Earnings Rise Again at Biotech Firms

As revenues continued to increase, earnings at biopharmaceutical firms rose yet again in the third quarter. And the total earnings improvement for the group outpaced the rise in sales.

For 25 companies surveyed by C&EN, earnings increased 31.3% from third-quarter 2003 to almost $1.69 billion as revenues rose 22.4% to $8.54 billion. The aggregate profit margin for the 25 companies was 19.7%, up from 18.4% in the third quarter of last year.

The improvement in results outpaced that of the second quarter, when revenues rose 20.1% while earnings improved just 16.1%. Profit margin in the second quarter was 17.8%.

Revenue growth in the third quarter lagged that for the first nine months of the year, but earnings growth was slightly higher. For the first three quarters, cumulative revenues for the companies increased 25.3% to $24.4 billion, while earnings rose 29.6% to $4.71 billion.

But once again, results showed the difference between the companies that are making money and those that are not. Of the 25 companies, 13 had profits in the third quarter of this year, compared with 12 in the same period in 2003. ImClone Systems and Arqule went from losses to profit in the third quarter, whereas NABI Biopharmaceuticals went in the opposite direction.

And the split between the "haves" and the "have-nots" continues to widen. Revenues at the 13 companies making money in the quarter grew by 24.3% to $8.04 billion, and earnings increased 29.1% to $2.03 billion. Revenues for the 12 companies with losses fell 1.8% to $479 million, while the red ink got redder, falling $54.9 million to a cumulative loss of $342 million.

Put another way, the companies making money in the third quarter accounted for 94.2% of total revenues for the surveyed firms and 120.3% of earnings.

The biggest news affecting company earnings was the shutdown of Chiron's U.K. influenza vaccine plant. Although the closure did not occur until after the quarter ended, the company recorded no sales of its Fluvirin vaccine in the July-to-September period. Thus, Chiron's earnings, excluding unusual items, fell 58.3% to $49.0 million on a 3.1% decline in revenues to $524 million.

When the company's earnings were released on Oct. 20, the firm's chief executive officer, Howard Pien, said: "The past three weeks have been among the most difficult in Chiron's 23-year history. Influenza vaccines are a public health priority. Going forward, we are focused on restoring our capacity to provide Fluvirin vaccine and achieving an effective solution."

Pien added, "As we move forward in addressing this major concern, Chiron is also realizing milestones in our biopharmaceuticals and blood testing businesses, as well as progressing in other areas of our vaccines business."

Industry leader Amgen showed good growth in the quarter, although its revenues rose faster than earnings, lowering profitability. Revenues at the firm increased 22.9% to $2.71 billion as earnings increased 17.5% to $839 million. Profitability thus fell to 30.9% from 32.3%.

"We had excellent growth in the third quarter, made clinical and regulatory progress, and gained a significant victory toward protecting our intellectual property," Amgen CEO Kevin W. Sharer says. "We initiated large Phase III studies in postmenopausal osteoporosis and treatment-induced bone loss for AMG 162. The company received two significant regulatory approvals for Enbrel, including approval for a convenient 50-mg/mL prefilled syringe as well as approval to manufacture Enbrel in a Genentech facility."

The intellectual property victory was affirmation of Amgen's erythropoietin patents in a ruling from the U.S. district court of Massachusetts, which along with earlier decisions, Sharer says, "confirms that all four of our patents on erythropoietin are valid, enforceable, and infringed by Transkaryotic Therapies and Aventis Pharmaceuticals."

Number two Genentech saw earnings climb 80.4% to $260 million on a revenue increase of 47.2% to $1.20 billion. Profitability rose to 21.6% from 17.6%.

THE LARGEST percentage increase in earnings was at Celgene, where the company's prime product, Thalomid (thalidomide), continues to drive revenue growth. Celgene's earnings jumped 395.3% to $21.3 million, while revenues increased 36.6% to $102 million. Sales of Thalomid for the quarter improved 36.7% to $78.7 million. In addition, during the quarter, the company acquired Penn T, the U.K.-based manufacturer of Thalomid, for about $100 million in cash. Celgene says the purchase expands its corporate capabilities and enables it to control manufacturing for Thalomid worldwide.

Two companies--ImClone Systems and Protein Design Laboratories--had triple-digit revenue increases in the quarter.

PDL saw revenues go up 112.9% to $19.8 million. The increase, according to the company, includes a 95.6% rise in royalties and a 367.9% jump in license and other revenue to $2.65 million. The company says royalty revenues in the third quarter were based on sales of seven marketed antibody products licensed under PDL's antibody humanization patents. Royalty revenues in third-quarter 2003 did not include three of these products. PDL had a $12.6 million loss in the quarter, an improvement over the $18.6 million loss in third-quarter 2003.

At ImClone, revenues increased 301.7% to $94.8 million as its earnings climbed from a loss of $16.5 million to a positive $39.8 million. The company said it had license fees and milestone revenue of $23.0 million in the quarter, compared with $13.9 million in third-quarter 2003; manufacturing revenue of $30.0 million, compared with $14.8 million; royalty revenue of $34.1 million, up from $28.5 million; and collaborative agreement revenue of $7.8 million, down from $9.8 million. Most of the revenue growth comes from Erbitux.

The quarter was successful enough for many biopharmaceutical companies that they raised their earnings estimates for the year. Amgen says it now expects to earn between $2.38 and $2.43 per share, up from a previous estimate of $2.30 to $2.40 per share. And it expects revenues to be in the range of $10.3 billion to $10.6 billion, up from a previously estimated $9.7 billion to $10.4 billion.

Celgene has raised its forecast to 60 to 65 cents per share from its previous range of 50 to 60 cents. Genentech's current forecast is 80 to 83 cents per share, compared with the previous estimate of 75 to 80 cents. And ArQule now expects its net loss for the year to be between 35 and 38 cents per share, less than the previously estimated loss of 52 to 56 cents.