Not a Dashing Year for Drug Firms

With a few exceptions, earnings for pharmaceutical firms did not live up to investors' and each company's own expectations, both in the fourth quarter and for the full year.

In addition to well-publicized news about drug safety woes, the year brought a weak dollar with effects that played out differently on either side of the Atlantic. Johnson & Johnson (J&J), for example, got a fourth-quarter revenue boost from currency of 8.4%. Pfizer says foreign currency effects helped it offset generic competition.

Others felt dollar-based headaches. U.K.-based GlaxoSmithKline (GSK) says the weak dollar "adversely impacted performance." A group of European drug firms tracked by C&EN navigated the dollar challenge, increasing earnings by 8.7% to $29.3 billion for the year, while U.S. firms posted an earnings gain of just 3.2% to $41.9 billion.

The aggregate profit margin for U.S. firms dropped to 19.9% for the year, from 21.3% in 2003, whereas for European firms the number rose to 18.7% from 18.4%.

Pfizer clocked the year's largest sales increase, 17.4%, while AstraZeneca led fourth-quarter sales and earnings increases. Schering AG also showed an earnings spike. Roche had the largest earnings increase for the full year, 28.8%, while Merck did the biggest earnings nosedive.

Merck's earnings dropped 21.1% to $1.1 billion for the quarter and 23.9% to $5.0 billion for the year. Its revenues for the osteoporosis drug Fosamax (alendronate) reached $831 million for the quarter and $3.2 billion for the year, a leap of 28% and 18% over the respective 2003 periods.

Merck Chief Executive Officer Raymond V. Gilmartin says his firm is "moving beyond the Vioxx withdrawal" with a focus on renewing growth and accelerating change. The company says that about $700 million to $750 million in sales were lost in the fourth quarter, owing to the Vioxx withdrawal.

Pfizer's earnings jumped 15.9% in the fourth quarter to $4.4 billion. For the year, earnings rose by 6.7% to $13.1 billion. Still, the firm's profit margin dipped by 2.5 percentage points to 25.0% for the year.

Revenue growth at Pfizer was driven by Lipitor (atorvastatin), among other drugs, and by the weakened U.S. dollar. Worldwide Lipitor sales reached $10.9 billion for the year, up 18%, making it the industry's first $10 billion product. The debated COX-2 drugs Celebrex and Bextra increased annual sales by 75% and 87%, respectively. Viagra revenues dropped by 8% to $469 million for the fourth quarter and by 7% to $1.7 billion for the year.

BRISTOL-MYERS SQUIBB'S earnings dropped by 7.7% to $776.0 million for the fourth quarter and by 3.0% to $3.4 billion for the year. Annual sales of the cholesterol drug Pravachol (pravastatin) dropped by 7% to $2.6 billion as a result of "increased competition." Because of generic competition, sales of the company's leading anticancer agent, Taxol (paclitaxel), dropped by 40% in the U.S. last year; the product now faces generics competition in Europe. Bristol-Myers expects "substantial incremental revenue losses" in 2005 because of a number of patent expirations.

Wyeth's earnings rose by 8.8% to $3.5 billion for the year. The fourth quarter included a charge of $4.5 billion, increasing reserves for the Redux/Pondimin (dexfenfluramine/fenfluramine) diet drug litigation. As a positive, some analysts point out that Wyeth, unlike other drug firms, currently has no major patent expiration exposure.

Eli Lilly & Co. had a positive fourth quarter and year, with earnings up 12.6% to $814.3 million for the quarter and 10.0% to $3.1 billion for the year. The company launched antidepressant Cymbalta (duloxetine) in August, which generated $61.3 million in sales in the fourth quarter.

The drug is part of the firm's new product group that contributed $498.7 million to fourth-quarter sales and $1.5 billion to full-year sales. Lilly has faced some drug safety issues, notably for Strattera (atomoxetine), a treatment for attention deficit disorder, and the antipsychotic Zyprexa (olanzapine).

Schering-Plough's losses reached $27 million in the fourth quarter and $140 million for the full year, but CEO Fred Hassan sees "quarterly sales comparisons gradually moving into positive territory." The year's milestone, in his view, is the approval of Vytorin (ezetimibe/simvastatin), the two-pills-in-one cholesterol medication launched with Merck.

J&J'S FULL-YEAR earnings rose to $9.3 billion, up 16.8%. A strong performer was the antipsychotic Risperdal (risperidone), with sales of $478 million for the quarter and $1.7 billion for the year, an increase of 18% and 36%, respectively. Other strong sales achievers were the antiepileptic drug Topamax (topiramate), up 36% for the year, and Remicade (infliximab) for rheumatoid arthritis, up 23%.

Among European companies, GSK and Roche offer contrasting pictures of 2004. GSK CEO Jean-Pierre Garnier says the company "navigated a difficult year," absorbing lost sales as a result of generic competition. The competition dragged down sales of the antidepressants Paxil (paroxetine) and Wellbutrin (bupropion) by 39% and 12%, respectively, the company says, such that overall company sales growth without them would have been 7% for 2004. Instead, sales growth was just 1%.

Roche CEO Franz B. Humer says his company achieved, and in some cases even exceeded, its "ambitious goals." Earnings rose by 28.8% to $3.8 billion for the year. In North America and Europe, the hepatitis and oncology franchises were growth drivers and major contributors to an increase in drug sales.

Novartis CEO Daniel Vasella highlights his "innovation-focused strategy" as an important contributor to results. The company's growth drivers are the oncology and cardiovascular franchises. Earnings for the full year were $5.8 billion, down 4.1% over 2003. Big sellers were the antihypertensive Diovan (valsartan), the anticancer medication Gleevec/Glivec (imatinib), and the antifungal cream Lamisil (terbinafine).

AstraZeneca's chief executive, Sir Tom McKillop, says 2004 results are "excellent" despite "some disappointment with recently introduced products," and he hopes to restore shareholder confidence. Fourth-quarter earnings leapt by 51.6% to $975.0 million, and earnings for the year rose by 15.9% to $3.5 billion.

Among the company's setbacks: Follow-up clinical trials of Iressa (gefitinib) have not been going well; a Food & Drug Administration advisory was issued on the cholesterol-lowering drug Crestor (rosuvastatin); and there is litigation involving blood thinner Exanta (ximelagatran), which got the thumbs-down from FDA in October. These events have unleashed takeover rumors.

Schering AG says it felt the pinch of "government market intervention" in Europe and in Japan, where the company was "dissatisfied" with business developments. Yet Schering's earnings for the year were up by 12.8% to $686.3 million.

Sanofi-Aventis was born in 2004 when Sanofi-Synthélabo purchased Aventis. The company presented its performance with adjusted pro forma profit, thus removing the charges and restructuring cost of acquisition. These adjusted profits rose by 17.9% over 2003 to $7.2 billion for the year.

Sanofi's human vaccines business showed significant growth, with flu vaccine sales up by 70% for the fourth quarter and 33% for the year. The integration of the two companies is, according to Sanofi-Aventis, "progressing more rapidly than initially expected."