PREVIEW-Europe's woes cast shadow over Big Pharma results

* Worries over EU drug price cuts and impact of weak euro * Novartis kicks off European results season July 15

* Johnson & Johnson first U.S. drugmaker to report July 20

By Ben Hirschler, European Pharmaceuticals Correspondent

LONDON, July 12 (Reuters) - Drug price cuts triggered by Europe's budget problems and a weak euro will overshadow Big Pharma's second-quarter results season, which Switzerland's Novartis (NOVN.VX) kicks off on Thursday.

Concerns about Europe are increasing just as anxieties over U.S. healthcare reforms have abated, giving investors already concerned about the sector's patent expiries something new to worry about.

"Europe has been quite challenging for large cap pharma for a while but the question is, has it got worse? There are some fears that it has and investors are looking for reassurance," said Ben Yeoh, an industry analyst at Atlantic Equities.

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For graphic on companies see r.reuters.com/fej96m

For recent stories in EU price cuts see [ID:nLDE65T1ED]

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GlaxoSmithKline's (GSK.L) chief executive, Andrew Witty, who reckons European drug prices typically fall by around 3 percent annually, said last month that this year's reduction would be "above trend".

Drug prices are in the firing line across Europe as governments tackle record budget deficits, leading to some steep price cuts, particularly in southern Europe. Unpicking the impact for individual companies, however, is not easy and analysts say management comments on the issue will be scrutinised carefully.

For companies reporting in euros and sterling, currency swings will offer at least a partial offset. Dollar reporters face a tougher time.

2011 IMPACT MAY BE WORSE

Analysts at JP Morgan said last week they were modestly reducing sales and earnings estimates for leading U.S. drug companies as a result of a recent weakening in the euro and selected EU price cuts.

With the tough environment in Europe unlikely to ease any time soon, the impact could well be greater in 2011 than 2010.

Deutsche Bank analysts expect cautious statements from management teams at major European companies, although they believe the European reforms should prove manageable without downgrades to 2010 earnings forecasts.

European factors aside, the second quarter will mark a return to more normal trading conditions after the windfall gains enjoyed by many companies as a result of swine flu.

"The Swiss have profited strongly from pandemic flu and this falls away in the second quarter," said Vontobel analyst Andrew Weiss, referring to demand for Novartis's swine flu vaccines and Roche's (ROG.VX) Tamiflu drug.

"Novartis's quarter-on-quarter profit will drop significantly because it is missing pandemic vaccine sales and the second quarter tends to be a weak one for vaccines anyway."

Investors will watch carefully for comments on how Novartis's top-selling blood pressure drug Diovan is faring in the face of cheap generic copies of Merck & Co's (MRK.N) Cozaar. So far prescription trends suggest it is holding up.

COST SAVINGS

The second quarter also represents a return to basics for U.S.-based firms, after several quarters of worrying about U.S. healthcare reform, Morningstar analyst Damien Conover believes.

"This is the first quarter where investors really get to focus a little bit more on the fundamentals, which were strong in the first quarter and which we think will remain strong," he said.

Cost-cutting continues to be a theme throughout the industry, and particularly for Pfizer (PFE.N) and Merck, as the U.S. companies integrate their respective mega-mergers with Wyeth and Schering-Plough.

Cost savings "will continue to help the bottom lines grow a bit faster than the top lines," Conover said.

While updates on Pfizer's progress on the Wyeth deal will be in focus, the drugmaker has also recently been dealt a mixed bag of clinical trial news, including positive results for experimental lung cancer and blood clot treatments and safety worries over an arthritis medicine.

European companies also face a number of product specific swing factors, with the fate of Glaxo's diabetes drug Avandia hanging in the balance, while Roche's Avastin faces a key U.S. review in breast cancer and AstraZeneca's (AZN.L) Brilinta is scrutinised for heart patients.

Johnson & Johnson (JNJ.N), the giant diversified healthcare company, kicks off the U.S. reporting season on July 20, and analysts are eager to learn how the company is faring in fixing plant problems that led to a widespread recall of its children's Tylenol and other non-prescription medicines.

The episode threatens to damage J&J's reputation, while analysts trimmed their full-year forecasts after the company said last month it did not expect to restart production at the Pennsylvania plant for most products until at least next year. (Additional reporting by Katie Reid in Zurich and Lewis Krauskopf in New York; Editing by Greg Mahlich)