Higher earnings expected for U.S. drug companies

U.S. drugmakers will report higher second-quarter earnings, fueled by new pharmaceuticals and the increased use of medicines to treat and prevent illnesses.

Drug-company profits will climb an average 15 percent in the quarter, led by Merck & Co. and Pfizer Inc., which are expected to post earnings gains approaching 20 percent. Bristol-Myers Squibb Co. and American Home Products Corp. will have solid increases as well.

The flood of new drugs -- many for treating chronic conditions such as high cholesterol, diabetes and mental illness -- is helping to spur sales and profits. New medicines include Warner-Lambert Co.'s cholesterol-lowering drug Lipitor, which is co-marketed by Pfizer, and Eli Lilly & Co.'s schizophrenia drug Zyprexa. "The outlook for the drug industry has never been better," said James Lee, a fixed-income drug analyst at Moody's Investors Service in New York. Many of the new drugs have few side effects, making patients more likely to take them regularly. Furthermore, the population is aging, meaning more people are taking medication, said Len Yaffe, an analyst at Montgomery Securities in San Francisco. Also helping drug-company earnings are the increasing favor that their brands enjoy over generic drugs and health insurers' belief that it's cheaper to pay for drugs than for costly surgeries. The value of first-time prescriptions written in the first four months of the year rose 6.3 percent to $473 million from $445 million a year earlier, according to Source Informatics, a research firm in Scottsdale, Arizona. Another boon is the relatively weak dollar, which makes overseas sales worth more when they're converted back into the U.S.currency. That will particularly help Merck and Pfizer, which have a big presence in Japan, said James Keeney, an analyst at Rodman & Renshaw Inc. in Boston. The dollar has fallen 7.2 percent against the yen since the end of the first quarter. That's not to say there won't be a few laggards in the quarter. Pharmacia & Upjohn Inc. forecast to analysts last week that its earnings will miss their expectations significantly, in part because of high costs to develop new drugs and generic competition. It's the third quarter in the past four that the drugmaker has warned of disappointing profits. The company, formed in the November 1995 merger of Sweden's Pharmacia AB and Kalamazoo, Michigan-based Upjohn Co., has had losses in all but two quarters since its formation. Rhone-Poulenc Rorer Inc. could disappoint as well. The 68 percent- owned U.S. unit of France's Rhone-Poulenc SA told analysts last week that it's going to take longer than expected to recover from production snafus at its Centeon LLC blood-plasma joint venture with Germany's Hoechst AG. The company is sticking to its earnings projections, but said they'll be more difficult to meet. It's expected to earn 61 cents a share, compared with 68 cents a year ago. Indianapolis-based Lilly said Monday that it will take a charge of $2.4 billion to write down the value of drug discounter PCS Health Systems, which it acquired in 1994. The charge will lead to losses for the quarter and year, the company said. Earnings before the charge are expected to rise 14 percent, reflecting sales of its schizophrenia drug Zyprexa, introduced in October.

Copyright 1997
Provided by ProQuest Information and Learning Company. All rights Reserved.