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Business

Wide Range for Pharma Earnings

Large pharmaceutical companies post gains but experience different types of third quarters

by VIVIEN MARX, C&EN NORTHEAST NEWS BUREAU
November 15, 2004 | A version of this story appeared in Volume 82, Issue 46

Merck grabbed the spotlight in the third quarter with its withdrawal of the painkiller Vioxx. Among drug firms, the company also took the largest earnings dip for the quarter, a 28.7% fall. While all companies worry about pricing pressures, generic competition, and regulatory issues, the themes played out differently for each major firm in the industry.

Third-quarter earnings for pharmaceutical companies surveyed by C&EN totaled $16.5 billion, a 3.8% increase from the same period in 2003. (Schering-Plough is excluded from these sums because the company did not provide charges after taxes.) The industry's aggregate profit margin--earnings as a percentage of sales--was 21.7%, a decrease of 0.1 pecentage point from last year's third quarter.

It is safe to say that no company had the quarter Merck did. Vioxx, a COX-2 inhibitor, generated sales of $2.5 billion in 2003 and has been taken by 20 million patients in the U.S since its launch in 1999. Merck's quarterly earnings fell to $1.3 billion, a figure that includes a $553 million effect from taking the drug off the market, customer returns, and inventory write-offs. Last fall, when it was already struggling, the firm announced restructuring plans and the elimination of 4,400 jobs in 2004. By the end of September, the company had exceeded that number by 100.

Merck's sales drivers in the third quarter were the cholesterol drug Zocor, the osteoporosis medication Fosamax, the antihypertensive Cozaar, and the asthma medication Singulair. Vytorin, a drug developed and marketed with Schering-Plough, generated $52 million in third-quarter sales, according to Merck.

Pfizer's sales rose by 3.9% to $12.8 billion, and earnings were pushed up by 13.2% to $4.2 billion, despite the "challenging business environment," as Hank A. McKinnell, the firm's chief executive officer, explained in a statement. The environment he describes is no doubt similar to the one his competitors see: continuing pricing pressure; new branded and generic competition; patent expirations; and "difficult political, legal, and regulatory environments."

Revenue drivers at Pfizer in the quarter were Lipitor, with sales up 11% to $2.7 billion; Celebrex, up 14%; Bextra, up 37%; Neurontin, up 10%; and Zyvox, up 97%.

Four Pfizer products--Diflucan, Neurontin, Accupril, and Zithromax--with combined revenues of $5 billion are facing patent expirations. Pfizer expects revenue losses for those drugs in 2005. Pfizer says sales of the antidepressant Zoloft were affected by the challenges in the antidepressant market given the investigations into prescribing such drugs to children and adolescents.

Pfizer's painkillers in the COX-2 inhibitor class, Celebrex and Bextra, generated worldwide sales of $797 million and $324 million, respectively, and the company states that these drugs continue to be "effective, appropriate treatments."

Johnson & Johnson's earnings rose by 13.6% over the third quarter of 2003 to $2.4 billion. Worldwide sales reached $11.6 billion, and pharmaceutical sales arrived at $5.5 billion. Although sales of the anemia treatments Eprex/Procrit decreased worldwide by 12% to $887 million, Remicade, for treatment of Crohn's disease, showed 23% growth to $545 million, and sales of the antipsychotic Risperdal rose by 25% globally to $746 million.

At Eli Lilly, earnings rose by 5.7% to $755 million, with third-quarter sales of $3.3 billion. The company is restructuring and announced it will be eliminating 1,000 jobs, 42% of which will be in U.S.-based sales and marketing. Lilly has decided to abandon the therapeutic area of inflammation and plans to close its high-throughput screening and combinatorial chemistry lab in Research Triangle Park, N.C., moving those tasks to facilities in Indianapolis.

THE COMPANY stated that these measures will help offset poor performance for the antipsychotic Zyprexa. While international sales of the drug increased, sales dropped by 22% in the U.S. and thus by 9.2% overall compared with third-quarter 2003. Reorganization is a reaction to an environment with "increasing dissatisfaction with pharmaceutical prices," Lilly says in its quarterly report. According to the firm, it is "relentlessly" identifying and eliminating inefficiency and increasing productivity.

Global sales at Bristol-Myers Squibb rose by 1.0% to $5.4 billion in the third quarter with earnings at $957 million, a decrease of 5.2%. Whereas a number of BMS drugs such as the cholesterol medication Pravachol and the cancer drug Paraplatin face patent expirations, the company expects further growth from its newly approved drugs, such as Abilify, Reyataz, and Erbitux. Worldwide sales for the schizophrenia drug Abilify rose by 63% to $165 million; sales of Reyataz for HIV/AIDS rose 179% to $106 million. The colorectal cancer drug Erbitux, developed with ImClone Systems, reached $84 million in sales. BMS's top seller is the stroke preventative Plavix, which had sales of $902 million in the third quarter.

Because Schering-Plough's results for the quarter and the year to date do not include after-tax charges, the company's sales and earnings are not included in the totals in the data table accompanying this article. The firm's earnings for the third quarter rose to $26 million from a loss of $265 million in the third quarter of 2003. Sales reached $2.0 billion, a 1% decrease.

Wyeth's earnings of $1.0 billion were an increase of 16.0% over third-quarter 2003. Global sales at Wyeth rose by 9.6% to $4.5 billion. Sales of the antidepressant Effexor, Wyeth's leading drug, increased by 38%, but the company warns that growth in this category is slowing. Sales of the immune suppressant Rapamune jumped 76%.

Abbott Laboratories' sales rose by 10.2% over third-quarter 2003 to $4.7 billion, and earnings grew by 8.7% to $835 million. Following its worldwide launch, sales of Humira, a treatment for rheumatoid arthritis, reached $579 million in the third quarter. TriCor and Synthroid also delivered strong growth, 36.8% and 20.3%, respectively, but Abbott says Synthroid sales were affected by generic competition.

European pharmaceutical companies offer an almost equally varied picture this quarter. Earnings at AstraZeneca rose by 14.5% to $929 million, with sales increasing by 9.6% to $4.8 billion. The company experienced a "recent disappointment" in the U.S. Food & Drug Administration's rejection of its stroke prevention drug Exanta. The company is taking an $80 million charge to write off excess inventory of the drug. Sales of the antidepressant Seroquel, AstraZeneca's top seller, increased to $529 million, a 54% jump from third-quarter 2003.

Novartis posted third-quarter earnings of $1.5 billion, a 21.1% jump over 2003. Sales rose by 13.6% to $7.1 billion. Third-quarter revenues from the cancer drug Gleevec rose by 47% to $411 million, and the blood-pressure medication Diovan drew $788 million in revenue, an increase of 28%.

Earnings for the quarter at GlaxoSmithKline dropped 11.0% to $1.9 billion, with sales reaching $9.0 billion. CEO J. P. Garnier said Glaxo lost more than $2.2 billion in sales to generic versions of the firm's antidepressants Paxil and Wellbutrin in the first nine months of 2004. The asthma drug Seretide/Advair is the company's largest seller at $339 million for the third quarter, an increase of 20% over 2003.

MORE ON THIS STORY

TABLE 1 - DRUG COMPANY RESULTS
In the third quarter, companies show disparate earnings and losses
WIDE RANGE FOR PHARMA EARNINGS

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