Healthy Skepticism Library item: 6329

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Publication type: news

Berenson A.
Pfizer and Other Drug Makers Report Higher Profits
New York Times 2006 Oct 20
http://www.nytimes.com/2006/10/20/business/20drug.html?_r=1&oref=slogin

Full text:

Drug makers continued to post strong profit gains yesterday, led by Pfizer,
the world’s biggest pharmaceutical company, which reported that its
third-quarter earnings had more than doubled from a year earlier.
Eli Lilly, Novartis and Wyeth also said yesterday that their profits were up
for the quarter, with the gains driven by price increases and growth in new
prescriptions, mainly in the United States.
As Europe and Japan take a hard line on pharmaceutical prices, drug makers
are getting an ever-higher percentage of sales and profits from the United
States. The advent of the Medicare Part D drug insurance program, which
began in January, has led to a rise in the number of prescriptions written
in this country, despite higher prices.
The change was most noticeable at Lilly, which said that its prices in the
United States rose 11 percent in the third quarter, while falling 3 percent
in Europe and 5 percent in Japan. Pfizer did not break out price changes by
region but said that its revenues rose 14 percent in the United States and
only 4 percent everywhere else.
“There clearly is a modest benefit to unit growth that the industry is
seeing as a result of the Medicare drug benefit,” said Barbara Ryan, who
follows drug makers for Deutsche Bank.
Although Pfizer’s stock price was off slightly yesterday, as it forecast
essentially flat revenues through 2008 as key drug patents expire, its
shares and those of other big drug makers – including Merck – are up sharply
this year, after a half-decade of weakness.
The American Stock Exchange index of drug makers is up 12.5 percent in 2006,
compared with a 9.5 percent rise for the Standard & Poor’s 500 index. Pfizer
has gained almost 19 percent this year and Merck is up nearly 40 percent.
Yesterday, Pfizer shares fell 42 cents, to $27.68.
The industry has not entirely shaken off its doldrums, mainly because it
continues to have problems finding new drugs to replace those it loses to
patent expiration.
“This is an industry built on new drug approvals – patents run out for
everyone, and research and development productivity remains the key to
long-term success,” said Scott Henry, an analyst at Oppenheimer & Company.
“No one’s out of the woods yet.”
Pfizer’s prediction of flat revenue the next two years was based on the
coming expiration of patents on two of its top-selling drugs, the
antidepressant Zoloft and Norvasc, a treatment for high blood pressure.
Pfizer also said today it was postponing the widespread rollout of Exubera,
its inhaled insulin, until January – more than six months after federal
regulators approved the drug. Exubera, which analysts had predicted would be
a blockbuster, now appears to be running into widespread resistance from
doctors concerned about its potential risks to the lungs.
Even so, Pfizer said that its earnings per share would rise by 7 to 9
percent in both 2007 and 2008, as it cuts costs and reduces the number of
shares outstanding with share buybacks.
And the company has so far successfully defended Lipitor, a
cholesterol-lowering medication that is its largest and most important drug,
from the impact of the patent expiration in June on Merck’s Zocor, a similar
cholesterol-lowering drug. To save money, insurance companies have tried to
switch patients from Lipitor to the new generic versions of Zocor, known as
simvastatin, which is much cheaper than Lipitor.
But Pfizer reported that its Lipitor sales rose 15 percent in the third
quarter, to $3.3 billion, including $2.1 billion in the United States.
Over all, Pfizer said its third-quarter sales rose 9 percent, to $12.3
billion. Profits hit $3.4 billion, or 46 cents a share, compared with $1.6
billion last year.
Factoring out the impact of certain charges, Pfizer reported earnings of
$3.9 billion for the quarter, or 54 cents a share – well ahead of Wall
Street’s estimates of 45 cents a share.
“Pfizer had a good quarter,” Ms. Ryan said. “They obviously exceeded
forecasts for earnings and revenues, and Lipitor had a strong quarter.”
David L. Shedlarz, the vice chairman of Pfizer, said the company was pleased
with its results for the quarter and planned to continue to cut costs
through 2008. “We’re being very realistic about the prospects for our
company,” he said. “We’re aggressively moving to transform the company, to
lower the cost base and make it more flexible.”
Lilly, the sixth-largest American drug maker, said that its sales rose 7
percent, to $3.9 billion, while earnings gained 10 percent, to $874 million,
or 80 cents a share. Sales of Zyprexa, Lilly’s biggest drug, rose 5 percent,
to $1.09 billion.
Analysts say that sales of Zyprexa, a drug for schizophrenia and bipolar
disorder, has been helped significantly by the Medicare drug plan. .
Patients over 65 who had previously been on Medicaid are now covered by
Medicare, and Lilly is able to charge significantly more to Medicare than
Medicaid, analysts say.
Lilly shares fell 76 cents, to $57.49