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26-07-2012 14:43:00

Woes Of European Pharma Companies On Display During Results Period

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By Sten Stovall

LONDON--The problems facing Europe's big drug makers were underscored Thursday by Britain's AstraZeneca PLC (AZN) and France's Sanofi SA (SNY), which said the loss of patents on some of their blockbuster drugs and draconian austerity measures imposed by governments in the region will cause their full-year earnings to fall.

Their message echoed that from GlaxoSmithKline PLC (GSK), which Wednesday warned that pricing pressure in Europe and the U.S. will keep its sales flat this year, despite strong growth in Japan and emerging markets. Last week, Swiss drug giant Novartis AG (NVS) said second-quarter sales fell 4%, hurt in part by generic competition to the company's hypertension pill Diovan.

A brighter performance came from Switzerland's Roche Holding AG (ROG.VX), which Thursday reported a drop in first-half profit, mainly due to the closure of a U.S. site, but a 3.5% rise in group sales due to a strong performance from its cancer drugs in the U.S. and emerging markets, and said it was on course to meet its objectives.

But the general picture is one of retrenchment as mounting patent losses squeeze revenue at a number of European drug makers. AstraZeneca and Sanofi are among the most affected due to the U.S. expiries of schizophrenia treatment Seroquel and blood thinner Plavix, respectively. Both companies have responded by cutting jobs and acquiring smaller biotechnology companies with promising new drugs to improve their pipelines of high-priced patented medicines.

Other drug makers are also seeking acquisitions help replenish their pipelines, but the degree of urgency to do deals varies from company to company.

Meanwhile, their profitability is being by the deepening crisis in the euro zone. And while drug companies have faced falling prices in Europe for several years, the situation has gotten much worse recently due to deep budget cuts--particularly in southern Europe--triggered by the euro crisis.

"We're not growing as fast as we hoped at the beginning of the year," Glaxo Chief Executive Andrew Witty said Wednesday, attributing the change to weakness in Europe.

AstraZeneca also warned Thursday about the deepening crisis in Europe.

"Government interventions in the market place continue to take their toll--we estimate the impact for AstraZeneca at around $300 million in the second quarter alone as spending on medicines come under pressure in most parts of the world and especially in Europe," said Simon Lowth, the company's interim chief executive.

Eventual salvation from new drugs is the hope shared by all drug makers. Some are having more luck than others in their search. But analysts believe that the fires of drug discovery are finally being stoked by a growing understanding of how genomics shape the biology of disease. This is leading to promising new treatments that target critical areas of unmet medical need while also increasing the efficacy of interventions geared to the individual patient.

"Our growth in the future will really be dependent on that pipeline being delivered," Glaxo CEO Witty acknowledged Wednesday.

The challenge for all players is that many new treatments may not complete the move from concept to patient in time to plug the yawning revenue gap from a second record year of patent expiries. Analysts say this year's dropoff the patent cliff is the longest and steepest, with a $50 billion loss coming on top of the $30 billion ceded to generics in 2011.

-Write to Sten Stovall at Sten.Stovall@DowJones.com

Subscribe to WSJ: http://online.wsj.com?mod=djnwires

(END) Dow Jones Newswires

July 26, 2012 08:43 ET (12:43 GMT)

Copyright (c) 2012 Dow Jones & Company, Inc.

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