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Drug Roundup – August 4, 2011
There have been several noteworthy developments in the drug space recently, which will likely have a material impact on the companies in this sector and the markets they serve. Companies featured in this review include Pfizer (PFE - Free Pfizer Stock Report), Merck & Co. (MRK - Free Merck Stock Report), Novartis (NVS), GlaxoSmithKline (GSK), and Bristol-Myers Squibb (BMY).
Stocks in the pharmaceutical sector have trended downward in recent weeks in tandem with the broader market averages. Despite several positive earnings reports, ongoing macroeconomic uncertainty appears to be weighing heavily on overall investor sentiment. In this roundup, we touch on second-quarter results for a few of the top players in the industry.
Pfizer Posts Modest Earnings Growth in Second Quarter
The world’s largest pharmaceutical company reported share net of $0.33 in the June quarter, versus $0.31 in the comparable period of 2010. Lower taxes and reduced restructuring costs from the company’s 2009 acquisition of Wyeth helped to mitigate declining sales. Quarterly revenues dipped 1% to $16.98 billion, primarily due to increased generic competition on few of Pfizer’s key products. Management indicated that pipeline development will be a key focus in the second half of the year, as it prepares to lose U.S. exclusivity for its top-selling drug Lipitor.
Merck Shows Solid Growth, Cutting Jobs
The New-Jersey based drugmaker posted strong second-quarter earnings of $0.95 a share, up 10% from the same period of 2010 ($0.86). Performance was driven by strong gains in the pharmaceuticals segment, where several key products experienced high single to double-digit growth. Worldwide sales grew 7% to $12.2 billion. Elsewhere, management announced plans to slash costs, which includes workforce reductions of 12%-13% by 2015. It also lowered its R&D expense target for 2011 to a range of $8 billion - $8.3 billion.
Novartis’ Posts Gains, Emerging Markets Strong
The Swiss-based drugmaker saw net profits rise 12%, to $2.73 billion in the second quarter thanks to strong product sales and improved prospects in emerging markets. The company’s generic drug division (Sandoz) and its eyecare unit (Alcon) were also key contributors, as profits at these divisions rose 16% and 6%, respectively. Recent expansion initiatives into emerging markets appear to be paying off as sales to China grew 30% and sales to India increased 20%.
Cost Cutting Drives a Profit For GlaxoSmithKline
GSK swung to a profit of $1.8 billion in the second quarter versus a loss of $480 million in the comparable period of 2010. Substantial reductions in administrative costs and strong sales to Japan helped drive performance. Administrative costs declined nearly 45% year over year and sales in Japan jumped 20%, as prospects continued to improve following the March earthquake.
Bristol-Myers Squibb Sales Jump, Profits Fall Slightly
The company reported second-quarter earnings of $0.52 a share, compared to $0.53 in the same period of 2010. Total revenue rose 14% to $5.4 billion driven by strong sales of Plavix, Onglyza, and newly-launched Kombiglyze. Gains were largely offset by a 16% increase in marketing, selling, and administrative costs ($1.0 billion) and a 12% rise in research and development expense ($923 million). Although revenue growth was strong during the period, sustainability may be somewhat of a concern moving forward as top-selling drug Plavix will begin facing generic competition in May, 2012.
In the face of dimming economic prospects, earnings for a few of the industry’s top players have remained relatively intact. Over the next few years, we look for companies in this sector to increase their focus on pipeline development in order to drive sales and help offset patent expirations. However, this process usually takes some time and until new products prove to be meaningful sales contributors, managements will likely rely on cost cutting to maintain bottom-line growth.
At the time of this article’s writing, the author did not have positions in any of the companies mentioned.