A rough time for drug manufacturers

NEW YORK - Merck & Co. Inc. announced plans to cut 4,400 jobs after posting a slight drop in profits Wednesday and cutting earnings forecasts for the year, as most other major drug makers also reported third quarter results rife with negative implications. Drug stocks tumbled on the news.

Many analysts already were worried about industrywide problems such as pricing pressure from a possible Medicare drug benefit, demands from health insurers for price cuts, a dearth of blockbuster medications and patent expirations.

"There is growing doubt about the outlook of the industry," said independent drug analyst Hemant Shah.

Merck's announcement of job cuts and a reduction in its forecast put pressure on drug stocks, Shah said. Compounding those losses was Schering-Plough Corp.'s comments on the difficulties in staging a turnaround and Wyeth's announcement of a $2-billion pre-tax charge for continuing diet drug litigation.

Meanwhile, GlaxoSmithKline said sales of its leading drug, the antidepressant Paxil, would be hurt by generic competition.

Pfizer Inc., the world's largest drug company, had a largely unblemished quarter.

But some analysts were clearly troubled by how the company's major drugs can report double-digit sales growth while prescription growth is only in the single digits. Analysts worry that wholesalers may be stocking up on drugs to avoid price increases, which will cause sales to fall in later quarters.

Pfizer's management insisted there was no wholesaler backlog.

"People don't believe them (Pfizer) when they say there is no stocking. We've been burned before," said Bridget Collins, a managing director at Victory Capital Management. "Everyone is nervous about the industry."

Eli Lilly & Co. reported earnings after the market closed that matched analysts' expectations. But its stock was dragged down along with the rest of the group.

Pfizer's third quarter profit fell 5 percent even as revenue rose 56 percent because of charges associated with its takeover of Pharmacia Corp. earlier this year. The drug maker also lowered its expectations for the fourth quarter.

Net income for the quarter ended Sept. 28 was $2.24-billion, or 29 cents a share, down from $2.35-billion or 39 cents a share, in the year-ago period.

Excluding merger-related charges, Pfizer earned $3.64-billion, or 47 cents a share, up from $2.45-billion, or 39 cents a share, a year ago. On that basis, the results were 3 cents better than both its earlier projections and Wall Street analysts' consensus estimate.

The company also said its fourth quarter earnings, excluding charges will be 51 cents a share, 3 cents lower than originally anticipated because of the timing of corporate spending between the third and fourth quarters.

However, Pfizer readjusted it full year 2003 earnings estimate higher, to 72 cents a share. The announcement comes a month after the company lowered the estimates to 70 cents a share from 86 cents a share.

Revenues for the quarter rose 56 percent to $12.5-billion from $8.0-billion. The strong performance stems from the addition of Pharmacia's products as well as solid revenues from Pfizer's stable of drugs.

In trading on the New York Stock Exchange, Pfizer shares fell 88 cents to close at $30.62.

Wyeth lost 32 cents a share for the quarter ended Sept. 30, in contrast to a profit of $1.4 billion, or $1.05 a share, in the year-ago period. Excluding the charge, the company would have earned $874-million, or 65 cents a share, in the latest quarter. Wall Street analysts were expecting the company to earn 59 cents a share.

Revenue rose 13 percent to $4.08-billion. Sales were boosted by strong performances by several key products.

Shares of Wyeth fell $2.50, or more than 5 percent, to close at $43.30 on the NYSE.

Shah said that while the company's fundamentals are strong, the stock is falling because of concerns over the continuing fallout from the diet drug litigation.

Wyeth executive vice president and chief executive officer Ken Martin said the decision to increase reserves for the litigation resulted from the company's continuous assessment of the situation.

Wyeth also has been hurt by falling sales of its family of hormone replacement products, which have been linked to significant health risks. Revenue from the Premarin products fell 18 percent to $295-million.

Bernard Poussot, president of Wyeth Pharmaceuticals, said Premarin revenues were stabilizing and that a new, low-dose version of Prempro, a combination of the hormones estrogen and progestin, introduced this summer was selling well. An even lower-dose version is slated to be introduced early next year.

Merck & Co.'s third quarter profits fell 1 percent as a small increase in sales was offset by higher costs and research spending.

The company cut its profit estimate for the year to $2.90 to $2.95. That is far below analysts' consensus forecast of $3.24 and a bit lower than last year's results of $2.98 per share.

The maker of cholesterol-lowering drug Zocor and arthritis drug Vioxx said it would cut 4,400 jobs, or about 7 percent of its 63,000-person work force, to further cut costs.

Profits for the quarter ended Sept. 30 totaled $1.86-billion, or 82 cents per share. That missed by 3 cents the consensus forecast of analysts surveyed by Thomson First Call. In the year-earlier quarter, net income was $1.88-billion, or 83 cents per share.

The year-ago figures exclude revenues and costs from Merck's huge pharmacy benefit management subsidiary, Medco Health Solutions of Franklin Lakes, which Merck spun off Aug. 19.

Revenues rose 6 percent to $5.76-billion.

Merck's shares fell $3.19, or nearly 7 percent, to close at $45.72 on the NYSE.

Raymond V. Gilmartin, chairman and chief executive officer, said the company is starting a number of new initiatives to cut costs and address other pressures. Merck will implement a new distribution program for U.S. wholesalers to limit fluctuations in sales. It also will take a restructuring charge of about $140-million to $200-million in the fourth quarter.

Drug maker Schering-Plough Corp., stung by sharp drops in sales of its key drugs, posted its first loss in decades.

The maker of allergy and hepatitis drugs said Wednesday that it lost $265-million, or 18 cents per share, in the third quarter. Analysts surveyed by Thomson First Call had expected a profit of 10 cents per share. In the third quarter of 2002, Schering-Plough posted a net profit of $429-million, or 29 cents per share. The company said it hadn't reported a loss since it was formed in a merger in 1970.

Revenues declined 16 percent $2.04-billion from $2.42-billion a year earlier.

The company's shares fell 88 cents, or nearly 6 percent, to $15.12 on the Big Board.

Fred Hassan, chairman and CEO since April, said increased competition for hepatitis C drugs and loss of patent protection for its one-time blockbuster allergy drug Claritin had cost the firm its market-leading positions in those categories. Those were key reasons he withdrew the company's previous guidance on earnings per share and started on a turnaround plan.

GlaxoSmithKline PLC reported a 22 percent rise in its third-quarter profit but warned that sales of its leading drug, the antidepressant Paxil, would suffer in coming months from generic competition.

Chief executive Jean-Pierre Garnier predicted a rapid erosion in Paxil sales starting in the fourth quarter as competitors have introduced generic versions of Paxil in the United States. Glaxo, Europe's biggest pharmaceuticals group, posted net income of 1.19-billion pounds ($2.0-billion) for the three months ending Sept. 30, up from 997-million pounds for the same period a year ago, as sales rose by 9 percent to 5.47-billion pounds ($9.19-billion).

Investors focused on the unfavorable outlook for Paxil, and GlaxoSmithKline's U.S. shares fell $1, or more than 2 percent, to close at $42.92 on the NYSE.

Lehman Brothers, the investment bank, took a critical view of the quarterly rise in net earnings, estimating that wholesalers who were stocking up accounted for 7 percent of the increase.

Eli Lilly & Co. reported a 4 percent rise in third quarter earnings and its third-straight quarter of double-digit sales growth.

The drug maker's performance was fueled by a 16 percent sales increase for its top-selling anti-psychotic drug, Zyprexa, and strong initial sales of two new drugs to treat attention-deficit disorder and erectile dysfunction.

Lilly reported net income for the July-September period of $714.4-million, or 66 cents per share, matching the expectations of analysts surveyed by Thomson First Call. That compared with a profit of $683.9-million, or 68 cents per share, in last year's third quarter.

The year-ago figures include one-time research and development charges during that quarter. Excluding those charges, net income decreased 3 percent in this year's third quarter compared with last year.

Total sales rose 13 percent to $3.14-billion, led by Zyprexa, which totaled $1.13-billion.

Lilly shares closed down $1.72, or nearly 3 percent, at $60.78 on the NYSE.