EARNINGS PREVIEW: US Drug Makers' 1Q To Benefit From Higher Prices

TAKING THE PULSE: Most major U.S. drug makers' first-quarter results are likely to benefit from higher prices as the industry continues efforts to bolster product pipelines ahead of the expiration of patent protection on some key drugs over the next few years. The quarter will be the first to reflect health-care overhaul provisions that took effect this year.

A major deal that was expected to spur increased consolidation in the animal-health sector was called off owing to high antitrust hurdles. While few short-term effects are likely from recent disasters in Japan--the second-largest market for pharmaceuticals after the U.S.--the long-term effects remain uncertain.

 
   COMPANIES TO WATCH: 
 
   Eli Lilly & Co. (LLY) - reports April 18

Wall Street Expectations: Analysts anticipate a per-share profit of $1.16 and revenue of $5.7 billion. A year earlier, the company reported earnings of $1.13, including 5 cents in mostly health-care reform-related charges, on revenue of $5.49 billion.

Key Issues: Lilly is focusing on its own research and development, as well as modest-sized license deals and acquisitions. It recently suffered setbacks in efforts to bring new drugs to market, such as a diabetes drug taken weekly that Lilly was developing with Amylin Pharmaceuticals Inc. (AMLN) and Alkermes Inc. (ALKS), experimental cancer drug necitumumab and a drug to detect brain plaques that are characteristic of Alzheimer's disease. The company last month agreed to acquire Johnson & Johnson's (JNJ) animal-health unit, Janssen Pharmaceutica NV, which would give Lilly's animal-health business about 50 marketed products.

 
   Johnson & Johnson (JNJ) - reports April 19

Wall Street Expectations: Analysts polled by Thomson Reuters recently forecast per-share earnings of $1.26 and revenue of $15.85 billion. A year earlier, the company reported $1.62 a share, including a litigation-settlement-related gain of 33 cents, on $15.63 billion of revenue.

Key Issues: The health-care-products giant continued to contend with recall issues, focusing on its McNeil Consumer Healthcare unit, which since late 2009 has issued more than a dozen recalls because of manufacturing issues. In an agreement with the Food and Drug administration, three McNeil manufacturing plants will be placed under years of tight regulatory scrutiny. The Wall Street Journal last month reported J&J is expected to revamp the McNeil unit and separate it off into its own division. In setbacks to its drug pipeline, J&J in March scrapped plans for a clinical trial comparing its injectable antipsychotic Invega Sustenna with various oral treatments. A recent study of heart-drug rivaroxaban, which J&J is developing with Bayer AG (BAYRY), showed it to be effective at preventing certain blood clots--but with higher bleeding rates that could limit the drug's appeal for some patients.

 
   Merck & Co. (MRK) - reports April 29

Wall Street Expectations: Analysts predict earnings of 84 cents a share and revenue of $11.33 billion. A year earlier, the company earned 9 cents a share, or 83 cents excluding costs related to its Schering-Plough acquisition and health-reform impacts, on revenue of $11.4 billion.

Key Issues: Merck and Sanofi-Aventis SA (SNY, SAN.FR) scrapped plans to combine their animal-health businesses in late March due to antitrust hurdles. Merck continues to integrate its $41 billion acquisition of Schering-Plough from November 2009, which has included cost reductions and cutting 15% of its global work force. However, Merck Chief Executive Ken Frazier in February said the company plans to focus on spending for drug development over making deeper cuts needed to meet long-term forecasts. The company abandoned its long-term profit view in January as it halted a late-stage trial of anti-clotting drug vorapaxar and took patients with stroke histories out of a second study amid safety concerns. In February, it reached a deal to sell two bio-drug manufacturing units to FujiFilm Holdings Corp. (4901.TO, FUJIY) but failed to find a buyer for its Netherlands-based MSD-Organon R&D labs. Merck in March pulled out of a partnership with Portola Pharmaceuticals Inc. to develop a promising blood thinner, betrixaban. The company also has been evaluating options for its consumer-health business. Merck in February said supply challenges for women's health products would hurt first-quarter and 2011 results.

 
   Pfizer Inc. (PFE) - reports May 3

Wall Street Expectations: Analysts expect earnings of 58 cents a share and $16.7 billion of revenue. The company posted a year-earlier profit of 25 cents, or 60 cents excluding items such as restructuring charges, on revenue of $16.75 billion.

Key Issues: The world's biggest drug maker recently unveiled plans to sell its Capsugel business to private-equity firm Kohlberg Kravis & Roberts Co. for $2.38 billion, potentially the first in a series of divestitures as Pfizer focuses on its core pharmaceuticals business. Since Pfizer's $68 billion acquisition of Wyeth in 2009, it has been making smaller deals and alliances to bolster its drug pipeline. The company completed its acquisition of King Pharmaceuticals Inc. in March. It saw progress on one of its important drug candidates in March, as tofacitinib in a second late-stage trial met its main goals in reducing symptoms of rheumatoid arthritis.

(The Thomson Reuters estimates and year-earlier earnings may not be comparable due to one-time items and other adjustments.)

-By Tess Stynes, Dow Jones Newswires; 212-416-2481; Tess.Stynes@dowjones.com

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