Drugmakers mostly post higher profits, muted sales

Drugmakers on Thursday mostly posted improved third-quarter profits by keeping costs down, as generic competition, the global recession and unfavorable currency exchange rates generally hurt sales.

Merck & Co. and Bristol-Myers Squibb Co. posted strong profit increases on higher sales of a few key drugs. Switzerland's Novartis AG had a tiny increase in profit on what one analyst called "wonderful results" in its pharmaceuticals division. But Schering-Plough Corp., about to become part of Merck, saw a sharp drop in profit and a dip in revenue that it blamed on unfavorable exchange rates.

"Their quarters were, overall, better than expected," except for Novartis, said Edward Jones analyst Linda Bannister. "Most of it was driven by cost cutting, and that's the theme we've been seeing across the industry" for a while.

She said the heavy cost cutting likely spurred three of them to raise their full-year forecasts.

Bristol-Myers raised its earnings-per-share forecast by 14 cents, while Merck increased the low end of its forecast by a nickel. Novartis, noting its swine flu vaccine has been approved for sale in Europe and the U.S., said it anticipates sales of $400 million to $700 million for the shots in the fourth quarter.

Shares of Merck and Schering-Plough got only small gains in U.S. trading Thursday, and their shares, along with those of Bristol-Myers and Novartis, all declined in after-hours trading.

"Investors are taking a longer-term view of this industry," Bannister said.

She said they are focused on the patent expirations for blockbusters that have started hitting companies or are looming in the 2012-2014 period, after which growth could rebound strongly because it would be coming off a lower base. Investors also are watching whether drugmakers maintain or raise their dividends to entice shareholders to hang on, she said.

Whitehouse Station, N.J.-based Merck is about to leapfrog from No. 8 to No. 2 in the pharmaceutical industry with its pending $41.1 billion purchase of Schering-Plough.

"We have made significant progress in our planning the past three months," Chief Executive Richard Clark told analysts. "We will be ready to hit the ground running on our first day of business as the new Merck."

Merck reported net income of $3.42 billion, inflated by a $1.7 billion after-tax gain from selling its half of the Merial animal health business so regulators will approve the Schering-Plough deal. Without that gain, profit was up roughly 58 percent.

Merck's revenues rose 2 percent to $6.05 billion, on higher sales of its top seller, Singulair for asthma and allergies, plus diabetes drugs Januvia and Janumet and HIV drug Isentress.

That offset some problems, including a big drop in sales of Gardasil, a vaccine against a virus that causes cervical cancer and genital warts. It soon will face its first U.S. competition.

Meanwhile, sales of the cholesterol drugs Merck and Schering-Plough sell jointly, Vytorin and Zetia, dropped another 7 percent to $1.03 billion. They've been declining since the first reports questioning their effectiveness, in January 2008.

Kenilworth, N.J.-based Schering-Plough reported net income down 17 percent at $477 million, partly due to higher taxes and research spending. Excluding currency rates, its revenue was up 2 percent at $4.5 billion.

The maker of allergy and hepatitis drugs and consumer health items has just launched three new products in the U.S. or other countries.

New York-based Bristol-Myers had a profit of $966 million, down from $2.6 billion a year ago, when it had a $2 billion gain from selling a business. Without that, profit was up 64 percent.

It had sales of $5.49 billion, up nearly 5 percent. Psychiatric drug Abilify, Orencia for rheumatoid arthritis and hepatitis B drug Baraclude all had double-digit sales jumps. Blood thinner Plavix, the world's No. 2 drug, had sales of $1.55 billion, up 8 percent, plus additional income from Bristol's partnership with Sanofi-Aventis SA on foreign sales.

Novartis posted a profit of $2.1 billion, up 1 percent, while sales rose 3 percent to $11.1 billion. It said one-time charges offset earnings growth. Its new kidney cancer drug, Afinitor, and blood pressure medicines Exforge and Tekturna drove sales.

Executives at the companies and their rivals are closely watching the health care reform legislation working its way through Congress.

Experts have said it will either benefit drugmakers or be a wash.

Reform would bring prescription drug coverage to millions more Americans, increasing the number of medicines sold. That's one reason industry executives have supported the Obama administration's efforts on reform.

However, some drug company executives worry the boost in sales will be offset if the government demands greater discounts on drugs covered by any government-run health programs.