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Global economy, price pressures ail drugmakers

Major drugmakers are reporting fourth-quarter earnings ranging from modestly better to bleak, but they're all showing dents from the macroeconomic forces that constrain the industry, now and for the foreseeable future.

Generic competition has been building for several years, slashing billions in revenue from blockbuster brand-name drugs, and some of the world's top sellers will lose patent protection in the next few years.

Now government health programs in the U.S. and Europe are demanding deeper discounts, and the struggling global economy has disproved the old adage that health care is recession-proof.

The upshot is more weak than strong reports from the pharmaceutical industry so far - and lots of investors and analysts nervous about near-term profit declines and how long companies will take to recover once, now that they've trimmed nearly every bit of fat. Some companies have even been giving financial forecasts up to three years out to reassure investors that once they get past their so-called "patent cliffs," new drugs will help turn things around and growth will resume.

"It's a challenging environment, and that's unfortunately not changing," said Edward Jones analyst Linda Bannister.

Among the four major pharmaceutical companies reporting results Thursday, Eli Lilly and Co. performed best. Its net income jumped 28 percent on sales from established drugs, including antipsychotic drug Zyprexa and antidepressant Cymbalta.

Lilly earned $1.17 billion, or $1.05 per share, as revenue rose 4 percent to $6.19 billion.

But Lilly's outlook for the near future isn't as rosy. In October it faces sales-eroding generic competition to $5 billion-a-year Zyprexa, then in 2013 for Cymbalta and the insulin Humalog.

On top of that, Lilly anticipates a hit this year of up to $500 million from the U.S. health care overhaul, mainly due to rebates for patients in the Medicare preion drug program. The overhaul also carries big fees that aren't tax deductible.

The Indianapolis drugmaker expects its 2011 revenue to be flat or slightly higher than last year. However, it forecast adjusted earnings of $4.15 to $4.30 per share, well below the comparable profit of $4.74 per share last year.

At New York-based Bristol-Myers Squibb Co., higher U.S. sales and tight cost controls enabled it to meet Wall Street's earnings expectations. But even excluding a huge gain a year ago, its earnings from continuing operations slipped.

It posted quarterly net income of $483 million, or 28 cents per share - 47 cents excluding several one-time items.

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