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US tax reforms bring down profits of 15 top global pharma cos by 37% in 2017
Sanjay Pingle, Mumbai | Monday, April 2, 2018, 08:00 Hrs  [IST]

The top 15 global pharmaceutical companies reported a major setback in their financial performances during 2017 with a sharp decline in their profit although their overall sales did not reflect that trend. The net profit of these companies declined by 36.9 per cent to $58 billion during 2017 from $92 billion reported in the previous year. The bottom line of these companies got affected so badly in 2017 mainly on account of changes in US tax law pushing up their tax provisions by 98 per cent to $45 billion from $23 billion in the previous year. Even their operating profit before interest, tax and adjustments declined by 14.2 per cent largely due to one time provision for goodwill impairments of $17.1 billion by Teva Pharmaceuticals.

The global pharma companies faced tough generic competition,  increased US FDA approvals of additional generic versions of off-patent medicines and delays in launches of certain new generic products in 2017. Return on investment from research and development (R&D) had limited success putting further burden on bottom line. The companies could launch only 12 new blockbusters during 2017 and at the same time losing the blockbuster status for some products.

The sales of these 15 companies, with pharmaceuticals & vaccines sales above US$ 20 billion, increased by 5.5 per cent to US$ 562 billion in 2017 from $532 billion in the last year, of which pharmaceuticals & vaccines sales worked out to 83 per cent at $464 billion in 2017. The pharmaceutical and vaccines (pharma) sales of 15 leading global companies increased only by 3.5 per cent during the year 2017 to US$ 464 billion from $448 billion in the previous year. Pfizer remained on top among the companies with pharma sales of $52,546 million, followed by Novartis at second spot at $49,109 million and Roche at third place at $42,219 million. Only four companies i.e. Roche, GlaxoSmithKline (GSK), AbbVie and Bayer registered double digit growth in pharma sales in 2017.

The pharma sales of Gilead Sciences declined sharply by 14.3 per cent to $25,662 million from $29,953 million as the sales of its leading product viz. Harvoni declined sharply by almost 52 per cent to $4,370 million from $9,081 million in the previous year. Similarly, the pharma sales of Amgen and AstraZeneca declined during 2017. The pharma sales of Sanofi and Merck & Co improved only by one per cent.

The pharma sales of 15 companies in the US increased by 3.4 per cent to $231 billion from $224 billion. Pfizer remained highest in US with pharma sales of $26,026 million as compared to $26,369 million in 2016. Johnson & Johnson (J&J) maintained its US ranking at second spot with pharma sales of $21,474 million. AstraZeneca’s pharma sales declined sharply in US by 29.2 per cent to $6,169 million from $8,717 million. Similarly, the US sales of Novartis, Merck, Gilead Sciences and Amgen declined in 2017. Sanofi’s pharma sales in US went up sharply by 36.8 per cent to $14,201 million from $10,379 million and that of Roche by 15.1 per cent, Bayer by 14.6 per cent, AbbVie by 14.4 per cent and Eli Lilly by 11.1 per cent.

The foreign exchange rate for British Pound and Euro remained same at $1.23 and $1.05 respectively as at the end of 2017. The Swiss Franc rate increased to $1.02 as at the end of 2017 from $0.98 as at the end of 2016. We have taken constant exchange rate while analyzing financial performance. We have not included Boehringer Ingelheim in the study as the company has not announced its financial working for the year ended December 2017.

Innovation will became increasingly important in view of persistent challenges in the healthcare segment. The research & development cost of Pharmabiz 15 global pharma companies increased by 6.8 per cent to $100 billion in 2017 from $94 billion in the previous year. The R&D expenditure of Novartis, Pfizer, Merck, AstraZeneca, Gilead Sciences, Amgen and Teva Pharma declined during 2017. However, GSK, Johnson & Johnson, Eli Lilly & Co, AbbVie, Bristol-Myers Squibb, Sanofi, Bayer and Roche enhanced R&D spending during 2017.

Novartis received 16 major approvals and it has made 16 major submissions. It also received six breakthrough therapy designations from US FDA. It has pipelines with more than 200 projects in clinical development. Pfizer received 10 approvals from FDA. Its R&D expenditure declined due to decreased spending for biosimilars, the close-out of certain post-marketing clinical trials and favorable impact of the sale of Hospira Infusion Systems.

The marketing, administration and general cost of 15 companies increased by 8.4 per cent to $157 billion from $145 billion and cost of product sold went up by 9.5 per cent to $170 billion from $155 billion. Other expenditure also moved up by 63 per cent to $43 billion from $26 billion mainly due to Teva's provision for goodwill impairment of $17.1 billion in 2017.

The operating profit before interest, tax and adjustments of 15 companies declined by 14.2 per cent to $108 billion from $126 billion in the previous year. The profit before tax and adjustments also declined by 15.3 per cent to $97 billion from $115 billion despite slightly lower interest burden. Interest cost declined to $11,457 million from $11,778 million. The profit after tax and before adjustments declined sharply by 43 per cent to $52 billion from $92 billion due to change in US tax system. Taxation cost went up by 98 per cent to $45 billion from $23 billion in the last year. The net profit after adjusted income of $6 billion declined by 36.9 per cent to $58 billion from $92 billion.

Teva's net loss, after provision of Goodwill impairment, reached at $16,265 million during 2017. Eli Lilly incurred net loss of $204 million as against a net profit of $2,738 million due to significant provision for tax. However, Pfizer's net profit went up to $21,308 million due to benefit in tax of $9,049 million during 2017 as against income tax provisions of $2,123 million in the previous year. Similarly, GSK's net profit went up by 124 per cent to $2,926 million due to lower other operating expenditure. Sanofi's net profit increased by 102.6 per cent on account of demerger of animal healthcare business. The net profit of Bristol-Myers, Gilead Sciences, J&J and Amgen declined sharply by over 50 per cent during 2017. Similarly, Merck, AstraZeneca, AbbVie and Roche received setback in profits.

Several important brands lost exclusivity and their sales declined sharply during 2017 and few brands entered the list of blockbuster status. There were 97 blockbuster (sales above US$ one billion) products registered by Pharmabiz sample of 15 companies during 2017. Out of these 97 products, 12 products viz., Trulicity (Eli Lilly), Zepatier (Merck), Relvar (GSK), Xeljanz (Pfizer), Darzalex (J&J), Isentress (Merck), Odefsey (Gilead), Brilinta and Farxiga (AstraZeneca), Exjade (Novartis), Ventolin and Infanrix (GSK) entered the list of blockbuster for the first time.

Humira of AbbVie maintained its top position with sales of $18,427 million as against $14,012 million in the previous year, followed by Roche’s MabTherra/Rituxan $7,567 million, Herceptin $7,184 million and Avastin $6,317 respectively. MabThera climbed to second spot displacing Harvoni of Gilead Sciences. The sales of Harvoni declined sharply by 51.9 per cent to $4,370 million from $9,081 million in the previous year. Among the top ten products, the sales of Remicade of Roche, Prevnar 13 of Pfizer, Enbirel and Neulsta of Amgen declined by 9.3 per cent, 2 per cent, 8.9 per cent and 2.5 per cent respectively.

The sales of few blockbuster products like Keytruda (Merck) Genvoya (Gilead Sciences), Epclusa (Gilead Sciences), Trulicity (Eli Lilly), Zepatier (Merck), Darzalex (J&J), Isentress/Isentress HD (Merck) and Odefsey (Gilead Sciences) have taken jump of over 100 per cent in 2017. Similarly, the sales of Triumeq (GSK), Cosentyx (Novartis), Tivicay (GSK), Imbruvica (J&J) and Relvar/Breo Ellipta (GSK) increased by over 50 per cent during 2017.

Several products like Premarin family (Pfizer), Procrit/Eprex (J&J), Complera/Eviple & Sovaldi (Gilead), Diovan (Novartis), Tarceva (Roche), Remicade (Merck), Viagra (Pfizer) and Vytorin (Merck) lost blockbuster status as their sales declined below dollar one billion in 2017.

To meet the current challenges, pharma companies restructured and consolidated their position during last couple of years. Pfizer acquired Hospira, the world’s leading provider of injectable drugs and infusion technologies and a global leader in biosimilars, during 2015. Recently GSK acquired consumer healthcare business of Novartis for $13 billion. Novartis also divested its vaccine business to GSK and Teva acquired Actavis Generics. Gilead Sciences acquired Cell Design Labs, gaining new technology platforms that will enhance R&D efforts in cellular therapy. Sanofi acquired Bioverative for $11.6 billion and Ablynx for Euro 3.9 billion to strengthen its R&D strategy. Further Sanofi has integrated the consumer healthcare operations of Boehringer Ingelheim during 2017.

These companies are investing in expansion programmes. Pfizer is investing $5 billion in capital projects in the US including strengthening manufacturing presence in the US. Similarly, AbbVie is investing $2.5 billion in capital projects in the US and currently evaluating additional expansion of its US facilities.


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