Investment Analysts Call On Western Drug Titans To Become More Transparent On Absolute Sales, Profit Levels In Emerging Markets

BEIJING - The globe's leading pharmaceutical players should become more transparent about precise sales and profit levels across emerging markets, including China, rather than issue vague statements about double-digit growth in these regions without providing base figures, according to investment analysts.

Researchers at the New York and London offices of Sanford Bernstein are urging international drug outfits to provide the same level of detail for emerging markets as they do with respect to turnover and earnings in the U.S. and Europe.

A review of the earnings reports of American and European drug giants of the recent past reveals "all of these companies have highlighted emerging markets as major areas of growth," said a Bernstein researcher.

But few of these companies provide absolute figures on current sales across these markets, he added.

For many of these drug firms, he pointed out, "China has one of the highest growth rates but also relatively low absolute sales."

In a research note issued this week, Bernstein analysts in the United Kingdom and the U.S. lamented the lack of firm figures from new markets, yet they praised AstraZeneca for its pioneering role in providing more detailed data from sales in emerging countries.

"Monitoring prescription trends or sales trends in ex-U.S. markets is more difficult to do," stated the Bernstein equity research analysts.

"In established markets like Western Europe," they added, "growth has generally been on a longer-term declining trajectory similar to the U.S."

"In emerging markets," the analysts stated, "growth over the last quarters has clearly been better, but here too there is no timely or reliable tracking data."

And emerging markets will likely remain a focal point of nearly all major drug makers for the foreseeable future.

Of the nine leading pharmaceutical firms covered in the report, AstraZeneca provided the most detailed figures from emerging markets (Also see "AstraZeneca To Eliminate 1,400 Jobs In Europe Even As It Expands In China" - Scrip, 24 Nov, 2008.).

As a direct result, the analysts said, "better visibility on these trends is the main reason our revenue/EPS estimates have gone up as much as they have for AstraZeneca."

That is likely to provide an incentive for AstraZeneca's counterparts to similarly provide more precise figures in the future, said the Bernstein researcher.

At the same time, with its leading move to disclose more information about sales across developing regions, "AstraZeneca is putting pressure on other companies to provide these figures from emerging markets," he added.

Bernstein analysts predicted in the just-released research note: "As AstraZeneca's emerging market strategy is not unique, it is very likely that our consensus revenue/EPS estimates for other drug companies will also rise, contingent on more disclosure."

With AstraZeneca, stated the researcher, "Our 2015 revenues are now 13 percent higher, and our 2015 EPS estimates are 37 percent higher, due to the detailed figures that the company provided on emerging markets."

The pharmaceutical world faces, in the years ahead, "a period of inevitable contraction (tied to patent expiries), but this will clearly vary from name to name," the analysts stated in the research note.

"Many companies have a lot of drugs going off patent, with not a lot of new drugs to replace the loss," said the Bernstein researcher.

To reassure rattled investors, many firms include vague statements in earnings reports about rapid-fire growth in emerging markets like China, but neglect to add that this rise might be from a fairly low base, he explained.

"Some of these companies are investing a lot of money in R&D centers in Beijing or Shanghai, and are placing big bets on China," he noted.

With the amorphous but extremely optimistic pronouncements about rising sales in China, he said, "these companies want people to think they are deriving major new growth from emerging markets."

- Kevin Holden ([email protected])