The leading treatment for Alzheimer's disease helped Eisai (OTC BB: ESALY), Japan's fourth-largest pharmaceutical company, report surprisingly strong results for the first half of its fiscal year, with profits rising 9% to $276 million. Foreign companies generally report their earnings every six months, in contrast to the quarterly reports common here in the U.S.
Aricept, the top-selling Alzheimer's treatment that Eisai co-markets with Motley Fool Inside Value pick Pfizer (NYSE:PFE), was a key factor in propelling earnings upward. The company also said that its epilepsy medicine Zonegran, which it acquired from Elan, contributed to the record profit, as did strong demand for its heartburn treatment Aciphex. But despite the good news, Eisai still faces stiff competition on the heartburn front from AstraZeneca's (NYSE:AZN) more famous purple pill, Nexium.
Alzheimer's is the leading cause of dementia in people 60 and older. It is estimated that 4.5 million people in the U.S. alone suffer from the disease and that by 2025, some 37 million worldwide will be afflicted. The treatment, though, like that of its competitor Namenda, marketed by Forest Labs (NYSE:FRX), only delays the progression of the disease. The difference lies in how the drugs address the disease: Aricept treats mild to moderate instances of Alzheimer's, while Namenda treats late-stage symptoms. Eisai had submitted an application to the Food and Drug Administration to approve Aricept for the treatment of moderate to severe cases of Alzheimer's, but the regulatory agency rejected the application because of deficiencies in the filing. The company will rectify those deficiencies and resubmit the application in December.
Eisai has been moving on licensing its vaccine boosters to other pharmaceutical companies. The vaccine division of Sanofi-Aventis (NYSE:SNY) will license Eisai's adjuvant E6020 to test its effectiveness on what may become a broad range of new vaccines. The booster works by increasing the body's antibody production and enhancing its natural immune system. In return for the non-exclusive agreement, Eisai will receive upfront payments, milestone payments, and royalties on product sales.
Vaccines have become a particularly hot topic these days, with the fear that avian flu could become a pandemic threat. Governments worldwide have been investing billions of dollars in developing treatments for the virus, and pharmaceuticals are looking to prepare themselves as well. In fact, Novartis' (NYSE:NVS) desire to bolster its vaccine division was a primary impetus behind its bid, which has just been accepted, for biotech Chiron (NASDAQ:CHIR).
Sales and profit growth have caused Eisai's share price to surge by about 33% since the beginning of the year. Eisai's free cash flow (operating cash flow minus capital expenditures) is up 25% over the same period last year, and the company has raised its forecast for full-year profits to $518 million. It also increased its interim dividend to $0.34 per share, up from $0.18 a year ago, and anticipates a full-year dividend of $0.69 per share, up from $0.48 last year.
Although setbacks like the FDA rejection have been few, Eisai will have to ensure that foolish slipups like deficient applications do not recur as it increasingly assumes a growing worldwide presence.
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Fool contributor Rich Duprey owns shares of Eisai but none of the other stocks mentioned in this article. The Motley Fool has a disclosure policy.
