Drug Company 2Q Profits Seen Modestly Higher on Cost Cuts
PHILADELPHIA -- Major U.S. pharmaceutical companies are expected to post modestly higher sales and operating earnings for the second quarter, helped by cost cuts and new products.
However, several companies face continued pressure from generic competition for best-selling drugs.
The largest biotechnology companies, meanwhile, should report healthier earnings growth on sales of pricey cancer-related drugs.
Analysts estimate several large generic-drug companies had profit declines or limited earnings growth in the last quarter because of intense price competition.
For a few big makers of branded drugs, the quarter that ended June 30 was the last in which they could command high prices for three drugs that have generated billions of dollars in sales during the years. Patents expired for two cholesterol-lowering pills from Bristol-Myers Squibb Co. and Merck & Co., as well as for Pfizer Inc.'s Zoloft antidepressant. Each had sales exceeding $2 billion last year.
The patent expirations have cleared the way for cheaper, generic versions of the medications. Sales generated by the branded versions are expected to drop dramatically. The branded-drug companies remain hard-pressed to generate enough revenue from new products to replace the lost revenue from patent expirations in the near term.
What's more, the patent expiration for Merck's Zocor cholesterol-lowering pill has had a ripple effect across the industry. For instance, drug-benefit plans have switched members from Pfizer's Lipitor cholesterol pill, which still has patent protection, to Zocor in anticipation of the generic version.
The switching has made it difficult for Pfizer, the biggest drug company by sales, to sustain the growth rate for Lipitor, which nonetheless remains by far the best-selling drug in the world. First-quarter Lipitor sales were weaker than expected, and all eyes will be on Pfizer's second-quarter figures to see if the trend continued.
"An aggressive cost-cutting plan lends some consolation on near-term" earnings at Pfizer, "but longer-term growth will clearly rely on Lipitor's franchise value in the intermediate term and new drug successes," Deutsche Bank analyst Barbara Ryan wrote in a recent research note.
Ryan doesn't own Pfizer shares. Deutsche Bank or its affiliates, or both, own at least 1 percent of Pfizer shares. The firm has received investment-banking compensation from Pfizer in the past year.
Pfizer and other drug makers have trimmed their sales forces and taken other steps to cut costs. But many investors also want to see the companies invest in drug development and product launches so that the companies return to meaningful revenue growth.
Toward that end, the industry recently has won regulatory approval for several new products that could become blockbusters, including Merck's Gardasil -- a vaccine designed to prevent the virus that causes cervical cancer -- and Genentech Inc.'s Lucentis to treat a form of eye disease.
Still, approvals for some drugs are hard to come by in the wake of Merck's 2004 withdrawal of the painkiller Vioxx because of safety concerns. Drug companies say the U.S. Food and Drug Administration has tightened its scrutiny of new drug applications, leading to delays or outright rejections. Bristol-Myers, for example, recently scrapped plans to continue developing a diabetes drug after the FDA last year requested additional data about its cardiovascular risks, which would have required additional studies.
Most biotech companies are losing money as they develop products. But some big biotechs are expected to post earnings gains for the second quarter. Genentech, which is majority-owned by Roche Holding AG of Switzerland, is expected to benefit from brisk sales of cancer treatments Avastin, Rituxan and Herceptin, while analysts expect more modest growth at Amgen Inc., which sells Aranesp to treat anemia in cancer and kidney-dialysis patients.
Although generic-drug companies are aggressive in challenging patents and selling copycat versions when patents expire, intense price competition is limiting profit growth at several companies. Watson Pharmaceuticals Inc., for instance, is expected to post a decline in earnings, excluding one-time items.
One notable exception is the biggest generic company, Teva Pharmaceutical Industries Ltd., an Israeli company with sizable U.S. operations. Teva recently bolstered its product line by acquiring another U.S. generic company, Ivax. It also is selling or plans to sell the generic versions of the three big blockbusters that have lost patent protection in recent months: Pravachol, Zocor and Zoloft.
Company/Thomson Financial Estimate/Last Year's Net/Reporting Date
Genentech Inc. 47c 27c July 11
Johnson & Johnson 97c 89c July 18
Abbott Laboratories 57c 56c July 19
Pfizer Inc. 48c 47c July 20
Wyeth 75c 72c July 20
Eli Lilly & Co. 75c (23c) July 21
Merck & Co. 65c 33c July 24
Schering-Plough Corp. 17c (5c) July 24
Bristol-Myers Squibb 31c 50c July 27
Amgen Inc. 94c 82c N/A
PHILADELPHIA -- Major U.S. pharmaceutical companies are expected to post modestly higher sales and operating earnings for the second quarter, helped by cost cuts and new products.
However, several companies face continued pressure from generic competition for best-selling drugs.
The largest biotechnology companies, meanwhile, should report healthier earnings growth on sales of pricey cancer-related drugs.
Analysts estimate several large generic-drug companies had profit declines or limited earnings growth in the last quarter because of intense price competition.
For a few big makers of branded drugs, the quarter that ended June 30 was the last in which they could command high prices for three drugs that have generated billions of dollars in sales during the years. Patents expired for two cholesterol-lowering pills from Bristol-Myers Squibb Co. and Merck & Co., as well as for Pfizer Inc.'s Zoloft antidepressant. Each had sales exceeding $2 billion last year.
The patent expirations have cleared the way for cheaper, generic versions of the medications. Sales generated by the branded versions are expected to drop dramatically. The branded-drug companies remain hard-pressed to generate enough revenue from new products to replace the lost revenue from patent expirations in the near term.
What's more, the patent expiration for Merck's Zocor cholesterol-lowering pill has had a ripple effect across the industry. For instance, drug-benefit plans have switched members from Pfizer's Lipitor cholesterol pill, which still has patent protection, to Zocor in anticipation of the generic version.
The switching has made it difficult for Pfizer, the biggest drug company by sales, to sustain the growth rate for Lipitor, which nonetheless remains by far the best-selling drug in the world. First-quarter Lipitor sales were weaker than expected, and all eyes will be on Pfizer's second-quarter figures to see if the trend continued.
"An aggressive cost-cutting plan lends some consolation on near-term" earnings at Pfizer, "but longer-term growth will clearly rely on Lipitor's franchise value in the intermediate term and new drug successes," Deutsche Bank analyst Barbara Ryan wrote in a recent research note.
Ryan doesn't own Pfizer shares. Deutsche Bank or its affiliates, or both, own at least 1 percent of Pfizer shares. The firm has received investment-banking compensation from Pfizer in the past year.
Pfizer and other drug makers have trimmed their sales forces and taken other steps to cut costs. But many investors also want to see the companies invest in drug development and product launches so that the companies return to meaningful revenue growth.
Toward that end, the industry recently has won regulatory approval for several new products that could become blockbusters, including Merck's Gardasil -- a vaccine designed to prevent the virus that causes cervical cancer -- and Genentech Inc.'s Lucentis to treat a form of eye disease.
Still, approvals for some drugs are hard to come by in the wake of Merck's 2004 withdrawal of the painkiller Vioxx because of safety concerns. Drug companies say the U.S. Food and Drug Administration has tightened its scrutiny of new drug applications, leading to delays or outright rejections. Bristol-Myers, for example, recently scrapped plans to continue developing a diabetes drug after the FDA last year requested additional data about its cardiovascular risks, which would have required additional studies.
Most biotech companies are losing money as they develop products. But some big biotechs are expected to post earnings gains for the second quarter. Genentech, which is majority-owned by Roche Holding AG of Switzerland, is expected to benefit from brisk sales of cancer treatments Avastin, Rituxan and Herceptin, while analysts expect more modest growth at Amgen Inc., which sells Aranesp to treat anemia in cancer and kidney-dialysis patients.
Although generic-drug companies are aggressive in challenging patents and selling copycat versions when patents expire, intense price competition is limiting profit growth at several companies. Watson Pharmaceuticals Inc., for instance, is expected to post a decline in earnings, excluding one-time items.
One notable exception is the biggest generic company, Teva Pharmaceutical Industries Ltd., an Israeli company with sizable U.S. operations. Teva recently bolstered its product line by acquiring another U.S. generic company, Ivax. It also is selling or plans to sell the generic versions of the three big blockbusters that have lost patent protection in recent months: Pravachol, Zocor and Zoloft.
Company/Thomson Financial Estimate/Last Year's Net/Reporting Date
Genentech Inc. 47c 27c July 11
Johnson & Johnson 97c 89c July 18
Abbott Laboratories 57c 56c July 19
Pfizer Inc. 48c 47c July 20
Wyeth 75c 72c July 20
Eli Lilly & Co. 75c (23c) July 21
Merck & Co. 65c 33c July 24
Schering-Plough Corp. 17c (5c) July 24
Bristol-Myers Squibb 31c 50c July 27
Amgen Inc. 94c 82c N/A
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