Drug Companies Looking at Another Strong Quarter
Fueled by new blockbuster drugs and heavy advertising, drug companies aren't likely to disappoint investors when they report second-quarter earnings, beginning this month.
And while politicians and consumer advocates step up their calls to slash drug prices, the noise isn't likely to dampen investors' recent enthusiasm for drug stocks, which typically produce strong earnings growth no matter what the economy is doing.
Most major drug companies are expected to post at least double-digit earnings gains in this year's second quarter over the same period last year, analysts say. Some, like Pfizer (PFE), which just bought Warner-Lambert, could show even stronger gains. The maker of Zoloft for depression and Viagra for impotence is expected to post a 22% gain in second-quarter earnings when it reports in late July.
Live Long and Prosper
"It's all being driven by new product flow and increased utilization of prescriptions," says Jeff Kraws, drug industry analyst with Gruntal, which doesn't do underwriting for drug companies. "People want to live longer. They realize that taking their medicine is good for them."
|Feeling No Pain |
Analysts expect drugmakers to report 12% earnings growth
|Company||Reporting date||Quarterly EPS estimate||Year-ago earnings||Projected change|
|Bristol-Myers (BMY:NYSE)||July 18||54c||47c||+15%|
|Pfizer (PFE:NYSE)||July 19||22c||18c||+22%|
|American Home (AHP:NYSE)||July 20||32c||34c||-6%|
|Lilly (LLY:NYSE)||July 20||60c||52c||+15%|
|Merck (MRK:NYSE)||July 24||69c||61c||+13%|
|Pharmacia (PHA:NYSE)||July 25||47c||40c||+18%|
|Schering-Plough (SGP:NYSE)||July 25||43c||37c||+16%|
|SmithKline Beecham (SBH:NYSE ADR)||July 25||46c||40c||+15%|
|Glaxo (GLX:NYSE ADR)||July 31||91c*||83c||+10%|
|AstraZeneca (AZ:NYSE ADR)||Aug. 4||42c||43c||-2%|
|Source: First Call/Thomson Financial. *First-half figures.|
The OutcryThe earnings come amid a national outcry over rising pharmaceutical prices and demands for more drug benefits for the elderly and others who can't afford them. While Congress is debating various proposals along those lines, PaineWebber's Sylvester said such a plan is unlikely to be passed this year with Congress now focusing on election campaigns. Even so, any such program is likely to be a net neutral for drug companies, since rising sales to the estimated 13 million seniors without coverage would offset any price cuts for those drugs through a government mandated program. Drug stocks, which generally declined last year and in the first few months of this year partly on worries over possible government price controls, have rebounded in recent months, reflecting reduced concern over price controls and rising confidence in the industry over blockbuster drug development. The Amex Pharmaceutical Index, for instance, has gained 46% since early March to close at 417 Friday. "Clearly there is increasing noise for some form of drug benefit for seniors, but the likelihood of any legislation getting past is less than 10%," PaineWebber's Sylvester says.
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