HMR promises to improve after 97 profits fall

11 March 1998 14:04  [Source: ICIS news]

FRANKFURT (CNI)--Hoechst's pharmaceutical business Hoechst Marion Roussel (HMR) on Wednesday unveiled a sharp drop in 1997 profits but promised to do better after admitting it was lagging behind the competition.

Net income last year was down 19% at DM558m ($304.5m) and operating profits also fell 19%, to DM1.65bn. HMR said without the effect of one-off business and product line sales in 1996, the operating figure rose 8%.

Sales increased 7% last year, to DM14bn, but HMR said the increase was mainly due to currency effects, especially the strengthening of the US dollar against the German mark.

Sales volume and prices fell around 2%, mainly due to declining US and Japanese sales of HMR's Seldane hayfever product, which it withdrew from the US market in February. The company was the only top-ten pharmaceutical producer whose sales declined in real terms. It made only 5% of sales from new products, compared to 20% or more from key competitors.

HMR's long-term performance has also been in decline - it has slipped from global leadership in the early 1970s to rank eighth in 1998, despite its acquisitions of Roussel Uclaf and Marion Merrell Dow.

Chief executive Richard Markham admitted that HMR's competitors had served patients better in recent years. "As a result employees and shareholders have suffered and will continue to do so unless we do better, and that requires time and change," he said.

The company has an older product line and more off-patent sales than competitors. Markham described the product line as "fragmented" - only the Cardizem family of drugs accounts for more than 10% of sales and the top 10 products only total 40% of sales. Most products are sold only in a few countries or regions rather than globally.

To improve performance, HMR is focusing on novel prescription drugs for large numbers of patients. It is divesting generics, over-the-counter, distribution and low profit active ingredient businesses.

The company is restructuring its research and development activities - now known as Drug Innovation and Approval (DIA) - aiming to shorten drug development time from 10-15 years to between six and nine years. It is also reducing its cost of goods, which is around 50% higher than for its competitors, and has reduced its manufacturing plants from 75 to 41.

HMR expects sales to increase in 1998, by "one, two or three percent" but operating profit to be impacted by restructuring costs. These are estimated at around DM700m.

Markham said R&D spending in 1999 would be at about the same level as 1997, but more of it would be devoted to development projects. HMR aims to achieve an operating margin of 20% in 1999 and to save DM460m. The company hopes for at least two approvals for new, significant active ingredients in 1999.

HMR's restructuring has been accompanied by significant job losses in DIA. Markham said the company could not yet give precise figures, since negotiations were still going on.

The company has some nine "top priority" products in its drug pipeline, of which three - the heart drug cariporide, M100907 for schizophrenia and insulin glargine for diabetes - are in a high-speed development process and are expected to be launched in 2000. Markham said history showed pharmaceutical companies had been more successful when they had a few, very large products rather than many smaller ones. "Everything you do is more efficient when you have a more concentrated product line," he said.

By: Grace Williams
+44 208 652 3214

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