Big Pharma Outlook for 2Q and Beyond

We expect Europe's Big Pharma to post solid results in the second quarter

Damien Conover, CFA 13 July, 2010 | 4:36PM
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Following up on a strong first quarter for Big Pharma firms, we expect the sector to post favourable results in the second quarter. Earnings on a sequential basis will be positively affected by the absence of new reform-related charges. The impact of US health-care reform caused many companies to lower their 2010 outlooks despite strong results in the first quarter. We expect the quarter to reflect only a minor impact from mandatory price decreases in Europe (mainly Greece) and we expect steady European sales will bode well for the group. Cost savings should continue to play a role, with bottom lines growing faster than top lines.

AstraZeneca 2Q10 Earnings Report: July 29
Key Quarterly Takeaways: We expect the strong bolus of H1N1 vaccine sales and Toprol-XL sales to wind down in the quarter, as only $25 million of H1N1 vaccine remains under contract to be delivered and Watson (WPI) received approval for all generic strengths of Toprol-XL in April. Turning to Astra's key drugs, we expect steady growth from Crestor (20% year over year based on new indications in less severe patients) and Seroquel (9% year over year based on pricing and emerging market growth). We project continued declines for Nexium (5% year over year based on pricing concessions to keep market share from other generic proton pump inhibitors). On the new product front, we expect an uptick in Onglyza sales and increased clarity on plans for respiratory syncytial virus drug motavizumab, which may need additional trials because of a negative FDA panel questioning the validity of the data. Also, we expect Astra to take a one-time charge of $520 million as a result of the civil settlement with the Justice Department's investigation into off-label marketing of Seroquel.

GlaxoSmithKline 2Q10 Earnings Report: July 21
Key Quarterly Takeaways: We expect generic competition to Valtrex (down 68% year over year) will weigh on the top line and, along with product mix shifts, will lead to a 200-basis-point year-over-year reduction in gross margins. We expect steady growth from the company's top drug Advair (9% year over year). However, we project generic competition emerging in the US in late 2010 (management is guiding toward 2016-17 based on device patents). We expect an uptick in Rotarix vaccine sales as the FDA announced May 14 that it will allow sales of the vaccine after concerns of contamination led to the recommendation on March 22 against using the vaccine. Additionally, we expect emerging markets to continue to contribute strong sales growth. On the new product front, we expect the company to lay out its strategy for Prolia (50/50 profit-sharing collaboration agreement with Amgen in Europe, New Zealand, Australia, and Mexico for the osteoporosis indications). Following the July 13-14 FDA advisory meeting on evaluating the safety of Avandia, we expect Glaxo to reiterate its intention to keep Avandia on the market based on strong clinical data. From a sales standpoint, the drug is not overly important. However, if the drug is withdrawn, we could see a Vioxx-like litigation nightmare.

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Securities Mentioned in Article

Security NamePriceChange (%)Morningstar
Rating
GlaxoSmithKline PLC1,388.00 GBX-1.84Rating

About Author

Damien Conover, CFA  is an equity analyst and associate director at Morningstar.

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