A Mid-Year Scorecard for Big Pharma

August 1, 2007
Patricia Van Arnum
PTSM: Pharmaceutical Technology Sourcing and Management
Volume 3, Issue 8

The financial performance of the pharmaceutical majors was generally favorable through the first half of 2007, with most companies reporting moderate to double-digit growth. Industry leader Pfizer, however, reported a sales decline for the second quarter and flat revenues through the first half of 2007. Pfizer Chairman and CEO Jeffrey Kindler says the company remains committed to its plans for cost-cutting, more outsourcing, and increasing its position in biologics.

A look at the financial performance of Big Pharma through the first half of 2007 shows mixed results. Competition from generic drugs hurt the performance of certain companies such as Pfizer (New York) and GlaxoSmithKline (London). Particularly strong sales, with growth in the double digits, were recorded by Novartis (Basel, Switzerland), Roche (Basel, Switzerland), Wyeth (Madison, NJ), and Schering-Plough (Kenilworth, NJ).

Pfizer faces flat revenues and sales erosion from generics

Pfizer reported lower sales revenues and net income for the second quarter and first half of 2007 as the company experienced the impact of sales erosion resulting from generic competition and increased competition for certain key products.

Pfizer posted a 6% decline in its second-quarter revenues from $11.74 billion in 2006 to $11.08 billion in 2007. Year-to-date (through the second quarter of 2007) revenues were nearly comparable: $23.49 billion in 2006 compared with $23.56 billion in 2007. Reported net income, however, declined 48% in the second quarter from $2.42 billion in 2006 to $1.27 billion in 2007. Reported net income also declined 29% for the first half of 2007 from $6.53 billion in 2006 to $4.66 billion in 2007.

"While there's no question that we faced difficult challenges in the second quarter of 2007—including the impact of the loss of US exclusivity for Zoloft and Norvasc, the timing of some expenses, and Lipitor's performance in the US—we're still on track to meet our previously announced 2007 and 2008 revenue and adjusted diluted EPS [earnings-per-share] goals," said Jeffrey Kindler, Pfizer's chairman and CEO, in a company release. "This underscores our ability to meet our goals despite a highly competitive and complex environment."

Several factors accounted for Pfizer's results. Pfizer's top-selling product, the anticholesterol drug "Lipitor" (atorvastatin), reported a 13% decline in second quarter sales as 5% growth in international markets was offset by a 25% decrease in the United States. Worldwide sales of Lipitor were $2.72 billion in the second quarter. For the first half of 2007, Lipitor's sales were $6.08 billion, down 2% compared with the same period last year. Pfizer expects its 2007 full-year revenues for Lipitor to be flat or decline 5% compared with 2006.

Additionally, Pfizer faced decreasing revenues stemming from generic competition for two key products: "Zoloft" (sertraline) and "Norvasc" (amlodipine). Worldwide second-quarter revenues for Zoloft declined 82% from $706 million to $127 million, and worldwide second-quarter sales for Norvasc declined 45% from $1.16 billion to $642 million compared with the second quarter of 2006. For the first half of 2007, Zoloft's global sales decreased 82% from $1.49 billion to $273 million year over year, and Norvasc's global sales declined 27% from $2.34 billion to $1.71 billion.

Outsourcing is crucial to Pfizer's cost-reduction strategy

Pfizer's Kindler reported on the company's progress in meeting short- and long-term goals for cost reduction and operational efficiency. The company’s goal is to reduce the total pretax component of its adjusted growth income by at least $1.5–$2.0 billion in 2008 compared with 2006.

Key achievements noted by Kindler include the reduction of the number of manufacturing plants in its global network from 93 four years ago to 60. The cumulative effect is a 50% reduction in the number of plants and a 35% decrease in manufacturing employees compared with 2003. "We currently outsource the manufacture of approximately 17% of our products on a cost basis and plan to increase this substantially by 2010," he said in the release.

Kindler also stressed the importance of outsourcing other functions. "We continue to outsource where it makes sense," he said in the release. "For instance, we recently partnered with a single strategic service provider for certain information technology activities which are now performed by Pfizer and contractors. By consolidating 11 third-party providers and reducing labor cost, we expect to generate considerable annual savings and higher quality services."

Kindler also notes that Pfizer is on track with its plans to close five research and development (R&D) sites. Two-thirds of the projects from those sites were transferred to other sites. The company expects the balance of early-stage projects to be transferred by the end of the third quarter of 2007 and for late-stage project transfers to be completed by the end of 2007.

Pfizer updates status of key APIs and looks to biologics

Pfizer also provided an update on several new molecular entities (NMEs) under development. In collaboration with Bristol-Myers Squibb (New York), Pfizer is developing apixaban for treating several arterial thrombotic conditions. Late-stage clinical trials are underway, and Bristol-Myers Squibb expects to file for approval of the first indication in the US in the second half of 2009.

In June 2007, US Food and Drug Administration issued an approvable letter for maraviroc, a drug to treat CCR5-tropic HIV-1. Also in June, Pfizer resubmitted its registration filing for dalbavancin, a cell-wall synthesis inhibitor to treat skin and skin-structure infections. Pfizer says it expects to receive FDA approval for the drug by the end of 2007.

In addition to short-term progress on NMEs, Pfizer also is looking to build what it terms as a "major presence" in biotherapeutics. "The majority of drugs will continue to consist of small molecules; this has always been a core strength of our company," said Kindler in the release. "But large molecules must also be a very important part of our future—they involve some of the most promising R&D technology and cutting-edge science in medical research. We are looking to integrate our investments, R&D, and existing internal capabilities with disciplined business development."

GlaxoSmithKline reports slightly lower sales

GlaxoSmithKline reported an almost 5% decline in global pharmaceutical revenues for the second quarter. Sales declined from £5.02 billion ($10.30 billion) in the second quarter of 2006 to £4.78 billion ($9.81 billion) in the second quarter of 2007. For the first half of 2007, pharmaceutical sales were £9.58 billion ($9.67 billion) compared with £10.07 billion ($20,67 billion) in the first half of 2006.

For the second quarter, US pharmaceutical revenues decreased 2% to £2.3 billion ($4.7 billion) because of continued generic competition for "Zofran" (ondansetron) and "Wellbutrin XL" (bupropion) and a decline in sales in "Avandia" (rosiglitazone), an antidiabetes drug that has come under scrutiny for possible safety issues.

Global sales of Avandia products fell 22% in the second quarter of 2007 to £349 million ($716 million) following the publication in May 2007 of a meta-analysis that raised concerns of possible cardiovascular side effects. FDA was scheduled to hold an advisory committee meeting to discuss the potential risks on July 30.

On a positive note, GlaxoSmithKline had several strong-performing products in the second quarter. Sales of "Seretide/Advair" (fluticasone) increased 12% to £871 million $1.79 billion), "Lamictal" (lamotrigine) 18% to £271 million ($556 million), "Valtrex" (valacyclovir) 14% to £226 million ($464 million), "Coreg" (carvedilol) 37% to £202 million ($415 million), and vaccines 6% to £398 million ($817 million).

GlaxoSmithKline also had had several NCEs approved in 2007: "Tykerb/Tyverb" (lapatinib), "Veramyst" (fluticasone furoate), and "Altabax" (retapamulin).

Merck has moderate gains

Merck & Co. Inc. (Whitehouse Station) reported global sales of $6.1 billion for the second quarter, up 6% year-over-year. Sales for the first half of 2007 also increased 6% to $11.9 billion. On a product basis, global sales of "Singulair" (montelukast) increased 15% in the second quarter to $1.1 billion. Combined global sales of "Zeita" (ezetimibe) and "Vytorin" (ezetimibe and simvastatin), anticholesterol products by Merck and Schering-Plough, were $1.3 billion, up 30% from the second quarter of 2006. Global sales of "Cozaar" (losartan) and "Hyzaar" (hydrochlorothiazide and losartan) were $847 million in the second quarter of 2007, an 8% increase year-over-year. On the downside, global sales of "Fosamax" (alendronate) and "Fosamax Plus D" (alendronate and holecalciferol) declined 4% from the second quarter of 2006 to $786 million in the second quarter of 2007.

Novartis posts strong first half

Led by several key products, Novartis reported a 12% increase in pharmaceutical sales to $11.99 billion in the first half of 2007 and a 6% increase in the second quarter to $6.07 billion. For the first half, key performers were "Diovan" (valsartan) with sales of $2.4 billion and "Gleevec/Glivec" (imatinib) with sales of $1.4 billion.

In the US, pharmaceutical sales increased 5% in the first half as growth in several brands offset the impact of the "Zelnorm" (tegaserod) suspension in March and generic competition for "Lotrel" (amlodipine and benazepril) and and anticipated generic competition for "Lamisil" (terbinafine). Zelnorm sales decreased 66% in local currencies to $91 million following a suspension of sales in the US and 20 other countries following a FDA request in March 2007 to review cardiovascular safety data. Lotrel sales were negatively affected by the at-risk launch of a generic version by Teva Pharmaceuticals (Petach Tikva, Israel) in May 2007. Sandoz, the generics arm of Novartis, subsequently launched a generic version. A trial date for Novartis's ongoing lawsuit against Teva has not been set, according to Novartis.

Sales in the company's vaccines and diagnostics business increased from $127 million in the first half of 2006 to $482 million in the second half of 2007. Sales in Sandoz, Novartis's generics division, increased 19% from $2.88 billion in the first half of 2006 to $3.42 billion in the first half of 2007.

Pharmaceutical sales soar for Roche

Sales in Roche's pharmaceutical division rose 18% to CHF 11.37 billion ($9.44 billion) in the first half of 2007 compared with the first half of 2006. Growth was primarily driven by a 22% increase in sales for Roche's oncology drugs, which include "MabThera/Rituxan" (rituximab), "Herceptin" (trastuzumab), "Avastin" (bevacizumab), "Xeloda" (capecitabine), and "Tarceva" (erlotinib). Also contributing positively to sales were "Lucentis" (ranibizumab), a drug developed by Roche and Genentech (South San Francisco, CA), and continued pandemic stockpiling of Roche's influenza drug "Tamiflu" (oseltamivir).

At the end of June, Roche had 112 clinical projects in its R&D pipeline, which includes 54 NMEs and 58 additional indications. Thirty NMEs are in Phase I, 19 in Phase II, and 3 are in Phase III.

Lilly is optimistic about prospects for pharmaceuticals

Eli Lilly (Indianapolis) reported a 20% increase in sales to $4.63 billion for the second quarter. Sales of "Alimta" (pemetrexed), "Byetta" (exenatide), "Cialis" (tadalafil), "Cymbalta/Yentreve" (duloxetine), "Forteo" (teriparatide recombinant), "Strattera" (atomoxetine), "Symbyax" (fluoxetine and olanzapine), and "Xigris" (drotrecogin alfa activated) grew collectively 61% to $1.48 billion, accounting for 32% of the company's sales. Growth in these products, which have been launched since 2000, is in keeping with the company's strategy to target revenue growth from new products. The top-selling product for Eli Lilly in the second quarter was "Zyprexa" (olanzapine) with sales of $1.21 billion, and the strongest sales growth was from Cymbalta, which experienced a 67% sales increase to $519.5 million in the second quarter. Based on positive results through the first half, Lilly expects full-year sales to grow in the mid-teens.

Schering-Plough, Wyeth, J&J, and AstraZeneca post steady gains

Wyeth, Schering-Plough, Johnson & Johnson (New Brunswick, NJ), and AstraZeneca (London) posted strong to moderate growth. Schering-Plough posted global pharmaceutical sales of $2.52 billion in the second quarter, a 13% gain year-over-year, and sales of $4.92 billion for the first half of 2007, up 15% compared with the first half of 2006. Key performers in the first half were: "Remicade" (infliximab), which posted a 31% sales gain to $767 million; "Nasonex" (mometasone), up 23% to $579 million; "Clarinex/Aerius" (desloratadine), up 18% to $455 million; and "Temodar" (temozolomide), up 23% to $412 million.

Schering-Plough announced earlier this year plans to acquire Organon BioSciences BV (Oss, Netherlands), which includes Organon's human-health and animal-health businesses. The deal is expected to close by the end of the year.

Wyeth and Johnson & Johnson also reported good results. Wyeth posted a 10% increase in revenues for the second quarter to $5.6 billion and a 10% gain to $11.0 billion for the first half of 2007. Johnson & Johnson's global pharmaceutical sales increased 8.2% in the first half of 2007 to $12.37 billion and increased 5.8% in the second quarter to $6.15 billion. AstraZeneca posted a 6.1% increase in sales to $7.27 bullion for the second quarter and a 11% gain to $14.24 billion for the first half of 2007.

Bristol-Myers Squibb, meanwhile, posted global pharmaceutical sales of $3.9 billion for the second quarter of 2007, relatively the same year-over-year. Global pharmaceutical sales declined 3.3% from $7.56 billion in the first half of 2006 to $7.31 billion in the first half of 2007.