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Business

A Strong Quarter for Biopharma Firms

Most big companies boost second-quarter earnings, and several smaller ones cut losses

by Michael McCoy
August 22, 2005 | A version of this story appeared in Volume 83, Issue 34

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Thanks to stellar performance at a handful of big firms, the biotechnology industry's profitability improved sharply during the second quarter. The 25 companies surveyed by C&EN boasted an aggregate profit margin of 22.1%, compared with 17.8% in the year-ago period.

Of course, most biotech companies post losses quarter after quarter. Twelve of the firms in the C&EN survey lost money in the second quarter, and many other companies too small to be included in this report also routinely bleed cash.

Firms like Amgen, Genentech, Biogen Idec, and Gilead Sciences, however, are practically minting money. Amgen, the world's largest biotechnology firm, posted the sector's first-ever quarterly profit of more than $1 billion. It earned $1.10 billion, up 36.5%, on revenues of $3.17 billion, up 22.7%.

Amgen's revenue drivers included the anemia treatment Aranesp, which had a 36% sales increase to $837 million, and the infection fighters Neulasta and Neupogen, which saw combined sales reach $899 million in the quarter, a 25% jump. The firm's fastest growing drug was Enbrel, a treatment for both psoriasis and arthritis that is comarketed with Wyeth; its quarterly sales increased 45% to $639 million.

Genentech, the second-largest biotech firm, also had a blockbuster quarter in which revenues increased 35.4% to $1.53 billion on a whopping 62.8% earnings rise to $329 million.

The colorectal cancer treatment Avastin, launched last year, continued to be a strong performer for Genentech, with U.S. sales increasing 85% over the year-ago quarter to $246 million. U.S. sales of Genentech's biggest product, Rituxan for non-Hodgkin's lymphoma, rose 15% to $450 million.

Both products stand to do even better: Genentech is preparing for potential Food & Drug Administration filings for Avastin for lung and breast cancers, and Rituxan for arthritis and other ailments. “Our recent clinical and financial successes are built on decades of rigorous efforts to continuously follow the science and focus on the patient,” declares Arthur D. Levinson, the firm's chief executive officer.

Biogen Idec, the third of the big three U.S. biotech firms, had a comparatively less stellar quarter, with earnings up 22.4% to $149 million on a 12.4% revenue rise to $606 million.

The company was dogged during the quarter by its March withdrawal of the multiple sclerosis drug Tysabri following reports of patient deaths during a clinical trial. On Aug. 9, however, Biogen and its marketing partner Elan announced that a safety evaluation found no new patient deaths beyond the two reported earlier. They said they are taking preliminary steps to restart clinical trials in MS treatment.

Biogen's Tysabri setback was Genentech's gain. In June, Biogen agreed to sell its Oceanside, Calif., biopharmaceutical plant to Genentech for about $408 million. Genentech needs the capacity to meet demand for new products, while Biogen says it can meet its scaled-back production needs from existing facilities.

The Tysabri setback also looks like a gain for Serono, which calls itself the third-largest player in the world. Sales of Serono's leading product, the MS treatment Rebif, were up 27% in the quarter to $326 million. Overall, revenues increased 15.2% to $677 million while earnings rose 13.7% to $150 million.

With Mylinax, now in Phase III clinical trials, Serono is vying with Novartis and other drugmakers to develop an oral MS drug. “Given recent news flows regarding several other potential oral MS therapies, Mylinax is clearly in a strong position in the race to be the first-marketed oral MS treatment,” CEO Ernesto Bertarelli says.

Gilead Sciences, another member of the biopharmaceutical big leagues, had perhaps the best second-quarter performance of any firm in the sector. Gilead's earnings rose 75.8% to $196 million on a 54.9% revenue increase to $495 million, and its profit margin of 39.6% again led the sector.

Gilead's strength is its HIV product portfolio-including Truvada, Viread, and Emtriva-which saw sales increase 61% to $344 million. During the quarter, CEO John C. Martin says, the firm continued work on that franchise by beginning to evaluate a combination of Truvada with Bristol-Myers Squibb's Sustiva and starting a Phase I/II clinical trial on an HIV treatment licensed from Japan Tobacco.

Novo Nordisk also had a strong quarter, both in its traditional insulin business and its biopharmaceuticals segment. Overall earnings rose 29.6% to $267 million on a 15.6% revenue increase to $1.34 billion. The firm's insulin sales were basically flat, but sales of its newer insulin analogs jumped 63%. Biopharmaceutical sales rose 10%.

The quarter was more mixed for the smaller biopharmaceutical companies tracked by C&EN, although some firms benefited from initial sales of approved products and from milestone payments from big-pharma partners.

Chiron reported a 32.0% earnings drop to $15.5 million due in part to legal and remediation costs associated with last year's suspension of the production license for its Liverpool, England, vaccine facility. The company took another blow last month when it wrote off the entire flu vaccine inventory at its vaccine plant in Germany because of sterility problems. Despite these problems, Chiron's revenues rose 10.3%.

Revenues at Celera Genomics continued to fall as a result of the firm's April decision to focus on drug development and exit the business of selling information gleaned from its decoding of the human genome. Revenues were $5.0 million in the quarter, down 58.7%, and the firm lost $16.4 million, compared with a loss of $5.8 million a year ago.

Amylin Pharmaceuticals recorded its first product sales during the quarter with the launch of Byetta and Symlin, both diabetes medicines. The firm's revenues jumped to $46.8 million in the quarter, compared with $7.6 million in the year-ago period, although only $8.7 million of the increase was due to product sales. Most of the gain came from a $35 million payment from Lilly tied to the launch of Byetta.

Protein Design Labs also reported a big jump in sales, in its case due to the first-quarter acquisition of ESP Pharma, a specialty drugmaker. PDL's revenues tripled in the quarter to $77.8 million-$35.3 million from product sales and most of the rest from royalties. The firm also swung from an $11.1 million loss in last year's second quarter to earnings of $9.2 million.

Neurocrine Biosciences reported revenues of $32.2 million, more than double those of the year-ago period, thanks to a $20 million milestone payment from Pfizer related to FDA's acceptance of a New Drug Application for indiplon, an insomnia treatment, in June. Indiplon will compete with sleep aids like Sanofi-Aventis' Ambien, which had sales last year of more than $1.5 billion. Neurocrine says indiplon's short half-life helps avoid the next-day impairment that some sleeping pills cause. Neurocrine cut its loss in half to $5.6 million in the quarter.

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