Overseas Business Is The Right Rx For Top Drug Firms

If there's a central theme for pharmaceutical companies in this still-early earnings season, it's that it pays to spread your business around.

The weak U.S. dollar, coupled with growth in international markets, has helped prop up results for firms that already have reported financial results.

That trend should continue for those still due to report.

"The currency impact is really helping all of these multinational companies," said Linda Bannister, analyst at Edward Jones. "The international business helps them report stronger-than-expected results, and that trend should continue."

Last week Pfizer (NYSE:PFE - News) and Johnson & Johnson (NYSE:JNJ - News) showed how much of an impact overseas business can have on overall results.

On Jan. 23, Pfizer topped fourth-quarter views by a nickel when it posted earnings of 52 cents a share. That was up 21% from a year earlier. Revenue rose 4% to $13.07 billion, also above estimates.

Much of the sales boost was due to favorable exchange rates against the dollar, observers say.

"There was a huge currency effect -- up to 5% of the top line," said Dr. Jon LeCroy, analyst at Natixis Bleichroeder.

New medicines led the top-line charge. Global sales of Lyrica, which treats pain caused by shingles and fibromyalgia, rose 60% to $564 million.

Sales of Sutent, recently launched to treat kidney cancer, surged 75% to $182 million. Sales of smoking-cessation pill Champix more than tripled to $311 million despite warnings it might cause depression and suicidal behavior.

Among the more established drugs, arthritis treatment Celebrex saw sales rise 18% to $637 million despite worries over cardiovascular risk. Sales of anti-impotence pill Viagra moved up 10% to $498 million.

Pfizer also raised the lower end of its 2008 earnings forecast to $2.35 a share from $2.31 previously. It kept the high end at $2.45. Thomson Financial analysts project $2.36.

Shares of Pfizer popped on the news, though a Friday decline cut into some of those gains.

J&J Delivers, Street Shrugs

On Jan. 22 Johnson & Johnson posted revenue of $15.96 billion for its fourth quarter, up 17% from the prior year.

Most of the growth came from overseas, with global sales rising 26% and currency exchange rates lifting the top line by almost 5%. Prescription drug sales gained more than 7% to $6.4 billion.

Earnings came in at 88 cents a share, up 9% from the prior year and 2 cents ahead of views.

Bannister credited J&J's global reach with helping the company deliver a solid quarter.

International sales composed 48% of total revenue, up from 45% of the total a year earlier. For the quarter, international sales grew 26% vs. a 9% increase in U.S. sales.

"It's a testament to the diversified nature of their business," Bannister said. "It helps them manage through tough times. They're really positioned for long-term growth."

Wall Street didn't seem impressed, however. J&J's stock sold off hard late last week and finished the week down nearly 6%.

Shares of Abbott Laboratories (NYSE:ABT - News) also ended the week down despite a solid quarter of its own.

On Jan. 23 Abbott posted earnings of 93 cents a share, up 24% from a year earlier and a penny above views. Revenue gained 16% to $7.2 billion, led by a 43% jump in sales of its Humira anti-inflammatory drug.

Humira also passed $3 billion in annual sales.

"Humira is doing extremely well, and it's getting approved for different indications," Bannister said. "It will give Abbott another leg of growth."

Abbott's international drug sales rose 21% in the quarter vs. a 17% gain in U.S. drug sales. International business now makes up more than half of the total.

The company offered guidance of 8% to 12% sales growth for 2008 and 13% to 14% profit growth. Some observers figure that will be hard to pull off.

"With little room to improve margins organically, the only way we see Abbott getting to these levels is with a significantly higher level of one-time charges than the current guidance of 8 cents a share," Citigroup analyst Matthew Dodds wrote in a Jan. 23 report.

His employer has done business with Abbott.

More Payroll Cuts

A number of top drug makers are due to report earnings this week, with most eyeing sturdy gains. The currency impact should benefit some more than others, however.

"Companies like Eli Lilly (NYSE:LLY - News) and Schering-Plough (NYSE:SGP - News) should do better than expected because of big overseas sales," LeCroy said. "The weak dollar helps them out a lot."

Lilly is due to report fourth-quarter results on Tuesday. Analysts expect earnings to come in 5% higher than the prior year.

Schering, which reports Feb. 12, is seen growing its earnings 41%.

Other top drug makers slated to report this week include Merck (NYSE:MRK - News), which should post a 46% earnings gain on Wednesday; Bristol-Myers Squibb (NYSE:BMY - News), projected to report a 79% gain on Thursday; and Wyeth (NYSE:WYE - News), which analysts expect to record a 20% increase on Thursday.

Wyeth is the latest big drug firm to announce possible job cuts. On Friday the company said 10% of its 50,000 worldwide employees might lose their jobs by 2011 under a planned restructuring.

In July, J&J announced its biggest restructuring ever, saying it would slash up to 4% of its payroll.

Pfizer has cut more than 10,000 jobs over the past year.

And in October U.K. drug maker GlaxoSmithKline (NYSE:GSK - News) announced plans to cut jobs in sales, manufacturing and research to save $1.43 billion by 2010.