By Lewis Krauskopf and Ransdell Pierson
NEW YORK (Reuters) - U.S. drug makers Bristol-Myers Squibb Co
Both drug makers also gave improved forecasts for the rest of the year, and their shares rose.
Drug makers have largely surpassed expectations this quarter, despite some setbacks, proving their potential value as defensive investments during the economic turmoil.
"The whole drug group has broadly exceeded expectations in the quarter, to a large extent because of restructuring and cost cutting each company has implemented," Deutsche Bank analyst Barbara Ryan said.
Still, like most of their rivals, Bristol and Lilly both face questions over their long-term profitability because of patent expirations to top products and uncertainty with their pipelines of experimental drugs.
Bristol's blood-clot treatment Plavix and Lilly's schizophrenia drug Zyprexa -- the companies' respective top-selling products -- will lose U.S. patent protection in the next few years, and the companies face skepticism that they will be able to make up for the lost revenue.
For the quarter, Bristol said it earned $2.58 billion, or $1.29 per share, compared with $858 million, or 43 cents per share in the year-ago quarter. The results reflect a $2 billion after-tax gain from the sale of the ConvaTec unit in August.
Excluding special charges, Bristol-Myers said its third-quarter earnings from continuing operations was 46 cents per share. Analysts on average expected 42 cents per share, according to Reuters Estimates.
"It was a very strong quarter for Bristol," Ryan said, citing strength in its core franchises, including Plavix, schizophrenia drug Abilify and its HIV drugs, as well as improved profit margins.
Bristol revised its 2008 forecast to the upper end of its previous range, forecasting earnings per share of $1.65 and $1.70, excluding items, from its prior range of $1.60 to $1.70.
The company affirmed it expects compounded annual earnings growth from continuing operations of at least 15 percent from 2007 through 2010.
Bristol said its net earnings from continuing operations fell 21 percent, primarily due to a charge of $224 million in the quarter related to losses on auction rate securities.
Ryan said the company, which took its first charge for depressed auction rate securities in January, has shifted its investments into U.S. Treasury bonds. "They're definitely playing safer," she said.
Lilly said it lost $466 million, or 43 cents per share, as it booked $1.48 billion in charges for probes of its Zyprexa schizophrenia treatment. That compared with a year-earlier profit of $926 million, or 85 cents per share.
But excluding special items, earnings rose 14 percent to $1.04 per share, 2 cents ahead of estimates.
Sales rose 14 percent to $5.21 billion, topping analysts's forecast of $5.09 billion, as sales of its depression treatment Cymbalta soared 40 percent to $716.4 million.
"Lilly's business looks good; their sales growth looks very nice," said Mike Krensavage, principal of Krensavage Asset Management.
Lilly raised its 2008 forecast, excluding items, to $3.97 to $4.02 per share, from its previous range of $3.85 to $4.00.
Although the company's near-term earnings prospects are bright, Krensavage said he was concerned whether the company will win approvals for enough big drugs to offset looming generic competition for Zyprexa, Cymbalta and cancer drug Gemzar.
