Shrinking Sales For U.S. Pharma Firms

The U.S. pharmaceutical industry in 2005 continued its retreat from the salad days of double-digit sales and earnings growth. Changing dynamics in the cholesterol market have been both boon and bust, depending on the company, and will continue to have a strong impact on the health of the industry in 2006.

Though several drug firms showed signs of a turnaround in the fourth quarter, a slowdown at Pfizer was a drag on the forward momentum of the U.S. drug industry. Overall sales for the nine U.S. companies surveyed by C&EN declined by 1.5% in the quarter, compared with the same quarter in 2004, although they were up by a modest 3.4% for the year. Combined earnings were off 1.9% in the quarter and up a meager 0.4% for the year.

The fourth-quarter profit margin was essentially unchanged at 20.5%. For the full year, it declined slightly to 21.5%, compared with 22.1% in 2004.

European drug companies continued to outshine their U.S. counterparts. Combined profits for the six European companies surveyed surged 23.1% in the quarter, based on a 10.7% rise in sales. For the full year, earnings were up 18.7%, while sales improved by a respectable 11.9%. The profit margin for the group was up in the quarter to 19.5%, versus 17.6% in the fourth quarter of 2004. For the year, the profit margin reached 21.6%, eclipsing for the first time in many years that of the U.S. industry.

Industry behemoth Pfizer was challenged by the onset of generic competition on multiple products, the ripple effect from Merck's withdrawal of the COX-2 inhibitor Vioxx, and slower growth for the cholesterol drug Lipitor.

Earnings were down 14.1% to $3.8 billion in the fourth quarter, while sales fell 8.9% to $13.6 billion. The firm's full-year profit was off 7.0% compared with 2004, to $15.0 billion. Sales for the year declined 2.3% to $51.3 billion.

Sales of Pfizer's COX-2 inhibitor Celebrex were down 53% in the fourth quarter to $472 million. Sister COX-2 drug Bextra, which had $417 million in sales in fourth- quarter 2004, was pulled from the market in May 2005.

Generic competition severely cut into sales of Pfizer's epilepsy drug Neurontin and the antibiotic Zithromax. Neurontin sales plummeted 71% in the quarter to $141 million, while Zithromax was down 40% to $402 million.

Growth for Pfizer's main breadwinner, Lipitor, has moderated as new drugs step in to steal market share and overall growth in the statin class cools. Still, Lipitor raked in $3.4 billion in the fourth quarter, a 3% improvement, while full-year sales were up 12% to $12.1 billion.

Though Pfizer believes sales of Lipitor will pass $13 billion in 2006, the drug will face a huge challenge when generic versions of Merck's statin Zocor hit the U.S. market in June.

"With the availability of generic simvastatin, there will be a greater push by pharmacy benefit managers and managed-care organizations to establish this therapy as a preferred option," Deutsche Bank analyst Barbara Ryan said in a note discussing Pfizer's results. "Lipitor growth obviously will suffer in that environment."

Looking to prospects for 2006, Pfizer is trying to balance challenges to Lipitor with promising new drugs. The company has gained Food & Drug Administration approval for the inhaled insulin drug Exubera, expected to be launched midyear, and for the cancer treatment Sutent.

Although Merck was hit harder than Pfizer by the withdrawal of COX-2 inhibitors, the company is showing signs of coming out from under the Vioxx cloud. Fourth-quarter profit was up 3.3%, based on roughly flat sales of $5.8 billion, marking the first period in a year that Merck's sales have not declined.

The healthier fourth-quarter performance was largely attributable to the company's efforts to unhinge Pfizer's viselike grip on the cholesterol market. Combined sales of the cholesterol-lowering drugs Zetia and Vytorin, which are marketed through Merck's joint venture with Schering-Plough, reached $2.4 billion for the year. The drugs' combined share of new prescriptions in the cholesterol market reached 14.3%.

While the new cholesterol franchise is vital for Merck, the June expiration date looms over the patent for Zocor, an older cholesterol-lowering drug. Sales of Zocor, which has already lost patent protection in key markets outside the U.S., declined 18% in the fourth quarter to $1.1 billion. Merck expects that sales of the drug will plummet to between $2.3 billion and $2.6 billion in 2006, compared with $4.4 billion in 2005.

The company is hoping that the expected launch of three vaccines in 2006 will help to offset some of the Zocor loss. FDA has already approved Rotateq, a vaccine against rotavirus gastroenteritis, and is expected to hand down verdicts on Zostavax, a shingles vaccine, and Gardasil, Merck's cervical cancer vaccine, in May and June, respectively.

Yet new products alone will not be sufficient to sustain earnings growth. Merck unveiled sweeping cost-cutting measures in the fourth quarter of 2005, including plans to close or sell five plants and two preclinical sites, and will eliminate 7,000 positions.

Schering-Plough also benefited from the success of Vytorin and Zetia, finally turning a profit after a protracted corporate decline brought on by loss of patents on Claritin and Rebetol and tough competition on its hepatitis C drug Peg-Intron.

Fourth-quarter earnings totaled $126 million, compared with a $49 million loss in the fourth quarter of 2004. Earnings for the year totaled $183 million, versus a $202 million loss in 2004. Sales were up 6.4% for the quarter to $2.3 billion, and up 14.9% for the year to $9.5 billion.

"We are moving from survive mode into thrive mode," Schering-Plough Chief Executive Officer Fred Hassan said in announcing fourth-quarter earnings.

In addition to the cholesterol joint venture, the company's results were helped by healthier performances for several key products. Sales of Peg-Intron rebounded by 55% to $214 million, while sales of the allergy drug Nasonex were up 27% to $185 million. The rheumatoid arthritis drug Remicade brought in $251 million, a 19% increase.

Shifts in the cholesterol market were also a drag on Bristol-Myers Squibb, which is grappling with significant competition for its statin Pravachol. Fourth-quarter sales were down 2.7% to $5.0 billion, and profits of $601 million represented a 22.6% drop compared with 2004.

Facing generic competition in Europe and newer cholesterol drugs in the U.S., Pravachol saw its sales fall 18% in the fourth quarter to $584 million.

The loss was offset by an 11% increase in sales of the blood thinner Plavix, which brought in $1.1 billion in the quarter. However, that cushion could quickly deflate if the Canadian firm Apotex is successful in launching a generic version of the drug.

WHILE U.S. drug companies struggled to overcome a host of challenges in 2005, their European counterparts enjoyed far more robust growth. Several companies benefited from highly diverse portfolios marked by a balance between traditional drugs and flourishing vaccine franchises.

Sanofi-Aventis posted a 20.8% bump in fourth-quarter profits to $1.7 billion, based on a 7.0% rise in sales to $8.3 billion.

Sales in the company's human vaccine business grew 50% in the quarter to $761 million, buttressed by strong demand for its flu vaccines and the launch of three new vaccines in 2005.

GlaxoSmithKline saw fourth-quarter profits surge 43.7% to $2.0 billion, while sales were up 12.5% to $10.1 billion.

The company's vaccine franchise brought in $722 million in sales in the quarter and $2.4 billion in the full year, a 15% increase. The improvement was driven, in part, by the U.S. launch of the flu vaccine Fluarix and the whooping cough vaccine Boostrix.

GSK has already received European approval for Rotarix, its vaccine against rotavirus disease, and hopes to obtain U.S. approval shortly. By the end of the year, GSK also plans to have filed for both U.S. and European approval for its human papilloma virus vaccine Cervarix, as well as for European approval for a pandemic flu vaccine.