Drugmakers Report Mostly Healthy Results
Tuesday January 25, 6:59 pm ET
By Linda A. Johnson, AP Business Writer
Drug Companies Report Mostly Healthy Results Despite Hefty One-Time Charges; Shares Rise
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TRENTON, N.J. (AP) -- Strong sales and solid core results from three of the country's biggest drugmakers boosted their share prices Tuesday, even as hefty one-time charges dragged down their quarterly results.
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Johnson & Johnson, which posted its 72nd straight year of sales growth, and Merck & Co., whose Vioxx withdrawal set off industrywide concerns about drug safety, met or exceeded analysts' expectations. And Schering-Plough Corp. showed a big improvement over its year-ago results as it continues its ambitious turnaround program.
"The base business for each company seems to be sound, providing the minimum growth" the companies have forecast, said Sena Lund, a pharmaceuticals analyst at Cathay Financial LLC.
J&J shares rose $2.23, or 3.6 percent, to close Tuesday at $63.72. Merck shares rose $1.10, or 3.7 percent, to $30.95 and Schering-Plough shares increased 28 cents, or 1.4 percent, to $20.31. All three trade on the New York Stock Exchange.
Analysts said the drug industry's positive earnings reports reflect both increased prescription sales and recent drug price increases averaging 5 percent. Last week, Pfizer Inc., the world's biggest drugmaker, reported that excluding special charges, its fourth-quarter net income rose 16 percent.
Sales at Johnson & Johnson, a maker of contact lenses, surgical products, contraceptives and baby and skin care products, totaled $12.75 billion in the fourth quarter, up from $11.25 billion a year ago. For the year, sales rose 13.1 percent to $47.3 billion.
J&J, headquartered in New Brunswick, N.J., earned $1.2 billion, or 41 cents per share, in the fourth quarter, down from $1.8 billion, or 62 cents a share, for the same 2003 period.
But excluding a special tax-related charge in the fourth quarter and an after-tax gain of $142 million a year ago following a ruling on stent patents, net earnings for the quarter were $2 billion, or 67 cents a share, up nearly 18 percent from a year ago. Those results beat by 3 cents a share the consensus forecast of analysts surveyed by Thomson First Call.
Merck, based in Whitehouse Station, N.J., said its sales climbed 2 percent to $5.75 billion in the quarter. They also rose 2 percent for the year to $22.9 billion.
Those results came even after Merck lost an estimated $700 million to $750 million in fourth-quarter sales by pulling arthritis blockbuster Vioxx from the market worldwide on Sept. 30. Merck also took a $604 million reserve -- on top of $71 million last quarter -- for future Vioxx defense costs.
Merck general counsel Kenneth Frazier said the company cannot yet reasonably estimate liability costs for Vioxx, which Merck's own testing showed increased risk of heart attack and stroke after 18 months' use.
Merck reported fourth-quarter net income of $1.1 billion, or 50 cents per share, which matched the consensus forecast of analysts surveyed by Thomson First Call. A year earlier, net income was $1.4 billion, or 62 cents per share.
Kenilworth, N.J.-based Schering-Plough posted a 12 percent increase in fourth quarter revenues to $2.2 billion. For all of 2004, sales fell 1 percent to $8.27 billion.
Schering-Plough, which markets the allergy medicine Clarinex and the non-prescription Claritin, reported a fourth-quarter loss of $834 million, or 58 cents per share, compared with a loss of $181 million, or 12 cents, a year earlier. But excluding a tax-related charge, the loss per share would have been 3 cents -- only 2 cents worse than the consensus forecast of analysts surveyed by Thomson First Call.
"We expect Schering-Plough to turn around in '05," said pharmaceuticals analyst Al Rauch of A. G. Edwards & Sons Inc. "Back to not just profitability but earnings growth" after a couple years under new management, with government-ordered manufacturing upgrades nearly complete and sales now stabilized after a precipitous decline.
J&J and Schering-Plough each took large one-time charges under a new law giving U.S.-based, international companies a one-year window to reduce the tax rate on overseas profits brought back to the United States and reinvested here. The rate cut is from as high as 35 percent down to 5.25 percent -- if company managements have a plan to use the money for hiring and training workers, making capital investments, research and development, financial stabilization or advertising and marketing.
Schering-Plough took a charge of $807 million and said it will repatriate more than $9 billion. J&J, which took a charge of $789 million, plans to bring $11 billion back into the country.
"Most of the reasons to spend that money efficiently are in the U.S.," said analyst Jan Wald at A.G. Edwards. "The reason these dollars haven't been repatriated yet is the tax disadvantage of doing so."
Neither company disclosed specific plans for the money, but Wald and other analysts said those extra billions give companies lots of flexibility.
While the Merck-Schering-Plough joint venture selling the cholesterol drugs Vytorin and Zetia is picking up steam, Merck is on a downswing due to Vioxx liability and a shrinking pipeline. Analysts said the company has improved its long-term drug pipeline but cannot boost revenues enough before cholesterol blockbuster Zocor, with $5.2 billion in 2004 revenues, loses patent protection in mid-2006.
Rauch predicted that Merck's net income will drop further this year and will be still worse in 2006, when Merck gets U.S. generic competition for Zocor. "This company isn't going to turn around its earnings growth until after '08 -- if it manages to get its pipeline fixed," Rauch said.
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