Pharma Players Mostly Lift 2015 Guidance

Increased R&D and a More Robust Pipeline Boost Executives’ Confidence

  • © Nonwarit - Fotolia.com© Nonwarit - Fotolia.com
  • © Nonwarit - Fotolia.com
  • Andrew Witty, CEO, Glaxo SmithKline
  • Pascal Soriot, CEO, AstraZeneca
  • Joseph Jimenez, CEO, Novartis
  • Severin Schwan, CEO, Roche
  • Olivier Brandicourt, CEO, Sanofi
  • Alex Gorsky, CEO, Johnson & Johnson
  • Karl-Ludwig Kley, CEO Merck KGaA
  • Kenneth C. Frazier, CEO, Merck & Co.
  • Ian Read, CEO, Pfizer
  • Marijn Dekkers, CEO, Bayer
  • John C. Lechleiter, CEO, Lilly

After a challenging second quarter and first half 2015 – once again marked by foreign exchange turbulence and the impact of acquisitions and divestments – the international pharmaceutical industry expects to close the year on a positive note.

On the basis of a strong operational performance, many chief executives in Europe and the US have adjusted full year guidance upward, on the strength of their R&D pipelines and enhanced sales potential of innovative drugs.

Barring any unexpected changes on the currency front, companies who report in euros will continue enjoying relief from a strong euro this year, while US companies will have to work harder to counter the influence of a firmer dollar.

Novartis with “Solid” Q2 Performance

After a “solid” performance in the second quarter and first half, Joseph Jimenez, CEO of Swiss pharmaceutical giant Novartis has left the 2015 outlook unchanged. Group net sales are expected to rise by a mid-single digit percentage figure adjusted for generic competition, expected to be at about the same level as 2014. Currency translations will likely have a negative effect. Core operating profit is forecast to grow ahead of sales at a high-single digit rate. Jimenez confirmed growth for pharmaceuticals in the mid-single-digit range, for generics arm Sandoz in the high single-digit range and for eye care subsidiary Alcon in the low single-digit range.

US dollar-denominated Q2 figures show net sales down 5% to $12.7 billion, operating income down 28% to $2.3 billion and core operating income down 7% to $3.6 billion, partially reflecting foreign exchange turbulence. At constant exchange rates, quarterly sales were down by 6% and operating income by 14%. Core operating profit was up 6%.

Roche Confident of Reaching 2015 Target

Based on a strong first half that saw sales growth in both Pharmaceuticals and Diagnostics, Severin Schwan, CEO of Swiss-based Roche, has expressed confidence the company will achieve its full-year targets for 2015.

He said management was “very encouraged” by the strong Q2 uptake of new drug Esbriet for idiopathic pulmonary fibrosis, acquired last year from InterMune. Oncology drug Avastin was another growth driver.

From January to June, Roche sales rose 3% to 23.6 billion Swiss francs, but operating profit fell back 5% to 7.7 billion francs, and core operating profit by 2% to 9.2 billion francs. At constant exchange rates, sales added nearly 6%, with core operating profit up 2%. Pharmaceuticals sales were up 5.5% and Diagnostics up 6.6%

GSK on Track with 2015 Guidance

The UK’s largest drugmaker, Glaxo SmithKline, is on track to achieve its 2015 guidance and remains confident for 2016, said CEO Andrew Witty. In the second quarter, sales grew 7% to nearly £6 billion on a reported basis and 2% on a pro forma basis, thanks in part to the inclusion of the former Novartis vaccines business swapped for GSK’s cancer portfolio. New HIV drugs Tivicay and Triumeq also padded sales.

Operating profit and earnings per share in Q2 totaled £335 million, down from £1.1 billion. This reflected accelerated restructuring costs due to the Novartis transaction, ongoing restructuring in Pharmaceuticals and further adjustments related to ViiV Healthcare and Consumer Healthcare, along with litigation expenses. Core operating profit sank by 4% to £1.3 billion. In 2016, without this year’s adverse impacts but with “more meaningful” synergy benefits from the portfolio swap, Witty expects a “significant” recovery in core EPS with percentage growth at constant exchange rates in the double digit range.

AstraZeneca Beats Analyst Forecasts

The second quarter performance of British-Swedish pharmaceutical producer AstraZeneca exceeded analysts’ expectations, with both sales and earnings rising slightly on a constant currency basis. Although adjusted sales gained 2%, due to a strengthening dollar reported revenue was 7% lower at $6.3 billion, and core earnings per share 8% lower. Core operating profit was down 11%, reported operating profit down 17% and reported EPS down 13%.

CEO Pascal Soriot said Q2 marked “sixth consecutive quarters of top-line growth.” Overall, management was “very pleased” with the performance, driven by the five growth platforms, in particular oncology. Efficiency schemes have begun to reduce costs, and pipeline growth has had “positive momentum across all key areas. Along with the strength of the growth platforms, Soriot said better R&D productivity reaffirm the company’s confidence in its ability to make up for patent losses and meet revenue targets. To speed new drugs through the pipeline, research spending has been boosted from 22% to 23% of sales.

Sanofi Profits from Euro’s Weakness

French drugmaker Sanofi’s Q2 business was boosted by the stronger US dollar. Sales rose 16% to almost €9.4 billion, with favorable foreign exchange contributing 11.2 percentage points. Business operating income, excluding the effects of acquisitions and divestments, increased nearly 20% to €2.6 billion. At constant exchange rates, the improvement was about 5%. Business EPS increased by 5.1% at constant exchange rates and by 20.5% on a reported basis.

New CEO Olivier Brandicourt said lower sales (down 4%) in the diabetes franchise were more than offset by gains in the Genzyme biotech unit (up 26.6%) and in the animal health division (up 14%). “In the second quarter, Sanofi delivered solid growth on both the top and bottom lines consistent with our expectations,” Brandicourt said. A new organizational structure to be implemented from January 2016 “will simplify and focus Sanofi to optimize future growth.”

Bayer HealthCare Earnings Pressured by R&D

Ahead of becoming a life sciences “pure player” in Q3, Germany’s Bayer’s HealthCare segment increased Q2 sales by 28% (8.3% on a portfolio and foreign exchange-adjusted basis) to just under €6 billion. CEO Marijn Dekkers attributed the rise largely to the “gratifying sales performance” of recently launched drugs such as the anticoagulant Xarelto, the eye medicine Eylea and the cancer treatments Stivarga and Xofigo. Reported sales of the Pharmaceuticals business rose 10.7% to €3.5 billion.

EBITDA before special items in Bayer’s HealthCare segment rose 27.5% to €1.7 billion, including positive currency effects of around €110 million. Earnings were held back mainly by an increase in R&D expenses in the Pharmaceuticals division, Dekkers said. In the second half of 2015, HealthCare’s EBITDA before special items is forecast to rise by a “low-20s” percentage.

Merck KGaA Profits Sink on Higher Spend

The Healthcare segment of German pharmaceutical and chemicals producer Merck KGaA reported organic sales growth of 1.5% in Q2. Including positive foreign exchange effects of 7.8%, net sales rose by 9.2% to €1.8 billion, driven in particular by drugs for diabetes (Glucophage), thyroid disorders (Euthyrox) and cardiovascular diseases (Concor). By contrast, the multiple sclerosis drug Rebif saw an organic sales decline of 12%, reflecting strong competition from oral formulations. Currency tailwinds of 11.3% kept Rebif sales remained stable at €461 million, however.

EBITDA pre-exceptionals of the German Merck Healthcare business declined by 2.8% to €480 million, due to higher investment in both marketing and R&D in the second quarter. CEO Karl Ludwig Kley said the company has “deliberately invested in research and development in order to drive important pipeline projects such as the anti-PD-L1 antibody avelumab.”

Pfizer Hit by Currency Headwinds

In the US, market-leading drugmaker Pfizer – pressured by currency exchange rates – saw a quarterly 7% decline in reported revenue to $11.9 billion, despite a 1% increase on an operating basis. Adjusted income was down 6% to $3.5 billion, while adjusted diluted EPS was down 3% and reported diluted EPS was down 7%.

Even amid currency pressures, Pfizer’s Q2 performance showed “continued business momentum, driven by solid execution of recent product launches in the innovative products business as well as established products,” said CEO Ian Read, adding that the acquisition of Hospira will “meaningfully enhance” the established portfolio. Due to the strong quarterly operational performance, chief financial officer Frank D’Amelio has raised full year financial guidance for adjusted EPS by $0.04.

US Merck Raises Non-GAAP Forecast

US pharmaceutical producer Merck has upgraded its full year 2015 non-GAAP earnings per share (EPS) forecast and narrowed the range to $3.45-3.55, including the negative foreign exchange impact. The GAAP forecast has been lowered to $1.52-171 per share, reflecting both Venezuela-related foreign exchange losses and expected profits on the sale of certain migraine clinical development programs. At current exchange rates, CEO Kenneth C. Frazier expects sales revenue of $38.6-39.8 billion, including negative foreign exchange rates, along with $1 billion in net lost sales from acquisitions and divestitures.

Merck’s worldwide sales in Q2 shrank by 11% to $9.8 billion, including a negative foreign exchange effect of 7% and a quarterly 7% net impact from last year’s sale of its $2.2 billion Consumer Care business to Bayer last year for $14.2 billion. Non-GAAP earnings per share rose to $0.86 from $0.85, while GAAP earnings fell from $0.68 to $0.24 per share. Frazier said the US drugmaker made “significant progress” in its Keytruda and hepatitis C programs during the quarter.

Johnson & Johnson Adjusts Guidance Upward

Second-quarter results for US pharmaceuticals and consumer products specialist Johnson & Johnson show a sales decline of nearly 9% to $17.8 billion. Adjusted earnings before provision for taxes on income fell 4% to $6.2 billion and diluted earnings per share by about the same margin to $1.51. J&J’s Pharmaceuticals segment saw sales improve 1% to $7.9 billion, thanks to gains across the portfolio of immunology, infectious diseases, neuroscience, oncology and cardiovascular drugs. The Medical Devices portfolio had sales of $6.4 billion, up 4.7%, and Consumer Products reported sales of $3.5 billion, up 2.3%.

“Our solid sales and earnings results reflect the strong underlying growth we're seeing across the enterprise,” said CEO Alex Gorsky, adding that the robust enterprise pipeline “will drive our growth over the long term.” The drugmaker has increased its adjusted earnings guidance for full-year 2015 to $6.10-6.20 per share, excluding the impact of after-tax intangible amortization expense and special items.

Bristol-Myers Squibb Has Good Quarter

Another US drug major, Bristol-Myers Squibb (BMS) posted a sales improvement of 7% to $4.2 billion for the second quarter. Adjusted for the foreign exchange impact, revenue advanced by 16%. The gross margin as a percentage of sales was 75.7%, up from 74.5% a year ago. The company reported an acquisition-related quarterly GAAP diluted earnings per share loss of $0.08 ($130 million in total) for the second quarter against a non-GAAP diluted EPS gain of 10% to $0.53 ($890 million).

BMS “had a very good quarter, with strong sales across the portfolio, encouraging results from clinical trials and important regulatory milestones,” said CEO Giovanni Caforio, remarking that the company is “making the right strategic investments to capitalize on the full potential of our portfolio.” For full year 2015, he has increased the GAAP EPS guidance range to $1.02-$1.12 and the Non-GAAP range to $1.70-180.

Lilly Poised to Return to Growth in 2015

US pharma player Lilly reported Q2 sales revenue of almost $5 billion – a rise of 1%, thanks to the inclusion of Novartis Animal Health and higher volumes for cancer drug Cyramza and diabetes drug Trulcity. But CEO John C. Lechleiter said growth was largely wiped out by unfavorable foreign exchange effects and patent expirations. The gross margin as a percentage of revenue was 75.5%, almost in line with the 2014 quarter. Operating income declined by 9% to $803 million, due to higher R&D spending as well as asset impairment, restructuring and other special charges – partially offset by lower operating expenses.

Lechleiter said Lilly remains on track to return to growth in 2015, driven by a strong underlying business performance, including uptake of recently launched products. “Our innovation-based strategy will continue to provide the basis for solid growth in the years ahead,” he predicted.

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