Solid growth for chemicals sector contrasts with pharmaceutical woes
Despite the twin pressures of rising energy and feedstock prices, and a slowing economy in the US curbing demand, many companies in the chemical sectors have reported rising sales and profits in their financial reviews of 2007.
Agrochemicals firms are also buoyant, but big pharma is beginning to suffer as blockbusters are hit by generic competition, pipelines begin to thin, and regulators get tough.
Exxon Mobil and Shell both posted astonishing results in 2007 - Exxon’s $40.6 billion setting a US corporate record, and Shell’s $27.6 billion an unsurpassed result for a European company. While primarily the result of rocketing oil prices, both firms’ chemicals businesses contributed to the growth. Shell’s chemical arm added $1.7 billion to 2007 earning, up from $1.1 billion in 2006, while Exxon’s chemicals business made $4.6 billion, up $181 million from 2006.
However, rising energy prices damaged other sectors of the chemicals industry. Dow CEO Andrew Liveris noted that the company’s fourth quarter feedstock and energy costs saw a $1.7 billion year-on-year increase - an ’unprecedented run-up’. Despite passing on some of these costs to customers, the US chemicals giant reported that its 2007 sales grew 9 per cent over the previous year to a record $53.3 billion in 2007, as weaker demand in the US was offset by growth elsewhere. However, the company’s income for the year fell by 22 per cent to $2.9 billion, although this was partly due to restructuring costs.
Dow’s management say growth in other parts of the world could continue to offset US economic weakness into 2008. ’With two thirds of our sales outside the US, our global footprint will allow us to continue to capture growth in key regions of the world, such as Brazil, Eastern Europe/Russia, India, and China,’ said Liveris.
Like Dow, DuPont increased sales on the back of growth markets outside the US. The Delaware, US-based company said sales in emerging markets grew by 20 per cent in quarter four, helping 2007 sales rise by 7 per cent to $29.4 billion. But unlike Dow, Dupont’s profits also grew (once items such as a large tax repayment in 2006 are excluded), with fourth quarter earnings reaching $522 million, up from $422 million in the same period in 2006.
All the key companies engaged in agrochemicals reported growth - Dow and DuPont’s agricultural businesses reporting sales growth of 6 and 23 per cent, respectively. However, both units made losses in the tens of millions, although Dow’s figures included a $77 million restructuring charge.
Agricultural specialists Syngenta and Monsanto both recorded a leap in profits, as booming demand for food and biofuels worldwide saw farmers spending more to maximise crop yield. Syngenta’s net income rose 75 per cent to $1.11 billion as a result, while Monsanto reported 184 per cent growth in net income for the quarter, making $256 million.
Like many of its rivals, US healthcare group Johnson & Johnson is facing patent expiries on key medicines, with antipsychotic blockbuster Risperdal set to loose patent protection in June 2008. But despite the clouds on the horizon, J&J saw sales for the year rise by 15 per cent to $61.1 billion.
Pfizer is also facing generic competition problems. Lipitor, the world’s biggest selling drug (with 2007 sales of $12.7 billion) has patent protection until 2010, but rival anti-cholesterol drugs are already available as cheaper generics. While the lack of potential blockbusters in Pfizer’s drug pipeline is a worry to some, the company’s sales increased slightly in 2007 to $48.6 billion, and the company’s full year income rose 2 per cent to $15.3 billion.
However, GSK’s sales and profits both fell in 2007, with type 2 diabetes drug Avandia continuing to suffer after a meta-analysis of the drug’s safety data, released in May 2007, linked the drug with increased risks of heart attack. Avandia made ?1.2 billion ($2.3 billion) in 2007, 26 per cent less than in 2006 - with quarter four sales in the US falling by 55 per cent compared to 2006. Overall, the company’s sales fell to ?22.7 billion ($44.4 billion) in 2007 from ?23.2 billion in 2006, and profits fell 10 per cent to ?5.2 billion ($10.2 billion)
The company is also facing delays in the US over approval of its cervical cancer vaccine Ceravix. The Food and Drug Administration, gatekeeper to the lucrative US market, has become increasingly cautious over approving new drugs following high-profile safety scares over Avandia, and Merck’s painkiller Vioxx. GSK has issued a profit warning for 2008, and the company stressed the need to improve its performance in developing new drugs.
Swiss-based Novartis and the UK’s AstraZeneca face similar problems. Both reported a rise in sales but a drop in fourth quarter profits as they spent money on restructuring in a bid to improve competitiveness. US pharmaceutical company Merck also posted a loss, down $1.63 billion in quarter four after earmarking $4.85 billion to settle legal claims over Vioxx.
However, US-based Abbott enjoyed growth in sales and profits, while Swiss company Roche’s profit grew 25 per cent to 11.4 billion Swiss francs ($10.3 billion), as sales of its cancer medicines - which typically command higher prices than other therapeutic areas - grew by 20 per cent.
James Mitchell Crow