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Drug earnings look solid
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July 16, 2001: 5:06 p.m. ET
Analysts see solid growth despite regulatory trouble, Merck warning
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NEW YORK (CNNfn) - Pharmaceutical companies are a well-known bastion of profit growth in tough economic times, and the upcoming earnings season should be no different, according to analysts.
Analysts said year-on-year growth in profits still look good, despite Dow Industrials component Merck & Co. (MRK: Research, Estimates) warning it would miss second-quarter earnings targets because of disappointing sales in its arthritis drug Vioxx. The sector also seems likely to overcome a host of regulatory concerns.
"I still see solid earnings growth for the sector," said Mike Krensavage, pharmaceutical analysts with Raymond James and Associates. "Growth looks strong especially when you consider (expected sector) growth of 13-to-14 percent, compared to an (expected) S&P 500 drop of about 7-to-8 percent."
According to earnings tracker First Call, at the beginning of April earnings for the S&P 500 were expected to drop 6.3 percent.
Kicking off the pharmaceutical earnings period on Tuesday are Johnson & Johnson (JNJ: Research, Estimates) and Pfizer Inc. (PFE: Research, Estimates).
Pfizer, which according to First Call is expected to earn 29 cents per share compared with 23 cents per share in the year-ago period, was downgraded last week by Bernstein analyst Robert Evans because of deceleration in its top three products.
Evans, in a research note, said cholesterol drug Lipitor, heart drug Norvasc, and antidepressant Zoloft, which account for 38 percent of sales and 59 percent of growth, saw "surprising" deceleration in growth "in the face of intense and capable promotion, meaning the likelihood of reversing these trends is low."
Evans downgraded Pfizer stock to "market perform" from "outperform" and lowered 2001 earnings per share targets to $1.31 from $1.32.
But Tim Anderson, analyst with Prudential Securities, said Pfizer looks like it's in good shape. Anderson is more concerned with Pharmacia Corp. (PHA: Research, Estimates), which reports on July 25.
Anderson said Pharmacia could face difficulties if its arthritis drug Celebrex has the same sales difficulties as Vioxx. First Call's consensus estimate for Pharmacia is 63 cents per share, up from 54 cents per share in the same period a year ago.
Check out pharmaceutical stocks here
Anderson added Bristol-Myers Squibb Co. (BMY: Research, Estimates) should hit targets, 56 cents per share up from 54 cents per share, with lower gross margins offset by reduced expenses. Bristol-Myers is tentatively set to report on July 25.
Also scheduled for July 25 is Schering-Plough Corp. (SGP: Research, Estimates), which affirmed its second-quarter guidance last month despite a host of manufacturing problems cutting into its bottom line.
On June 28, Schering told an analyst conference it had spent more than $60 million to correct manufacturing deficiencies found in February by the U.S. Food and Drug Administration at the company's plants in New Jersey and Puerto Rico. But this followed an announcement a few days earlier that the FDA was not satisfied with the company's efforts.
The company said it expects to earn 43 cents per share, even with the previous year's second-quarter results, while First Call's consensus is 42 cents per share.
On July 24, American Home Products (AHP: Research, Estimates) is scheduled to report; it's looking for 37 cents per share compared with 31 cents per share in the year-ago quarter.
Drugs in the spotlight
In addition to the arthritis drugs Vioxx and Celebrex, analysts said they will be keeping an eye on Shering's allergy medication Claritin, which brings in about $3 billion in annual sales.
"The real pivotal one will be Claritin," Anderson said. "You could see some very good growth there."
Schering will want to squeeze as much out of Claritin as possible, not only because the patent expires in 2002, but also because of a delay in the release of its successor drug Clarinex, due to manufacturing problems.
Eyes will also be on AHP's Prevnar, a vaccine that prevents bacterial diseases in children, and Bristol-Myers' diabetes treatment Glucophage. 
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