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Global economy, price pressures ail rugmakers

By LINDA A. JOHNSON, 2010-1-27

Major drugmakers are reporting fourth-quarter earnings ranging from modestly better to bleak, but they%27re all showing dents from the macroeconomic forces that constrain the industry, now and for the foreseeable future.
Generic competition has been building for several years, slashing billions in revenue from blockbuster brand-name drugs, and some of the world%27s top sellers will lose patent protection in the next few years.
Now government health programs in the U.S. and Europe are demanding deeper discounts, and the struggling global economy has disproved the old adage that health care is recession-proof.
The upshot is more weak than strong reports from the pharmaceutical industry so far — and lots of investors and analysts nervous about near-term profit declines and how long companies will take to recover once, now that they%27ve trimmed nearly every bit of fat. Some companies have even been giving financial forecasts up to three years out to reassure investors that once they get past their so-called "patent cliffs," new drugs will help turn things around and growth will resume.
"It%27s a challenging environment, and that%27s unfortunately not changing," said Edward Jones analyst Linda Bannister.
Among the four major pharmaceutical companies reporting results Thursday, Eli Lilly and Co. performed best. Its net income jumped 28 percent on sales from established drugs, including antipsychotic drug Zyprexa and antidepressant Cymbalta.
Lilly earned $1.17 billion, or $1.05 per share, as revenue rose 4 percent to $6.19 billion.
But Lilly%27s outlook for the near future isn%27t as rosy. In October it faces sales-eroding generic competition to $5 billion-a-year Zyprexa, then in 2013 for Cymbalta and the insulin Humalog.
On top of that, Lilly anticipates a hit this year of up to $500 million from the U.S. health care overhaul, mainly due to rebates for patients in the Medicare prescription drug program. The overhaul also carries big fees that aren%27t tax deductible.
The Indianapolis drugmaker expects its 2011 revenue to be flat or slightly higher than last year. However, it forecast adjusted earnings of $4.15 to $4.30 per share, well below the comparable profit of $4.74 per share last year.
At New York-based Bristol-Myers Squibb Co., higher U.S. sales and tight cost controls enabled it to meet Wall Street%27s earnings expectations. But even excluding a huge gain a year ago, its earnings from continuing operations slipped.
It posted quarterly net income of $483 million, or 28 cents per share — 47 cents excluding several one-time items.
Revenue totaled $5.11 billion, up 1.5 percent, as U.S. sales rose 5 percent, driven by $1.72 billion in sales of blood thinner Plavix, the world%27s second-bestselling drug. But Plavix loses U.S. patent protection in May 2012, and two other top Bristol drugs face the same fate that year.
Bristol%27s profit forecast for 2011 was significantly below what analysts anticipated, but the company reaffirmed its prior $1.95-per-share forecast for the crucial year 2013, right after three of Bristol%27s top five drugs get generic competition.
The company said fees and discounts under the U.S. health care overhaul reduced earnings per share by 2 cents in the fourth quarter and will cut earnings per share by 15 cents, or about $500 million, this year.
Meanwhile, the two European drugmakers reporting Thursday both posted lower results.
Switzerland%27s Novartis AG saw net profit in the quarter slip 2 percent to $2.32 billion amid charges of $789 million, including restructuring costs. The maker of hypertension drug Diovan and anticancer treatment Gleevec also was hit by a 74 percent drop in demand for its pandemic flu vaccine.
In its outlook, Novartis said it expects sales to grow by a "double-digit mark," and productivity gains to help improve margins while it absorbs price cuts, generic competition and the loss of the pandemic flu vaccine sales.
AstraZeneca PLC said competition from generic medicines in the U.S., such as asthma drug Pulmicort and prostate cancer drug Casodex, contributed to a 5 percent drop in fourth-quarter net profit.
The Anglo-Swedish company earned $1.63 billion on revenue of $8.6 billion, which was down 4 percent from a year earlier. As at Novartis, its 2009 sales got a big boost from sales of pandemic flu vaccine.
So far, Johnson & Johnson, the huge drug, device and consumer health product maker, has had the worst report in the sector, thanks to lost revenue from 17 embarrassing recalls compounding the global economic pressures.