NY Times commented on "Banner Profits" for big boys:
January 28, 1998
Drug Makers Post Banner Profits in
Quarter
Graphic
Pharmaceutical Profits
By DAVID J. MORROW
uoyed by a strong demand for drugs that reduce cholesterol and
treat diabetes and allergies, four major American drug companies
reported strong fourth-quarter earnings Tuesday, capping one of the
industry's most profitable years.
The reports raised the stocks of all four companies: Shares of
Warner-Lambert were up $6.8125, to $145.75. Merck & Co. gained
50 cents, to $114.50. Schering-Plough closed at $73.25, up $1.75. And
American Home Products, which confirmed last week that it was in
merger talks with SmithKline Beecham, gained $2.0625 to close at
$92.5625.
Though all four companies met or exceeded most analysts' expectations,
Warner-Lambert, based in Morris Plains, N.J., was the big winner. Its
earnings rose 37.8 percent, to $236 million, or 84 cents a diluted share,
from $171 million, or 62 cents a share, a year earlier.
For the year, Warner-Lambert earnings rose 11 percent, to $870 million.
Much of the gains came from Warner-Lambert's cholesterol-reducing
drug Lipitor, which racked up $865 million in sales in its first 11 months
-- the most ever for any first-year drug -- and from Rezulin, a diabetes
drug that appears to have survived a recent marketing scare.
Glaxo Wellcome PLC, which sells a version of Rezulin in Britain, halted
sales of the drug there in December because of health concerns. That
caused Warner-Lambert's stock to plunge 18.5 percent, to $114 a share,
because of worries that the Food and Drug Administration might limit
sales in the United States. In one day, the setback shaved $7 billion off
the company's market value.
Analysts had feared that consumers would replace Rezulin with other
drugs. But that does not appear to be the case. Rezulin had $420 million
in sales last year, enough to prod nervous investors to take their shares
back. Within the last six weeks, Warner-Lambert's stock has recovered
from its December avalanche.
"Warner-Lambert is in a strong position for great growth," said Neil
Sweig, a pharmaceuticals analyst with Southeast Research Partners. "I
expect the company to report a 30 percent earnings gain for 1998. Their
pharmaceuticals are selling so well you don't even look at the company's
other divisions."
Blockbuster drugs were the story of 1997 earnings. Nowhere was that
more apparent than at Schering-Plough, which is based in Madison, N.J.,
and is best known for its allergy treatment, the antihistamine Claritin.
Thanks in part to an aggressive television advertising campaign,
worldwide sales of Claritin increased 50 percent last year, to $1.7 billion.
The boom helped the company notch a 23.4 percent gain in
fourth-quarter earnings, to $343 million, or 46 cents a diluted share, from
$278 million, or 37 cents a share.
For the year, earnings rose 19 percent, to $1.44 billion.
Merck, based in Whitehouse Station, N.J., lifted its earnings by 19.1
percent in the fourth quarter, to $1.24 billion, or $1.01 a diluted share,
from $1.04 billion, or 84 cents a share, in the comparable 1996 period.
The gain came largely because of sales of Zocor, a cholesterol reducer,
and Fosamax, Merck's osteoporosis drug.
For the year, earnings rose 19 percent, to $4.6 billion.
Of the day's reports, the least impressive was the one by American Home
Products, which is also based in Madison, N.J. Since the company
confirmed its merger discussions with SmithKline Beecham last week, it
has been under the scrutiny of investment bankers and analysts alike.
Tuesday's earnings report did not bring any surprises. Earnings rose 11.8
percent, to $572 million, or 87 cents a share, in the fourth quarter, from
$512 million, or 79 cents a share, a year earlier.
For the full year, they rose 8.5 percent, to $2.04 billion.
"The possible merger with SmithKline Beecham has a life of its own," said
David F. Saks, senior vice president at Gruntal & Co. "Whatever
developments or earnings the company announces may not be able to
replace that in investors' minds."
One item from the earnings report may enter into the merger talks. Wall
Street analysts have pondered whether American Home Products might
sell its agricultural products business to raise money and lift its stock
price. Sales at the agricultural business were up 15 percent in the fourth
quarter and 7 percent last year, to finish at $2.1 billion.
"American Home Products merely met the market's expectations," Sweig
said. "It was neither way up or way down. But with the merger, the
company didn't have to do anything more than that."
The sales at all four companies were adversely affected by the strong
dollar. American Home Products, for example, reported that the
unfavorable currency exchange rate lowered its worldwide net sales 4
percent in the fourth quarter and 3 percent for the year. |
