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Pain persists for Big Pharma in Q1
Analysts hoping for profit recovery in remainder of ’03
By Ted Griffith, CBS.MarketWatch.com
Last Update: 4:24 AM ET April 12, 2003
NEW YORK (CBS.MW) -- It looks like the long-anticipated recovery in pharmaceutical profits will take a little longer.
With the industry stil under heavy pressure from generic competitors, major
pharmaceutical companies are expected to report general y lackluster first-quarter profits over the next three weeks,
according to analysts and consensus forecasts compiled by Multex. Analyst Stephen Scala at SG Cowen forecasts an
average decline of 16 percent in first-quarter earnings.
Struggling Schering-Plough (SGP: news, chart, profile) is expected to deliver the gloomiest of al the reports, posting a 73
percent decrease in earnings. The Kenilworth, N.J.-based drugmaker warned in March that profits would be off sharply this
year as the company continues to struggle in the aftermath of losing patent exclusivity on its flagship anti-al ergy drug,
Although its decline wil be the most severe, Schering-Plough won't be the only Big Pharma company to experience a steep
fal off. AstraZeneca (AZN: news, chart, profile), Bristol-Myers Squibb (BMY: news, chart, profile) and Wyeth (WYE: news,
chart, profile) are al expected to turn in significantly lower profits.
Anemic earnings, of course, aren't welcome news to shareholders.
"For this quarter, I don't think we'l see the earnings growth that causes people to say, 'I've got to be back in pharmaceutical
stocks,'" said Jeffrey Kraws, CEO and co-founder of Crystal Research Associates, an independent pharmaceutical research
Signs of recovery?
But amid al the pessimism about the first quarter, analysts are expressing hopes for modest earnings improvement in the
balance of 2003. Scala estimates pharmaceutical earnings wil rise, on average, 2 percent for the year compared with an
"We're somewhat on the road to recovery," the SG Cowen analyst said.
Given that 2002 was so disappointing, 2003 is going to look good on a relative basis, analysts contend.
"Going forward, there are easier comparisons," said Hemant K. Shah, an independent pharmaceutical analyst. "The industry
has gone through a massive cycle of patent expirations and generic competition."
In addition to looming generic competition for Schering-Plough's Claritin, pharmaceutical investors had to worry about the
arrival in late 2002 of generic competition for AstraZeneca's Prilosec, an anti-ulcer medication that was once the world's top-
sel ing prescription drug. Bristol-Myers, Eli Lil y (LLY: news, chart, profile) and Merck & Co. (MRK: news, chart, profile) were
also hurt in 2002 as generic-drug makers flooded the market with cheap versions of erstwhile blockbusters.
But generic competition wasn't the sole source of last year's problems. Wyeth saw sales of its hormone-replacement
therapies for postmenopausal women plunge after medical studies raised health concerns about the products. Bristol-Myers
reeled from major accounting and drug inventory problems, which led to the company's recent $2.5 bil ion restatement of
The steady stream of bad news last year fueled a 22 percent decline in the
Amex Pharmaceutical Index ($DRG: news, chart, profile). Year to date, the
index has eked out a gain of less than 1 percent.
Some of the pharmaceutical companies that struggled the most last year could
show improvement in 2003, even if it's not in the first quarter, analysts said.
Bristol-Myers is expected to post a 10 percent increase in ful -year earnings,
notwithstanding an anticipated 18 percent slide in the first-quarter.
Merck, which had no earnings growth last year, is expected to turn in a
respectable 8 percent increase in 2003 profit.
And Pfizer (PFE: news, chart, profile), the world’s largest pharmaceutical
company, is expected to continue to deliver strong earnings growth, with profits
projected to rise 13 percent in both the first quarter and the ful year. In
addition, Pfizer plans this month to complete its nearly $60 bil ion buyout of
Pharmacia (PHA: news, chart, profile), and analysts say the acquisition wil
al ow Pfizer to boost profit through cost-cutting for several years.
"It appears for the next two to three years the outlook for Pfizer is strong," Shah
Analysts said approvals of potential new blockbuster prescription drugs later in the year could help make investors more
positive about pharmaceutical stocks. No. 2 drugmaker GlaxoSmithKline (GSK: news, chart, profile) and German drugmaker
Bayer (BAY: news, chart, profile) hope to get U.S. Food and Drug Administration clearance in the second half of this year to
market a new anti-impotence drug, Levitra, that’s seen as a significant potential rival to Pfizer’s Viagra. AstraZeneca hopes
to get U.S. clearance this year for its new high cholesterol medication, Crestor. High-cholesterol treatment is the most
lucrative prescription drug category, as Pfizer’s Lipitor il ustrated in 2002 by generating nearly $8 bil ion, a record for the
It won’t be a bonanza of new approvals in 2003, but it should be better than last year, Scala said. The number of new drugs
approved by the FDA fel to 17 last year from a peak of 53 in 1996.
"We’re emerging from a period when we had very few product approvals," the SG Cowen analyst said.
Trying to put the best face on recent problems, analysts said companies that are able to weather generic competition and
other chal enges wil emerge as stronger businesses. Over the long term, they say, there’s a tremendous market opportunity
for new disease treatments, if only the pharmaceutical companies can translate their research into new drugs.
"The demand for pharmaceutical products hasn’t declined," said Kraws of Crystal Research. "There’s more need now for
treatments for AIDS, diabetes, cancer, heart disease. That doesn’t change."
Ted Griffit h is a report er for CBS.Market Watch.com
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