Oct. 13
— By Jed Seltzer
NEW YORK (Reuters) - Large U.S. drug makers, struggling from a dearth
of new medicines, a rash of patent expirations and steep regulatory
hurdles, are expected to report dreary third quarter results this month.
The stock market, which usually banks on drug makers in times of
economic trouble, has already factored in many of the drug makers' major
declines for the quarter and the year, sending the shares of
Schering-Plough Corp. <SGP.N>, Bristol-Myers <BMY.N> and others to
multi-year lows.
Large drug makers are expected to report a five percent decline in
earnings, on average, for the third quarter, according to tracking firm
Thomson First Call.
The drug industry has shuttered this year as major drugs like
diabetes medicine Glucophage and cholesterol drug Mevacor lose U.S.
patent protection, the U.S. Food and Drug Administration cracks down on
manufacturing problems and the companies find it difficult to use
genetic discoveries to develop new drugs.
"We believe 2002 and 2003 are the most difficult years of the decade
for the drug industry," said Banc of America Securities analyst Len
Yaffe. "Pipelines aren't as robust and patent expirations are quite
significant."
In addition, insurance companies and U.S. and European government
authorities are seeking ways to lower the rising costs of health care,
putting pressure on drug companies to lower prices, or allow patents to
expire and permit cheaper generics without a legal fight.
"The drug industry has an enormous public relations problem," said
analyst Ira Loss of independent research firm Washington Analysis.
"Whether it's fair or not, they are being blamed for the increase in the
costs of health care. Pharmaceutical expenditures are the fastest
growing part of the health care equation, so that attracts a lot of
attention."
Loss added that because the U.S. federal government has not yet
provided a Medicare drug benefit to cover prescription costs for the
elderly, states are acting by squeezing the prices of drugs companies
offer to the impoverished under the Medicaid program.
THREE DEVASTATING WARNINGS
Already this year, three major drug makers have issued devastating
earnings warnings that have raised questions about both the health of
their businesses and the credibility of their management teams.
Wyeth <WYE.N>, Schering-Plough Corp. and Bristol-Myers Squibb Co. all
lowered profit estimates this year and are all expected to post lower
profits for the third quarter. All three have seen significant stock
declines.
Wyeth is suffering from slowing sales of its hormone replacement
treatments Premarin and Prempro after high-profile studies released in
July linked the drugs to increased risks of breast and ovarian cancer,
as well as blood clots.
In addition, the company is having manufacturing problems with
pneumonia vaccine Prevnar, suffering from sluggish sales in its
over-the-counter health care business and animal health unit and must
set aside more money for claims that diet drug cocktail fen-phen caused
heart problems. The extent of its warning last month surprised
investors, who sent shares down 19 percent in one day.
Schering-Plough said last week its results for the third quarter of
this year and for 2003 would fall short of Wall Street expectations, as
its blockbuster allergy drug Claritin and its treatments for Hepatitis C
will soon face stiff competition. The warning came after a three-day, 20
percent stock slump and after two closed door meetings between the
company's CEO and selected investors and analysts.
And Bristol-Myers, which lost patent protection over three major
drugs in the last two years, warned earlier in April that 2002 earnings
will be about half of 2001 earnings after the company offered rebates to
wholesalers to stock up on its drugs last year, stuffing inventory
channels and reducing demand for those drugs this year.
Both Bristol-Myers and Schering-Plough are being investigated by the
Securities and Exchange Commission for their handling of earnings issues
and both face shareholder lawsuits.
Copyright 2002 Reuters News Service. All rights reserved. This
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