Big Pharma: back from a rough year

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NEW YORK (CNNMoney.com) -- More big drugmakers are on tap this week to report strong 2007 earnings, but that's because 2006 was an easy act to follow.

On Wednesday, Merck & Co. (MRK, Fortune 500), the nation's number three drugmaker, is expected to post a 50% gain in fourth-quarter operating profit to $1.4 billion. Sales are expected to rise 4% to $6.3 billion according to analysts polled by Thomson One Analytics.

Recent products like the company's blockbuster cervical cancer vaccine Gardasil and diabetes drug Januvia drove results, said Barbara Ryan, an analyst for Deutsche Bank North America.

But the projected boom in fourth-quarter earnings for 2007, is an "easy comparison" to 2006, when Merck suffered a sales vacuum, according to Ryan. That's the year its patent expired on Zocor, a top-selling cholesterol-lowering drug.

Patent expirations are among Big Pharma's biggest problems. Once a patent runs out, generic manufacturers can produce the drug and sell it a severely discounted price. Low-cost generics may be great for patients, but they're bad for brand-name manufacturers.

Zocor sales totaled $4.4 billion in 2005, its last full year on the market as a name-brand drug. The patent expired in June of 2006 and Merck suffered from a sales decline through the fourth quarter of that year.

But Merck is one of the few drugmakers with a relatively strong near-term pipeline. The Food and Drug Administration is expected to make key decisions this year on two of its treatments: the cholesterol drug Cordaptive and the weight-loss drug taranabant.

Some analysts believe Cordaptive is a potential billion-dollar-a-year product that would compete with Pfizer's Lipitor. The future for taranabant is less certain: In 2006, a panel of FDA advisors rejected a drug from the same class - Sanofi-Aventis' (SNY) Rimonabant - over concerns of depression and suicidal thoughts.

Merck's beleaguered drug Vytorin is likely to monopolize much of the attention on the earnings call, said James McKean, an analyst for Atlantic Equities, even though problems with the cholesterol-lowering drug didn't emerge until this year.

Vytorin combines Merck's Zocor and Schering-Plough's (SGP, Fortune 500) Zetia. The two companies split sales from the $4 billion-a-year drug. Vytorin hit a major snag on Jan. 14, when the drugmakers released a study showing it was no more effective at reducing plaque levels in carotid arteries than a generic version of Zocor, even though the brand-name drug is more expensive. Merck stock has dropped 20% since then, while Schering's has plunged 26%. The FDA is scrutinizing the drug.

"I think it's a little overdone," said McKean, who believes the market reaction over Vytorin was disproportionate. He doesn't expect Merck to reveal much more on the earnings call beyond its previous study and its insistence that the drug is safe and effective.

On Thursday, Bristol-Myers Squibb (BMY, Fortune 500) and Wyeth (WYE, Fortune 500) are scheduled to report.

Analysts expect Bristol's quarterly operating profit to more than triple year-over-year to $1.05 billion. Sales are forecast to jump 24% to $5.2 billion, according to Thomson One Analytics.

The Bristol dynamic is similar to Merck's: a thriving recovery at the end of 2007, following a dismal fourth quarter in 2006. Bristol's turnaround is based on its blood-thinner, Plavix, whose sales totaled $3.8 billion in 2005, its last full year before an interruption from generic competition.

The Plavix patent doesn't expire until 2011. But in 2006, privately-held Canadian drugmaker Apotex launched a generic version. That put a squeeze on Plavix sales and hurt Bristol in the fourth quarter of 2006. But the problem was temporary, because a New York judge blocked production of the generic, ruling that Apotex did not have legal clearance to produce it.

Plavix sales jumped about 150% to almost $1.3 billion in the fourth quarter of 2007 compared with a year ago, according to Deutsche Bank's Ryan.

Wyeth is expected to report a 27% jump in fourth-quarter operating profit to $1.4 billion as sales rose 7% to $5.6 billion.

Ryan said Wyeth's earnings are based on fast-growing sales for Prevnar, a vaccine to prevent bacterial pneumonia in children, and Enbrel, a treatment for five inflammatory diseases including rheumatoid arthritis and psoriatic arthritis.

Sales of Wyeth products, and products for other drugmakers, are likely to benefit from a boost in international sales stemming from a weak U.S. dollar, Ryan said. She projects a 5% sales boost in the fourth quarter for Big Pharma - just from the weak dollar - up from a 3% boost in the third quarter.