Mixed earnings forecast for Big Pharma

NEW YORK (CNNMoney.com) -- It's a solid earnings forecast for some of the pharma and biotech industry's biggest players who report fourth-quarter results this week. But for a few, the numbers are being driven by cost-cutting instead of sales growth.

Abbott Laboratories (ABT, Fortune 500) and Gilead Sciences (GILD) are expected to be the top performers of the pharma and biotech companies to report earnings this week, according to a consensus forecast from Thomson Financial. Both companies report on Wednesday.

Expectations are also strong for Johnson & Johnson (JNJ, Fortune 500), which reports Tuesday. But the forecast is mixed for Pfizer (PFE, Fortune 500), slated for Wednesday, and Amgen (AMGN, Fortune 500), scheduled for Thursday.

Abbott, which makes stents as well as pharmaceuticals, is expected to announce a 12-percent revenue gain to about $7 billion for the fourth quarter of 2007, compared with the year before. Operating profit for the Chicago-area drugmaker surged 20 percent in the same period to $1.8 billion, according to the forecast.

Abbott's sales were driven by Humira, a drug approved to treat several inflammation-type diseases affecting different parts of the body, including rheumatoid arthritis, psoriatic arthritis, Crohn's disease and ankylosing spondylitis.

Humira's success - combined with a restructuring that included job cuts - helped push earnings up, said Phillip Nalbone, analyst for RBC Capital Markets. Nalbone projects $3 billion for Humira sales in 2007, with a 40 percent jump in the fourth quarter.

2008 is also looking good for Abbott. On Friday, the Food and Drug Administration approved Humira as a treatment for psoriasis, which is worth another $500 million in annual sales, said Nalbone. He also expects the FDA to approve Abbott's drug-coated Xience stent and its experimental cholesterol-controlling drug Simcor.

Gilead is expected to report a 21 percent revenue surge in the fourth-quarter, to nearly $1.1 billion. The Foster City, Calif-based biotech is also expected to announce a 9 percent gain in operating profit to more than $500 million.

Much of Gilead's success is rooted in its fast-growing HIV franchise, particularly in its drug Atripla, which is taking market share from GlaxoSmithKline's (GSK) Combivir, said Visavi Vittal, an analyst for Atlantic Equities. Vittal said that Atripla's success has a greater impact on sales than earnings, because Gilead's partnership with Bristol-Myers Squibb (BMY, Fortune 500) keeps the profit margin thin. At its current rate, she said, Gilead could topple Glaxo from its HIV throne.

Johnson & Johnson, the New Brunswick, N.J.-based producer of drugs, medical devices and consumer products, is expected to announce a 13-percent fourth-quarter revenue jump to more than $15 billion, and a 14 percent increase in operating profit to $3.3 billion, according to the Thomson forecast.

While revenue overall is remained buoyant, some of J&J's key drugs suffered declining sales in the fourth quarter, said Michael Krensavage, analyst for Raymond James. They include schizophrenia treatment Risperdal, which recently lost patent protection, and Invega, the schizophrenia drug launched in 2006. The company also faces a competitive market for its drug-coated Cypher stent, as well as reduced sales for its anti-anemia drug Procrit, which is being dogged by safety concerns.

But the $16.6 billion acquisition of Pfizer's consumer health unit allowed J&J to lift results in the fourth quarter, said Krensavage.

"Some of the growth is coming from the fact that they acquired the Pfizer consumer health business," said Krensavage. "The organic growth is less than it appears."

Pfizer's operating profit rose 5 percent to more than $3.8 billion in the fourth quarter, according to the Thomson forecast, but revenue dropped 3 percent to $12.2 billion.

Krensavage said that the New York-based pharma giant has been suffering from declining sales for its blood pressure drug Norvasc, which lost patent protection in 2007, and for its cholesterol blockbuster Lipitor. Lipitor, the top-selling drug of all time with nearly $13 billion in 2006 sales, faces patent expiration in 2010 and is already butting heads with low-cost competitors, like the generic version of Merck's (MRK, Fortune 500) Zocor.

Amgen, the world's biggest biotech in terms of annual sales, also struggled last year. Analysts' forecast points to a 17 percent surge in operating profit to $1.5 billion, but an 8 percent decline in sales to $3.5 billion.

The earnings got a boost from restructuring, said Krensavage of Raymond James. "The EPS would not have been as high as 8 percent growth if not for cost-cutting," he said.

Because of health risks, sales dropped for Amgen's top revenue boosting anti-anemia drugs Aranesp and Epogen, which are in the same drug class as J&J's Procrit. In March, the FDA added a warning to products' labels because of increased risk of death in some cancer patients. FDA advisory committees met twice last year to limit the pool of patients who can use these drugs, and another regulatory panel will meet in March. Krensavage said this could take another bite out of sales if the panel suggests more restrictions.

There is hope for Amgen, but the stakes are high. In the second half of this year, the Thousand Oaks, Calif.-based biotech will unveil late-stage test results for denosumab, its experimental osteoporosis drug.

"Denosumab is the only [late-stage] drug in the pipeline," said Krensavage. "There's a big market opportunity in osteoporosis and the company has put all its resources in denosumab. If [study results] are positive, it could be a game-changer."