department, improved 6.4% over the same period in 2003, while Labor Department data put the price increase at 4.0%.
Also helping U.S. producers, but hurting European firms, was the weakening U.S. dollar. For instance, Abbott says total sales were favorably impacted by 4.9% as a result of the effect of exchange rates. On the other hand, although not quantifying how much the effect was, GlaxoSmithKline says the "weak U.S. dollar significantly impacted performance" in pound sterling terms.
U.S. CUMULATIVE RESULTS were hurt by Schering-Plough, which had a loss of $3.0 million against earnings of $173.0 million in the previous year's quarter. This came on a 5.7% decline in sales to $1.96 billion. The troubled company says the lower financial results were primarily due to continued sales declines in several key profit-generating products; significant investments in sales and marketing support; and additional spending in connection with consent decree, compliance, and quality-related obligations. Chief Executive Officer Fred Hassan says: "Schering-Plough's first-quarter results reflect the serious challenges facing the company. As we've said previously, 2004 will be a year of difficult financial comparisons."
The way to the large increase in earnings for the U.S. companies was headed by industry heavyweight Pfizer, where earnings from continuing operations, excluding unusual items, jumped 58.3% to $3.98 billion on a 46.8% sales rise to $12.5 billion. Without Pfizer, U.S. earnings would have been up just 8.8% on a 10.7% rise in sales, lowering the aggregate profit margin for those eight firms to 19.4% from 19.8%.
Pfizer CEO Hank McKinnell says, "Pfizer's results in the first quarter reflect the continued strong performance of the company's deep and broad product portfolio, including the contribution of products added through our successful acquisition of Pharmacia a year ago."
In Europe, earnings growth was led by Novartis, with a 21.6% increase to $1.29 billion on a 16.0% sales rise to $6.64 billion. CEO Daniel Vasella says: "I am pleased that our team is continuing to strengthen our operational excellence, turning in good results driven by dynamic growth of our novel medicines. Based on our excellent pipeline and a broad, young product portfolio, we expect to outpace the market in sales growth and continue to gain market share. Barring unforeseen events, we anticipate delivering record full-year operating and net income."
GlaxoSmithKline, Europe's largest drug company, however, had an 11.4% earnings decline to $2.04 billion as sales fell 6.4% to $7.63 billion. But it still held its place as the profitability leader among the European firms with a profit margin of 26.8%, down from 28.3% in the first quarter of last year. Calling 2004 a year of transition, Chairman J. P. Garnier says, "The next two quarters will continue to be challenging, but in the fourth quarter we expect to see a return to earnings growth."
DOWNLOAD A PDF DATASHEET of drug company results for the first quarter of 2004.