Strong Tamiflu Sales Spur Chugai's Revenue Jump in Q3

The robust sales growth demonstrated in previous quarters has continued for Chugai in the third quarter (Q3) of this year, which was largely driven by the pandemic-prompted Tamiflu sales and steady domestic turnover. In Q3, Chugai’s total sales rose by 46.9% year-on-year (y/y) to ¥117.5 billion (US$ 1.3 billion) including a 303-fold y/y sales jump of Tamiflu, which reached ¥30.4 billion. During this period, the company’s spend on sales, general & administration (SG&A) remained level with the same period last year, but both cost of sales and R&D expenses have increased. Nevertheless, the strong sales growth made it possible to offset the impact of increased costs and expenses to reach sound earnings. Chugai’s operating income and net income both registered upbeat double-digit increase, by 63.6% and 29.2% to ¥21.1 billion and ¥14.6 billion respectively.

The robust sales growth of Tamiflu has undoubtedly been prompted by the influenza A/H1N1 (swine flu) pandemic spread around the globe, which brought Chugai ¥30.4-billion sales from Tamiflu, including ordinary sales and government stockpile orders of ¥22.9 billion and ¥7.6 billion respectively.

Excluding the sales of Tamiflu, the company's turnover growth also remained upbeat, which increased by 10.9% y/y to ¥87 billion during this period. The rise was mainly driven by strong domestic sales, among which oncology drugs contributed 40.1% to the overall domestic ex-Tamiflu turnover. Double-digit growth could be observed in the sales of Avastin (58.9%), Herceptin (14.1%), Xeloda (23.1%), Tarceva (16.7%) and Femara (50%), largely due to the extra revenue brought by indication extensions of the key products in the company's portfolio. Kytril's sales slipped by 22.2% y/y to ¥2.1 billion in the third quarter (Q3) when the increasing competition from generics took its toll. The sales of Chugai's renal, bone and joint as well as transplant, immunology and infectious diseases treatments such as stellar performer Epogen, Evista and Suvenyl also demonstrated a trend of steady growth. On the other hand, Chugai's overseas sales were dampened by the unfavourable currency fluctuation.

Outlook and Implications

Earlier this month, Chugai revised its forecast for the full-year performance by upwardly adjusting the outlook of total revenue, operating profit and net profit, which highlighted the company's confidence in a robust 2009, to be bolstered by Tamiflu sales and domestic growth in key therapeutic areas including oncology. Considering the potential scope of the influenza A/H1N1 pandemic and the lack of competing treatments on the market, the golden time Tamiflu sales have been enjoying this year is likely to continue in forthcoming quarters.

On the other hand, oncology is also likely to keep its position as a main income contributor, especially in the domestic market. To a large extent, the further growth of product sales will depend on the extension of indications, among which a string of new filings have been made during recent months including breast cancer treatment for Avastin and pancreatic cancer treatment for Tarceva. Chugai also submitted the regulatory approval applications for ED-71 (eldecalcitol) for osteoporosis treatment and RG-744 for renal anaemia treatment in October and July respectively this year.