Why 5 Big Pharma’s Struggle to Please Investors
July 19, 2016
By Mark Terry, BioSpace.com Breaking News Staff
Despite the world’s apparent need and hunger for medicines and drugs, a number of large pharmaceutical companies are struggling to grow their stocks. The Motley Fool takes a look at five big pharma companies and why they’re having problems satisfying their investors.
Perrigo
Perrigo , headquartered in Allegan, Michigan, has cranked out around $5 billion in over-the-counter drugs and specialty pharmaceuticals over the last four quarters, but it’s been struggling with accounting issues. Its chief executive officer, Joseph Papa, left in May to helm embattled Canadian company Valeant Pharmaceuticals , leaving others to patch up its questionable accounting practices. An external auditor gave the company a thumb’s-up in December, but, says Cory Renauer with The Motley Fool, “in its latest quarterly report, filed May 16, the management admitted its estimated value of assets such as customer relationships, brands, and patents, might not have been accurate. To correct the issue, the company recorded a whopping impairment charge of $467 million in the first quarter.”
Bristol-Myers Squibb
New York-based Bristol-Myers Squibb has struggled with patent expirations. Its Plavix blood thinner hit $6.15 billion in sales in 2010, but its patent expired in 2012 and hasn’t grown since. The company’s Opdivo, an immuno-oncology drug, however, is expected to break $3 billion.
And it also lost patent protection for Abilify, an antipsychotic. As a result, its first-quarter sales dropped 94 percent compared to the same period last year.
Merck & Co.
Kenilworth, New Jersey-based Merck & Co. is also being battered by a portfolio of aging products and patent expirations. Keytruda, another immuno-oncology drug, is the exception, and is expected to hit $1 billion in sales this year, although Renauer writes, “for a company with over a dozen key drugs losing ground, it’s hardly enough. First-quarter sales fell 1.2 percent compared with the first quarter 2015, to $9.3 billion.”
In 2014, the company sold off its consumer-care business to Bayer for $14.2 billion, which has given them a nice war chest, although Renauer writes, “While the cash cushion means Merck isn’t necessarily struggling to pay its dividend now, I wouldn’t expect any big hikes in the near future.”
Pfizer
Pfizer has struggled since Lipitor lost market share in 2012 in the face of generic competition. Other drugs, such as epilepsy treatment Lyrica grew, but it facing stiff competition in Europe. The company’s breast cancer drug, Ibrance, its Prevnar 13 vaccine, and Eliquis, a blood thinner, are holding up the company’s revenues. Nonetheless, a number of investors and analysts are waiting for the company to make a decision on whether it’s going to split the company into two or focus on strategic acquisitions in order to bolster its bottom line. It’s older brands are acting as an anchor on its newer, high-growth areas.
Eli Lilly and Company
Indianapolis-based Eli Lilly and Company froze its dividend at $1.96 from 2009 through 2014, and Renauer notes that “increases since have only brought it up to $2.04 per share. While the payout hasn’t exceeded profits in recent years, it’s currently equal to 94 percent of trailing-12-month earnings.”
He also points out that if the company wants to grow, it’s going to need some new potentially hot products, which it doesn’t seem to have. Renauer specifically cites Jardiance, a treatment for type 2 diabetes that seems to be significantly underperforming, reporting only $38.2 million in revenue in the first quarter. A similar, but apparently not as good product from Johnson & Johnson called Invokana, is expected to hit $1.3 billion in sales this year.
“At recent prices, Eli Lilly stock is offering a nice 2.5 percent yield,” Renauer writes. “If it can get Jardiance off the ground, it might be able to raise the payout significantly in the years ahead. But I wouldn’t count on it.”