Tags: US | Earns | Drugmakers

Strong Sales of Key Drugs Boost Drugmakers' Profits

Friday, 30 Apr 2010 10:53 AM

Three top drugmakers have posted healthy increases in first-quarter sales and profits, with strong sales of key drugs buoying Bristol-Myers Squibb Co., AstraZeneca LP and Sanofi-Aventis SA.

Their positive start to 2010 is similar to what most major drug companies have been reporting this quarter as the recession eases. But pharmaceutical reports won't necessarily be as rosy for the next three quarters, due to the new U.S. health law and other factors.

"Earnings for the pharma companies this quarter have been solid, while guidance has been below expectations overall due to the impact of healthcare reform," noted Edward Jones analyst Linda Bannister, adding, "The impact of reform on 2011 will even be more significant."

That's because next year, the industry will face additional costs to help fill what's called the doorknob hole," the gap in Medicare drug coverage where seniors must pay for everything out of pocket.

Besides the health overhaul, individual drugmakers are being affected to varying extents by growing economic uncertainty in Europe, currency fluctuations and new generic competition for some products.

The overhaul also is affecting drugmakers differently, according to factors including what percentage of their business is in the U.S. and whether their biggest drugs are widely used by Medicaid patients. A key part of the overhaul that already took effect requires big increases in rebates to the government for drugs bought through Medicaid fee-for-service and managed care plans.

As a result, the three companies reporting Thursday gave different views of how the rest of the year will go for them — and saw different reactions from Wall Street.

New York-based Bristol-Myers Squibb Co. reduced its 2010 profit forecast slightly due to the healthcare overhaul but, on the strength of surging drug sales, got a 4.2 percent increase in its share price, to $25.37.

The maker of blockbuster blood thinner Plavix posted a 16.5 percent jump in profit to $743 million, or 43 cents per share. Excluding one-time charges, the company would have made 56 cents a share — 5 cents more than analysts expected. Revenue increased 11 percent to $4.81 billion, led by $1.7 billion in Plavix sales and another $617 million from schizophrenia drug Abilify.

AstraZeneca raised its guidance significantly and saw shares rise 1.5 percent to $44.34 in New York trading.

The London-based company's profit increased 29 percent to $2.9 billion, while revenue rose 11 percent to $8.6 billion, including a 4 percent benefit from favorable exchange rates.

Revenue was driven by a 27 percent increase in sales of cholesterol drug Crestor and a 13 percent rise for the anti-psychotic drug Seroquel, with both producing about $1.3 billion in sales. The company said the second half of 2010 will be hurt by the expiration of the patent for its breast cancer drug Arimidex.

Sanofi-Aventis maintained its forecast, but shares fell Thursday even as most of the industry and the broader stock markets rose significantly.

The stock dipped 40 cents to finish at $34.13.

Analyst Steve Brozak of WBB Securities blamed that drop on the fact that "something went wrong with" the French company's currency hedging strategy, apparently unnerving investors. Sanofi reported a loss of roughly $30 million from its hedging — essentially contracts with investment or commodity firms to lock in currency rates and protect a company from negative effects of foreign exchange fluctuations.

"We have a company that reports income in euros, that all of a sudden reports a hedging loss," Brozak said, at a time when "there is talk of what will happen with the euro, will it be devalued or will it be broken up?"

Sanofi-Aventis reported a nearly 9 percent increase in first-quarter net income, to $2.3 billion, and revenue rose 4 percent to about $10 billion. It cited $558 million in sales of its swine flu vaccine, which might not recur, and a 6 percent increase in sales of its popular Lantus insulin brand, to nearly $1.1 billion.

Bannister noted drug companies have been posting strong increases in sales in emerging markets, which "will become increasingly important over the next decade."

But she said that despite near-term volatility over the healthcare overhaul, "new products continue to be the most important thing for the industry." However, there weren't any major announcements made in the quarter on research on experimental drugs.

The industry's top two companies by sales, Pfizer Inc. and Merck & Co., report their results next Tuesday.

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