COMMENT
Price and Currency Still Reign in Pharma
Quarter
■Aggregate year-over-year EPS growth for 2Q08 should be strong, at 8%
(compared to 5% in 1Q08). However this growth contains wide disparities
among individual stocks. Stocks we expect to report double-digit growth
include ABT (14.8%), BMY (14.5%) and PFE (12.9%). We see more modest
growth for LLY (6.1%), JNJ (3.9%) and SGP (2.6%, in part due to
ENHANCE and Organon interest expense), and negative growth for WYE (-
2.7%, Protonix generics) and MRK (-1.6%, Fosamax generics).
■Once again, foreign exchange will provide a tailwind to group earnings, as
the dollar declines sequentially against the Euro for the tenth consecutive
quarter (down 4.2% over 1Q08 and 13.7% over 2Q07). All 8 companies
source over 40% of sales internationally, and 4 are over 50%.
■Price increases were strong across the group in 2Q08, with a volumeweighted
year over year average of 6.3%. PFE, ABT, LLY and JNJ had the
highest average increases (all over 7%), and even WYE, which traditionally
lags the group, raised its average increase from 1.2% to 4.2%.
■We are significantly above 2Q 2008 consensus for SGP ($0.02, or 4.2%),
and significantly below consensus on PFE ($0.05, or 9.9%) and MRK ($0.03,
or 4.2%). For the full year 2008, we are most different on SGP (+$0.10, or
6.2%) and PFE (-$0.06, or 2.6%).
■In preparation for 2Q 2008 results, we have fine-tuned our models, leading
to the following EPS changes explained in each company section.
■ABT 2008 EPS: old $3.24, new $3.25, and 2009 EPS: old $3.60, new $3.62.
■BMY 2008 EPS: old $1.67, new $1.64, and 2009 EPS: old $1.96, new $1.95.
■JNJ 2008 EPS: old $4.40, new $4.43, and 2009 EPS: remains $4.45.
■LLY 2008 EPS: old $3.89, new $3.95, and 2009 EPS: old $4.22, new $4.30.
■MRK 2008 EPS old $3.28, new $3.29, and 2009 EPS old $3.68, new $3.70.
■PFE 2008 EPS: old $2.27, new $2.29, and 2009 EPS: old $2.41, new $2.44.
■SGP 2008 EPS: old $1.62, new $1.63, and 2009 EPS: remains $1.94.
■WYE 2008 EPS: remains $3.47, and 2009 EPS: remains $3.77.