Pharmaceutical firms looking to nurse themselves back to health

Companies look to expand overseas and try out new medicines

A factory belonging to pharmaceutical company Frost Ibérica, an affiliate of Merck, in Alcalá de Henares, Madrid.
A factory belonging to pharmaceutical company Frost Ibérica, an affiliate of Merck, in Alcalá de Henares, Madrid.Ricardo Gutiérrez

Spain's pharmaceutical companies have met with mixed success in looking for cures for the ills brought about by the cuts in health spending included in the government's draconian austerity drive.

Two of the five pharmaceutical companies that are listed on the Spanish exchange - Almirall and Faes Farma - saw their earnings fall in the first half of the year. Rovi's profits were more or less steady, while Grifols enjoyed a huge increase in earnings due to its exposure to the United States, where it completed the acquisition of Talecris Biopharmaceuticals last year. Zeltia saw a return to profits after losses a year earlier.

At the end of the first half, after waiting for many months, the companies in the sector finally began to receive back-payments on medicines supplied to the hospitals in the National Health Service thanks to the government's Payment to Suppliers Plan. The system had run up an estimated 6 billion euros in unpaid bills.

However, the sector is still feeling the pain of the government's austerity drive, which the chairman of the industry association Farmindustria, Jordi Ramentol, said has had a "very big impact on the earnings" of companies.

Health spending declined by 2.4 percent in 2010, by 8.8 percent last year and is expected to fall by between 15 and 20 percent in 2012.

Austerity had had a "very big impact on the earnings" of companies

The government is also, as of the start of September, set to begin withdrawing financial support from 425 medicines that treat minor illnesses. The companies that will be most affected by this measure include Almirall, Boehringer Ingelheim, Cinfa, Angelini, Kern and Faes Farma, according to a report by Antares Consulting.

Almirall recently released its earnings report for the first half. Profits fell 60 percent from the same period a year earlier as sales fell 12.3 percent and gross operating profit decreased 54 percent as a result of the cutbacks.

Citigroup described the results as "weak" but the Catalan company insists they were in line with its estimates and emphasized the company is focused on the launch of new products that will drive sales. It cited its Aclidinium treatment for chronic obstructive pulmonary disease (COPD), which has been approved by the Food and Drug Administration in the United States and by the European Commission.

The company also plans to set up a unit in Canada to strengthen its presence in the North American market, and Chief Executive Officer Eduardo Sanchiz expects that 60 percent of group sales by the end of this year will come from overseas.

"We are reiterating our 2012 guidance and we are ready to enter a period that could drive a potential significant transformation to our business over the next few years," the company said in its annual earnings report.

Faes Farma is also looking to new products and overseas markets as a solution to its problems. Its sales in the first half dipped 13.4 percent to 91.5 million euros as its group net profit declined 10.5 percent to 9.31 million. Faes Farma described the fall in its earnings as "modest" and a "success" in light of the narrowing of its margins due to ongoing price cuts and the flood of generic products coming onto the market.

Health spending is expected to fall by between 15 and 20 percent in 2012

It noted that its net profit in the first three months of the year had fallen 24 percent. The company expects a turnaround in the coming months due to new licenses that have been granted to its antihistamine treatment Bilastina.

Faes Farma's arguments seemed to convince Banesto Bolsa. "We liked the results a lot; sales of Bilastina are going well and the company's prospects continue to improve due to new agreements and licenses," the brokerage said.

Rival Rovi's net profit edged ahead 1 percent in the first half compared with a year earlier to 13 million euros as its operating revenues climbed 9 percent to 104.9 million euros. The company attributed the improvement to the strengthening of its pharmaceutical specialties division, where sales climbed 2 percent, and manufacturing for third parties, which saw a 36 percent increase in revenues.

Sales in Spain alone were up 43 percent, but gross operating profit in the first half declined 1 percent to 16 million euros because of the impact of the sale of its Fitoladius treatment. The company predicts growth in its operating revenues of between high single-digit and low double-digit numbers for the whole of 2012.

However, it said the latest batch of health spending cuts of 7 billion euros, which came into effect on July 1, could cause sales to come in at the lower end of its guidance.

Zeltia posted a net profit of 11.2 million euros, compared with a loss of 3.04 million a year earlier, as operating revenues climbed 13 percent to 95.9 million.

Its biopharmaceutical division continued to lead the way with sales of 35.5 million euros, but that figure was 13 percent down on a year earlier. The fall reflected the fact that Zeltia sold raw materials worth 3 million euros to its partner Janssen Pharmaceuticals in the first half of last year. The division was also affected by the temporary cut in the supply of Caelyx, which is used in conjunction with its Yondelis compound to treat ovarian cancer, due to the closure of a plant in the United States that had been producing it.

The Galician-based company expects to match or exceed last year's earnings, with chairman José María Fernández "confident" about the future in spite of the crisis, mainly due to the encouraging progression of Zeltia's new pharmaceuticals for the treatment of cancers, including breast, lung and ovarian, and other drugs to combat Alzheimer's disease and glaucoma.

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