2017 Pharma Sales: A New Global Order
Executive Summary
As the reality of annual results arrive, Scrip predicts how the top of the pharma league table is likely to change.
The last week in January and the first week in February are full of surprises. They bring the financial results of all the top 15 pharmaceutical companies (except those of Bayer AG, which arrive at the end of February). The circus started on Jan. 23 with news from Johnson & Johnson that its pharma sales hit $36.3bn, up 8.3% from 2016, over half of the increase being due to its mid-year acquisition of Actelion.
Scrip is interested in drug sales, so other product sales – in animal health, diagnostics, medical technology, for instance – are excluded. So, too, is revenue from collaborative arrangements.
This is the way the top companies might line up once the results are all in.
Pfizer Inc. stays at number one while Roche, which reported 6% growth in the third quarter of 2017, moves into second place ahead of Novartis AG, which is expecting a decline in revenue.
J&J's drug sales growth takes it ahead of Merck & Co. Inc. and Sanofi. The declining hepatitis C market send Gilead Sciences Inc. back below AbbVie Inc. and GlaxoSmithKline PLC, both of which have predicted upper single digit growth in line with their positive third-quarter results.
Teva Pharmaceutical Industries Ltd. and Amgen Inc., both expecting sluggish growth, are stuck at positions 10 and 11, respectively.
The least predictable part of the pharma league table occurs between positions 12 and 15. The predicted sales for four companies are separated by an anachronistic cigarette paper or, in pharma terms, half a blockbuster - $500m. All four companies have indicated dynamic changes in pharma sales, upwards by 6-10% for Eli Lilly & Co., Bristol-Myers Squibb Co. and Bayer, downward by 8% for AstraZeneca PLC.Scrip's table has Lilly leaping ahead of AZ and BMS squeezing past Bayer.
The gap to the next company in the league is around $2bn, too much for Novo Nordisk AS (reporting Feb. 1) to make up in 2017.
Simple Minds
At annual results time, it is customary for stock analysts to express surprise at the manner in which one company narrowly failed to meet a revenue or profit target or to marvel how another firm wildly exceeded expectations. What follows is an outpouring of understanding, hitherto unrevealed, of the causes of these surprises based on market factors previously unmentioned, on a company's ability/inability to respond to that obvious market change or on a newly observed weakness or strength of the company's management team.
As a consequence, shares start changing hands much more rapidly than usual which is quite convenient for stockbroking firms, the analysts' employers. (Also see "Stockwatch: Get Ready For Pharma's Predictable Half-year Surprises" - Scrip, 18 Jul, 2016.)
Scrip's analysis here is less rococo. It has two simple aspects. Possibly three.
The first is to note the pattern of sales in the past few quarters from which it is possible to extrapolate to year-end figures.
The second is to give some credence to the predictions made by the companies themselves over the past few months: some of that 'guidance' restricts the outcome to quite a narrow range.
The third consideration – currency fluctuation - stems from the global nature of the pharma business and the need to compare financial performance on the basis of a single currency, the US dollar.
Currency fluctuation might be regarded as a minor factor in measuring the company performance. It is a factor that is beyond the control of management and is factored only hesitatingly into most analysts' models. Yet, forthcoming financial results will undoubtedly be seasoned with talk of currency headwinds and results restated on the basis of constant exchange rates.
Perhaps that is unsurprising given that it only takes a few percentage points of currency fluctuation to wipe away, or happily boost, growth in underlying sales.
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