http://www.bloomberg.com/apps/news?pid=20601202&sid=ajHwCUdBDGSE&refer=healthcare
Drugmakers' U.S. Sales Slump Boost Novartis, Schering (Update2)
By Dermot Doherty
June 12 (Bloomberg) -- Drug sales in the U.S. are increasing at the slowest rate since 1961 and emerging-market revenue is rising four times as fast, giving Novartis AG and Schering- Plough Corp. the best chance for profit growth.
The U.S. pharmaceutical market, the world's biggest, rose 3.8 percent to $286.5 billion in 2007, compared with 17 percent at the start of the decade, with stricter regulators and patent expirations damping sales, IMS Health, a Norwalk, Connecticut- based research firm says. Novartis and Kenilworth, New Jersey- based Schering-Plough are countering the decline by expanding in Asia and South America.
The two drugmakers have an advantage over Merck & Co. and Eli Lilly & Co., who generate more than half their revenue in the American market. Basel, Switzerland-based Novartis shares may gain more than 10 percent, said Dieter Winet, who helps manage $54 billion at Swisscanto Asset Management.
The U.S. is ``more and more adverse for the pharmaceutical industry,'' Winet, who is ``overweight'' in his Novartis holding, said in a telephone interview from Swisscanto's Zurich headquarters. ``At the end of the day, why not seek your success in other places? I'm favorable to Novartis, maybe amazingly so.''
`Buy'
Novartis is rated a ``buy'' by 24 analysts because of improvement in its struggling Chiron vaccine unit and management changes made by Chief Executive Officer Dan Vasella. Six analysts say to sell the shares, and eight have a ``hold'' recommendation, according to data compiled by Bloomberg. Growth outside the U.S. may bring an even bigger boost, said David Pringle, an investment manager at the U.K.'s Aegon Asset Management, which manages 5 billion pounds ($10 billion).
Novartis gained 40 centimes, or 0.8 percent, to 52.80 Swiss francs at the close of Zurich trading. HSBC Holdings Plc analyst Kevin Scotcher downgraded the shares to ``underweight'' from ``neutral'' following the acquisition of a stake in eyecare company Alcon Inc. in April. Schering-Plough shares increased 27 cents to $19.75 at 11:52 a.m. in New York Stock Exchange composite trading.
Novartis shares have fallen about 15 percent since the beginning of the year, giving the company a market value of 142 billion Swiss francs ($136 billion). Schering-Plough has fallen 26 percent, and is the second-worst performer in the Standard & Poor's 500 Pharmaceuticals Index in the period.
Sales in the so-called BRIC-M countries -- Brazil, Russia, India, China and Mexico -- contributed about 19 percent of worldwide pharmaceuticals revenue last year, up from 3 percent in 2001, according to IMS. The research company estimates the percentage will rise to 29 percent by 2012.
Access to Medicines
``Governments are looking to provide access to medicines to more of their populations,'' Diana Conmy, corporate director of IMS's Market Insights unit, said in an interview. ``These health systems will have some cost controls but there are large portions of the populations that will receive more medicines.''
One of the main reasons for slowing U.S. revenue growth is a switch to generics. Health insurers are applying pressure on doctors to prescribe cheaper generic medicines, while at the same time more and more high-earning products are losing patent protection.
Products with combined revenue of $26 billion faced generic competition for the first time in 2007 and medicines with sales of $13 billion are likely to lose protection this year.
``As we enter a period of further U.S. patent expiries, we believe the importance of ex-U.S. sales and non-pharma operations is likely to accelerate,'' Lehman analysts including Matthew Weston wrote in a research note May 7.
Consumer-Health Products
Gains in emerging markets will also be boosted by drugmakers's consumer non-prescription products, Aegon's Pringle said. Schering-Plough sells Claritin allergy pills and Coppertone sunscreen creams, while Novartis markets Otrivin nasal drops.
``The feeling in the market is that those companies with a higher percentage of sales in consumer-health products will do best in emerging markets because those are seen as over-the- counter markets,'' Pringle said. ``If you look at the pharma businesses, they all face erosion from generics, but if you have vaccines and consumer products, you see opportunities to dampen the impact.''
Novartis generated about 37 percent of its 2007 revenue from sales outside of its branded prescription pharmaceuticals unit. Schering-Plough generated about 20 percent of its sales from its Consumer Health Care and Animal Health businesses.
Amy Rose, a spokeswoman for Whitehouse Station, New Jersey- based Merck, said the company is on its way to meeting a goal of doubling sales in emerging markets to $2 billion by 2010.
Jeff Lockwood, a spokesman at Novartis, said that emerging markets are playing an increasingly important role in the company's business.
`More Sophisticated'
``These markets are becoming more sophisticated and robust and companies see that there is a market as access to medicines is improving and incomes are rising,'' he said in an interview.
Fred Hassan, chief executive officer at Schering-Plough, said that the company started focusing on investment in emerging markets in 2003 and is now growing ``rapidly'' in these areas.
``We recognized that these countries, driven by the strengthening of their economies, would have the ability to expand access to improved health care for their citizens,'' he said in an e-mailed statement yesterday. He has named Turkey and Brazil as market opportunities.
While two-thirds of all drugs sold in the U.S. are now generics, brand-name drugs account for 80 percent of revenue, IMS says, and the cost of health care is still high. Insurers are increasing co-payments for patients and prescriptions and trimming benefits to hold down the cost of premiums.
Increasing Scrutiny
While the U.S. Food and Drug Administration is approving fewer products and increasing scrutiny on those on the market, European regulators are continuing efforts to speed approvals. Sales of drugs that lose patent protection in the U.S. typically fall by about 90 percent within one year. The decline is more gradual in Europe and other parts of the world, Lehman analysts said.
This may benefit more drugmakers in Europe, who have traditionally derived much of their income from other countries, said Nick Draeger, a partner and portfolio manager at Adamant Biomedical Investments in Basel. They also have experience in dealing with different regulatory agencies.
``European pharma companies could outperform those in the U.S. strategically and operationally over the next 5 to 10 years,'' Draeger said. ``They're more used to competing in international markets and have more exposure to Central and Eastern Europe and the very important Asia-Pacific region.''
For related news: For stories on drug sales in emerging markets: {NSE "DRUG SALES" AND "EMERGING MARKETS"}
To contact the reporter on this story: Dermot Doherty in Geneva at [email protected]
Last Updated: June 12, 2008 11:55 EDT "
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