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For drugmakers, a 'tough cycle'

Pfizer sees profits, but sales of some key products are weak. Other drug companies report losses.

NEW YORK - Pfizer Inc. swung to profitability in the second quarter, but earnings fell at Merck & Co. and Wyeth, and Schering-Plough Corp. reported its fourth straight loss - signs the industry's struggle with patent losses, lawsuits and increased competition continue.

"The drug companies are going through a tough cycle," said David Moskowitz, an analyst at Friedman Billings Ramsay. "Every company has issues, and some are worse than others."

Moskowitz noted that all face pricing pressure from the government as well as private insurers and employers. "There is much negative pressure," he said.

There are some bright spots: A joint venture between Merck and Schering-Plough is expected to get approval before the end of the month for Vytorin, a new cholesterol drug that is being hailed as a blockbuster. The pill combines two complementary cholesterol-lowering agents, Zetia, another drug made by the joint venture, and Merck's Zocor.

Pfizer, the world's largest drug company, reported net income of $2.86-billion, or 38 cents a share, for the April-June quarter vs. a loss of $3.59-billion, or 48 cents a share, a year earlier. The loss stemmed from its purchase of Pharmacia last year.

After merger-related costs, discontinued operations and other unusual items, Pfizer earned $3.61-billion, or 47 cents a share, up from $2.34-billion, or 30 cents a share, a year ago. The latest results matched the consensus of analysts surveyed by Thomson First Call.

Revenues rose 24 percent to $12.27-billion from $9.9-billion a year ago. Sales of cholesterol-lowering medicine Lipitor advanced 17 percent to $2.36-billion while revenues from anti-depressant Zoloft grew 25 percent to $789-million.

But sales of some key products were weak. Sales of blood pressure medicine Norvasc grew only 3 percent to $1.03-billion, in part because of lost patent protection in several European countries. Revenues for impotence pill Viagra fell 7 percent to $389-million, reflecting competition from rivals Cialis, which is made by Eli Lilly & Co. and ICOS Corp. and Levitra, which is marketed by GlaxoSmithKline and Bayer.

"Viagra sales, as anticipated, were weak. That is an ongoing concern," said Bert Hazlett, an analyst with SunTrust Robinson Humphrey.

Last week, Pfizer lowered its 2004 revenue projections to between $52.2-billion and $53-billion from $54-billion, citing the effects of foreign exchange fluctuations and lower sales of some products.

For the first six months of the year, Pfizer earned $5.19-billion, or 68 cents a share, up from $1.07-billion, or 16 cents a share, a year ago. Revenues jumped 35 percent to $24.76-billion from $18.4-billion.

Pfizer shares fell 33 cents to close at $32 on the New York Stock Exchange.

Schering-Plough's losses resulted from sharply lower sales for several key products and higher costs for interest, marketing and government-ordered plant upgrades. It reported a net loss for the quarter of $65-million, or 4 cents per share. A year earlier, the company earned $182-million, or 12 cents per share.

Excluding one-time charges totaling $122-million, or 6 cents per share, the company earned 2 cents per share. That beat the expectations of analysts, who expected a loss of 1 cent per share.

Schering-Plough shares rose 21 cents to close at $19 on the NYSE.

Second-quarter revenues dropped 7 percent to $2.15-billion from $2.31-billion. Key factors included sharply lower sales for its three hepatitis C drugs - Rebetol, Intron A and PEG-Intron - due to increased competition and lower sales for the allergy treatments. Claritin lost its patent and started being sold over the counter in late 2002.

The company said it continues to work on equipment upgrades and compliance with regulations under a May 2002 FDA order. That order came with a record $500-million fine for violations of manufacturing standards dating to 1998. Exact factory costs were not disclosed Wednesday.

For the first six months, Schering-Plough had a net loss of $138-million, or 9 cents per share. In the first half of 2003, the company earned $355-million, or 24 cents per share. Revenue fell to $4.11-billion from $4.39-billion.

Merck reported a 1 percent drop in second-quarter profit as higher costs for production and research and development outweighed increased sales.

The maker of cholesterol-lowering drug Zocor and osteoporosis treatment Fosamax said net income was $1.77-billion, or 79 cents per share. That matched the consensus forecast of analysts. A year earlier, net income was $1.78-billion, or 79 cents per share.

In October, Merck announced plans to eliminate 4,400 jobs worldwide; about 4,000 have been cut so far. The company spent $55-million on restructuring in the first half of 2004, and expects another $5-million to $25-million in costs through year's end.

Revenues totaled $6.02-billion, up 9 percent from $5.53-billion in the second quarter of 2003.

Sales of Merck's best-selling drug Zocor rose 12 percent to $1.4-billion. Sales of arthritis drug Vioxx fell 18 percent to $653-million. A successor drug called Arcoxia generated $62-million in revenues in the 45 countries where it is on the market, but Merck said the FDA has not scheduled a hearing to consider U.S. approval.

Merck said it anticipates revenues of $1.5-billion to $1.7-billion for 2004 from its alliance with AstraZeneca LP, down from $1.9-billion last year. Merck manufactures the heartburn drugs Nexium and Prilosec for AstraZeneca, and Prilosec sales have been hurt by generic competition.

For the first six months of 2004, net income was $3.39-billion, up 2 percent from $3.33-billion in the first half of 2003. Revenues climbed 5 percent to $11.65-billion from $11.1-billion.

Merck shares fell 24 cents to close at $44.59 on the NYSE.

Wyeth reported a 4 percent drop in second-quarter profit, citing increased research and development costs as it works to improve its pipeline in the face of ongoing lawsuits over its former diet drugs.

Profits also fell compared to last year because of a one-time gain of $226-million in the second quarter of 2003, when Wyeth sold the rights to seven medicines.

The maker of antidepressant Effexor and injected arthritis drug Enbrel said net income was $827.3-million, or 62 cents per share. That compares with $864.4-million in the prior year, or 65 cents per share. Analysts had forecast earnings of 59 cents per share.

Worldwide net revenue increased 13 percent to $4.2-billion.

Wyeth's research and development costs during the second quarter were up 17 percent.

Wyeth, formerly known as American Home Products, made Pondimin, the fenfluramine half of fen-phen, and a chemical cousin, Redux. The drugs were pulled from the market because of links to heart valve damage and a dangerous lung condition. Thousands of lawsuits resulted.

"We think that we have very good positions in a very, very large majority of these cases," chief financial officer Ken Martin said. "That's the focus right now. I would expect that the other side would love us to just kind of roll over and put money on the table but that's not where we're at right now."

Sales of Effexor, Wyeth's top-selling drug, increased 31 percent to $832-million in the quarter.

Wyeth is preparing for Effexor to face more competition once Eli Lilly launches a new antidepressant called Cymbalta.

For the first half, Wyeth earned $1.58-billion, or $1.18 a share, down 26 percent from $2.14-billion, or $1.61 a share a year earlier. Revenues for the first half totaled $8.24-billion, up 11 percent from $7.44-billion.

Wyeth shares gained 44 cents to end at $34.70, also on the NYSE.

Swiss pharmaceutical company Roche Holding AG said Wednesday that its first half net profit more than doubled on strong sales of key products.

The company said it earned 2.9-billion Swiss francs ($2.33-billion), up from 1.3-billion francs a year earlier. Revenues rose 2 percent to 15.4-billion francs ($12.39-billion), from 15.19-billion francs for the first half of 2003.

The company announces earnings only for the half year and full year.

Roche shares rose 0.8 percent to close at $103.51 in Zurich trading.

[Last modified July 21, 2004, 23:20:22]