PREVIEW-Europe’s woes cast shadow over Big Pharma results

* Worries over EU drug price cuts and impact of weak euro
* Novartis kicks off European results season July 15

* Johnson & Johnson first U.S. drugmaker to report July 20

By Ben Hirschler, European Pharmaceuticals Correspondent

LONDON, July 12 (BestGrowthStock) – Drug price cuts triggered by
Europe’s budget problems and a weak euro will overshadow Big
Pharma’s second-quarter results season, which Switzerland’s
Novartis (NOVN.VX: ) kicks off on Thursday.

Concerns about Europe are increasing just as anxieties over
U.S. healthcare reforms have abated, giving investors already
concerned about the sector’s patent expiries something new to
worry about.

“Europe has been quite challenging for large cap pharma for
a while but the question is, has it got worse? There are some
fears that it has and investors are looking for reassurance,”
said Ben Yeoh, an industry analyst at Atlantic Equities.


For graphic on companies see

For recent stories in EU price cuts see [ID:nLDE65T1ED]


GlaxoSmithKline’s (GSK.L: ) chief executive, Andrew Witty, who
reckons European drug prices typically fall by around 3 percent
annually, said last month that this year’s reduction would be
“above trend”.

Drug prices are in the firing line across Europe as
governments tackle record budget deficits, leading to some steep
price cuts, particularly in southern Europe. Unpicking the
impact for individual companies, however, is not easy and
analysts say management comments on the issue will be
scrutinised carefully.

For companies reporting in euros and sterling, currency
swings will offer at least a partial offset. Dollar reporters
face a tougher time.


Analysts at JP Morgan said last week they were modestly
reducing sales and earnings estimates for leading U.S. drug
companies as a result of a recent weakening in the euro and
selected EU price cuts.

With the tough environment in Europe unlikely to ease any
time soon, the impact could well be greater in 2011 than 2010.

Deutsche Bank analysts expect cautious statements from
management teams at major European companies, although they
believe the European reforms should prove manageable without
downgrades to 2010 earnings forecasts.

European factors aside, the second quarter will mark a
return to more normal trading conditions after the windfall
gains enjoyed by many companies as a result of swine flu.

“The Swiss have profited strongly from pandemic flu and this
falls away in the second quarter,” said Vontobel analyst Andrew
Weiss, referring to demand for Novartis’s swine flu vaccines and
Roche’s (ROG.VX: ) Tamiflu drug.

“Novartis’s quarter-on-quarter profit (Read more your timing to make a profit.) will drop
significantly because it is missing pandemic vaccine sales and
the second quarter tends to be a weak one for vaccines anyway.”

Investors will watch carefully for comments on how
Novartis’s top-selling blood pressure drug Diovan is faring in
the face of cheap generic copies of Merck & Co’s (MRK.N: ) Cozaar.
So far prescription trends suggest it is holding up.


The second quarter also represents a return to basics for
U.S.-based firms, after several quarters of worrying about U.S.
healthcare reform, Morningstar analyst Damien Conover believes.

“This is the first quarter where investors really get to
focus a little bit more on the fundamentals, which were strong
in the first quarter and which we think will remain strong,” he

Cost-cutting continues to be a theme throughout the
industry, and particularly for Pfizer (PFE.N: ) and Merck, as the
U.S. companies integrate their respective mega-mergers with
Wyeth and Schering-Plough.

Cost savings “will continue to help the bottom lines grow a
bit faster than the top lines,” Conover said.

While updates on Pfizer’s progress on the Wyeth deal will be
in focus, the drugmaker has also recently been dealt a mixed bag
of clinical trial news, including positive results for
experimental lung cancer and blood clot treatments and safety
worries over an arthritis medicine.

European companies also face a number of product specific
swing factors, with the fate of Glaxo’s diabetes drug Avandia
hanging in the balance, while Roche’s Avastin faces a key U.S.
review in breast cancer and AstraZeneca’s (AZN.L: ) Brilinta is
scrutinised for heart patients.

Johnson & Johnson (JNJ.N: ), the giant diversified healthcare
company, kicks off the U.S. reporting season on July 20, and
analysts are eager to learn how the company is faring in fixing
plant problems that led to a widespread recall of its children’s
Tylenol and other non-prescription medicines.

The episode threatens to damage J&J’s reputation, while
analysts trimmed their full-year forecasts after the company
said last month it did not expect to restart production at the
Pennsylvania plant for most products until at least next year.
(Additional reporting by Katie Reid in Zurich and Lewis
Krauskopf in New York; Editing by Greg Mahlich)

PREVIEW-Europe’s woes cast shadow over Big Pharma results