Global Insight Perspective | |
Significance | Dainippon Sumitomo’s results continue to be skewed by simple totals resulting from year-on-year (y/y) comparisons with pre-merger Dainippon and Sumitomo. When adjustments are made for merger effects, both sales (19%) and operating income (14%) decline sharply–though not as much as expected. |
Implications | The positive results are largely due to streamlining across the board, though it remains unclear whether the savings are coming earlier than anticipated, or whether they equate to actual gains from initial forecasts of cost-cutting resulting from the merger. Operating income declined by 14% to ¥12.3 billion. |
Outlook | Pressure continues to take its toll on top-line products, though we should see a resolution to the dispute with Pfizer (U.S.) over mainstay cardiac drug Amlodin (amlodipine) before the end of the calendar year. Guidance has not been revised. |
Pretty Good in Q1
On Friday (28 July), Japanese pharma Dainippon Sumitomo released its results for the first quarter of fiscal year (FY) 2006/07. For the most part, the newly merged company presented positive news, with sales coming in slightly ahead of expectations; sales grew by 56.3% to ¥65.3 billion (US$571 million) on a simple totals basis against the first quarter of FY2005/06 (sales outside of Japan account for less than 10% of total sales and are not broken out in Dainippon Sumitomo's results). Adjusted for the merger, sales actually fell by 19.4%. Expenditure decreased significantly across the board, with particular savings being made in cost of sales (35%), largely due to the discontinuation of sales from Abbott (U.S.). However, the drop in sales contributed to an overall 14.3% decline in operating income, to ¥12.2 billion.
Dainippon Sumitomo: Selected Results, Q1 FY2005/06 | ||
¥ bil. | % Change, Y/Y | |
Net sales | 65.3 | -19.4 (56.3) |
Pharmaceuticals | 51.7 | 78.5 |
Cost of Sales | 24.6 | -34.5 |
Selling, General & Administrative (SGA) Expenses* | 18.9 | -2.6 |
R&D Spending | 9.6 | -2.3 |
R&D as % of Sales* | 14.7 | n/m |
Operating Income* | 12.2 | -14.3 (217) |
Operating Margin* | 18.7 | - |
Net Profits | 5.6 | -44.1 (190.9) |
Source: Dainippon Sumitomo/Global Insight | ||
Dainippon Sumitomo continues to suffer from significant pressure on its top-line products, largely due to disproportionate attention and above-average cuts to these drugs in the April 2006 round of price revisions, which averaged 6.7%. Sales of its mainstay hypertension treatment Amlodin (amlodipine) declined by 4.8% to ¥14.0 billion, while carbapenem antibiotic Meropen (meropenem) grew marginally by 2.9% to ¥3.6 billion. Gastroprokinetic Gasmotin (mosapride; up 16.7%) and vasodilator Prorenal (limaprost; up 15.4%) held up the results. Royalties and exports were slightly disappointing, falling by 5.3% to ¥5.0 billion.
Dainippon Sumitomo: Product Sales(¥ bil.) | |||
Q1 FY2005/06 | Q1 FY2006/07 | FY2006/07 Forecast | |
Amlodin | 14.7 | 14.0 | 57.0 |
Gasmotin | 3.9 | 4.5 | 20.0 |
Meropen | 3.5 | 3.6 | 14.0 |
Prorenal | 3.0 | 3.5 | 14.5 |
Ebastel | 2.4 | 2.4 | 11.0 |
Sumiferon | 1.5 | 1.6 | 6.1 |
Qvar | 0.9 | 1.3 | 5.4 |
Growject | 1.3 | 1.3 | 5.0 |
Glimicron | 1.3 | 1.2 | 4.5 |
Dops | 1.2 | 1.2 | 4.3 |
Tagamet | 1.2 | 1.1 | 3.5 |
Excegran | 0.9 | 0.9 | 3.5 |
Almarl | 1.0 | 0.9 | 3.3 |
Lullan | 0.8 | 0.8 | 3.3 |
Sediel | 0.8 | 0.8 | 2.8 |
Exports | |||
Meropenem | 4.2 | 4.4 | 14.1 |
Mosapride | 0.3 | 0.3 | 1.0 |
Zonisamide | 0.7 | 0.1 | 0.7 |
Others | 0.2 | 0.2 | 0.7 |
Exports Total | 5.3 | 5.0 | 16.5 |
Source: Dainippon Sumitomo | |||
Outlook and Implications
At its subsequent conference call, Dainippon Sumitomo provided few updates on its pipeline, and the forecasts issued at the FY2005/06 results presentation remain unchanged. As things stand, the company has achieved 51.4% of its ¥127 billion sales target for the first half of the fiscal year; however, it has reached 74.7% of its net profit forecast (¥7.5 billion) and 69.7% of its operating income forecast (¥17.5 billion). As a result, the company seems to have significant room for manoeuvre, and it is likely that forecasts will be revised later this year.
Significant overhang continues to come from U.S. pharma giant Pfizer's allegation that the merger of Dainippon and Sumitomo dissolved its licensing agreement over Amlodin. An initial outcome from this lawsuit can be expected later in the year, with proceedings beginning in earnest in September. The only major pipeline activity for the quarter was the introduction of cancer candidate Calsed/SM-5887 (amrubicin hydrochloride) into Phase II trials at licensing partner Cabrellis (U.S.). However, Dainippon Sumitomo has kicked off the second quarter by signing a deal with the Japanese unit of Bristol-Myers Squibb (BMS, U.S.) for local rights to hypertension drug Avapro (irbesartan), which looks like a guarantee card for Amlodin.
Dainippon Sumitomo: Forecasts, FY2006/07 (¥ bil.) | |
Net Sales | 260 |
Cost of Sales | 100.3 |
SGA | 76.7 |
R&D | 42.0 |
Operating Income | 41.0 |
Net Income | 21.0 |
Source: Dainippon Sumitomo/Global Insight | |
Related Articles:
- Japan: 25 July 2006: Dainippon Sumitomo and BMS Sign Double R&D Deal in Japan
- Japan: 12 May 2006: Dainippon Sumitomo Reports Sales Surge in First Combined Full-Year Results
- Japan: 10 February 2006: Dainippon Sumitomo Presents First Post-Merger Results, Looks to 2006 Growth