I like your investment advice Big KNY3 and would follow it ( buy PFE at PE 40 or Glaxo at PE 60 ). There are only
A few minor points that concern me: Glaxo for example:
chart4.bigcharts.com
And then this:
The Wall Street Journal -- February 20, 1998
Glaxo Pretax Profit Weakened
By Competition, Strong Pound
By STEPHEN D. MOORE
Staff Reporter of THE WALL STREET JOURNAL
Battered by unfavorable currency swings and fierce generic competition for three of its top-selling drugs, Glaxo Wellcome PLC said pretax profit tumbled 17% in last year's second half.
Pressure on profit is likely to intensify this year, Glaxo officials said, as inexpensive generic copies of antiulcer blockbuster Zantac make further inroads in the U.S. and U.K. Moreover, the British pound appreciated further against major currencies in January.
Nonetheless, Glaxo Chairman Sir Richard Sykes reaffirmed his forecast of a robust recovery of sales and profit next year. And though Sir Richard remained mum about continuing merger talks with SmithKline Beecham PLC, prospects of a $70 billion corporate marriage could soon relegate the bleak stand-alone scenario to a footnote in company annals.
Glaxo stock slipped to 19.29 pounds ($31.60), down 16 pence, in London trading Thursday.
Zantac Sales Plunge
Glaxo's pretax profit skidded to 1.17 billion pounds in the second half from 1.41 billion pounds a year earlier, bringing full-year pretax profit to 2.69 billion pounds, down 9% from the previous year's 2.96 billion pounds. Second-half sales fell 6.8% to 3.87 billion pounds from 4.15 billion pounds. The pound's rise against most major currencies exaggerated the rate of the second-half declines, however. Excluding effects of currency movements, sales rose 1% in the half and pretax profit fell 9%, company officials said.
The big blow was the loss in late July of U.S. patent protection for Zantac, formerly the world's best-selling prescription medicine. Zantac sales world-wide plunged 33% in the second half, to 572 million pounds, while U.S. sales nosedived 51%. For the full year, Zantac sales dropped 22% to 1.38 billion pounds.
Even worse, the erosion isn't likely to slow anytime soon. Brand-name drugs normally lose 80% of their sales within 12 months of the onset of generic competition. Because of last-minute legal skirmishing, generic copies of Zantac didn't get to market until September. By year end, 10 rival products were available, which means several hundred million pounds in additional Glaxo revenue almost certainly will disappear during this year's first half, analysts said.
The same grim calculus applied to Zovirax, an antiherpes drug and Glaxo's No.2 seller until its U.S. patent expired in April. During the second half of 1997, Zovirax sales in the U.S. plunged 39%. World-wide Zovirax sales for the full year tumbled 20% to 580 million pounds. Adding to the havoc, generic competition sent U.S. sales of the antiasthma treatment Ventolin plunging 43% during last year's second half. Because Ventolin already had been exposed to generic competition in Europe, full-year world-wide sales of the drug fell a milder 9% to 391 million pounds.
Newer Drugs Help
Still, Glaxo's U.S. sales climbed 3% last year as newer drugs launched during the 1990s boosted revenue by 52%, offsetting the demise of Zantac, Zovirax and Ventolin. World-wide, Glaxo's sales reached 7.98 billion pounds in 1997, a 5% increase excluding exchange-rate fluctuations. It's the performance of the new drugs -- along with medicines poised for launch -- that underpin Sir Richard's upbeat prediction of "significant profit growth" in 1999, propelled by double-digit sales growth.
Sales of Imitrex, an antimigraine drug sold under the brand name Imigran in Europe, surged 31% last year to 662 million pounds, making it the company's No.2 seller after Zantac. Meanwhile, sales of Epivir, a drug that has become the mainstay of combination therapy for AIDS patients, more than doubled to 413 million pounds. Sales of Serevent, a new antiasthma drug, climbed 28% to 406 million pounds, while sales of Flovent, another asthma therapy, known as Flixotide in Europe, soared 88% to 214 million pounds.
Yet company officials acknowledged that the new-look balanced portfolio isn't a money spinner to rival Zantac in its heyday, another reason Glaxo covets a partner to face the intense competitive pressures fueling drug industry consolidation on both sides of the Atlantic. Ballooning marketing expenses for the new drugs shaved Glaxo's operating profit margin to 32% in last year's second half from 38.5% in the year's first six months.
Chief Financial Officer John Coombe traced the slimmer profit margin to increased spending on direct-to-consumer product promotions, as well as an aggressive expansion of the company's U.S. sales force. The end of the Zantac era also played a part, Mr. Coombe added.
"Zantac was between 40% and 50% of our portfolio at its peak, and we were achieving margins of well over 40% [of sales]. Of course margins also are affected by things like government pricing pressure, which is making life tougher for us today," he said. "But product mix is a big factor, and with a diverse portfolio like we have today, you just won't be able to get back to the sort of [Zantac] margin levels in the future."
What do you say, Big K? Not to worry; buy more Glaxo and PFE and " Big Pharma ". <GG>.
TA |
