U.S. pharmaceutical companies are expected to turn in a decidedly mixed second-quarter earnings performance this week, continuing a sectorwide malaise that has led to mediocre stock performance.

Pfizer ( PFE), Merck ( MRK), Schering-Plough ( SGP) and Wyeth ( WYE) kick off Big Pharma's earnings season on Wednesday. Only No. 1 drug giant Pfizer is expected to grow quarterly earnings year over year among that group, although Eli Lilly ( LLY) is also expected to pull the trick when it reports on Thursday.

The problems faced by drugmakers are well known by now, namely a dearth of new blockbuster drugs to replace sales lost to a strong uptick in generic competition. In addition, there's an increasingly hostile political environment that more and more supports the importation of cheaper prescription drugs from outside the U.S.

The Amex Pharmaceutical Index is down 3% in the past 12 months, lagging far behind the S&P 500's 11% gain.

Pfizer is expected to report a 55% rise in second-quarter earnings to 47 cents per share, on a 23% jump in revenue to $12.31 billion, according to Thomson First Call. Pfizer has been the only drugmaker to turn in consistent earnings growth, but much of that growth has come from cost-cutting and efficiencies stemming from its merger with Pharmacia -- not from stellar top-line sales growth from its core drug franchises.

Last Thursday, Pfizer reduced its 2004 revenue outlook to a range of $52.5 billion to $53 billion from a previous forecast of about $54 billion, citing "revisions for a number of products as well as the effect of foreign exchange fluctuations."

At the same time, the drugmaker reiterated its 2004 EPS forecast of $2.13, a 22% increase over the prior year. Whether Pfizer can maintain double-digit EPS growth into 2005 and 2006 is an open question.

Pfizer's anticholesterol drug Lipitor, the drug giant's top product, is expected to rack up approximately 16% sales growth to $2.3 billion during the quarter. Looking ahead, the outlook for Lipitor sales growth is murky. New, more aggressive government guidelines advocating lower cholesterol levels could be a boon for Lipitor sales. But at the same time, a new cholesterol drug from Schering-Plough and Merck, known as Vytorin, should be approved later this month and become a strong Lipitor competitor.

The pending approval and launch of Vytorin is overshadowing anything else when it comes to the future fortunes of Merck and Schering-Plough. Vytorin is a dual-action cholesterol-lowering drug that combines Merck's Zocor with Schering-Plough's Zetia and is expected to vie for the attention of doctors and patients against not only Pfizer's Lipitor but also AstraZeneca's ( AZN) new drug Crestor.

Vytorin is the key to Schering-Plough's turnaround, so any discussion of the drug during the company's second-quarter conference call will be closely vetted. Schering-Plough is expected to lose a penny per share, down from EPS of 12 cents in the year-ago quarter. Sales are expected to fall 12% to just over $2 billion. Schering-Plough has not provided 2004 earnings guidance but analysts expect the company to lose a penny per share this year, down from EPS of 31 cents in 2003.

Merck is expected to report second-quarter EPS of 79 cents, down 5% from the year-ago quarter. Total revenue is expected to fall 56% to $5.86 billion.

Eli Lilly reports second-quarter results on Thursday, with analysts expecting 6% EPS growth to 68 cents on a 10% rise in revenue to $3.4 billion. Sales have deteriorated for Lilly's cornerstone drug franchise, the schizophrenia drug Zyprexa, because of increased safety concerns and competition from Bristol-Myers Squibb's ( BMY) Abilify. Zypreza U.S. sales are expected to grow just 3% to $1.1 billion in the second quarter.

But Lilly is lauded by investors for having the strongest drug pipeline among U.S. drugmakers. Investors are waiting for U.S. drug regulators to approve Cymbalta, a new antidepressant. Lilly is expected to grow 2004 EPS 9% to $2.82, increasing to $3.29, or 17% growth, in 2005.

Wyeth, which reports July 21, is expected to report a 9% decrease in second-quarter EPS to 59 cents on revenue of $4 billion. Bristol-Myers, which reports July 29, is expected to earn 39 cents per share in the quarter, down 14% from one year ago, on revenue of $5.23 billion.
Adam Feuerstein writes regularly for RealMoney.com. In keeping with TSC's editorial policy, he doesn't own or short individual stocks, although he owns stock in TheStreet.com. He also doesn't invest in hedge funds or other private investment partnerships. He invites you to send your feedback.