Drugmakers should deliver a solid set of quarterly results but investors will be watching for any signs of recession choking demand for more expensive treatments.

Healthcare is traditionally one of the last areas where consumers cut spending and the sector is faring far better than many downturn-hit industries, despite the long-term problems of multiple patent expiries and excess capacity.

We're going to see some pretty good results that will reaffirm the defensive nature of this industry, said Morningstar analyst Damien Conover.

Currencies, however, will muddy the waters, with a stronger dollar hurting U.S. companies while simultaneously boosting some European rivals.

Two diversified U.S. players -- Johnson & Johnson and Abbott Laboratories -- kick off the reporting season on April 14 and 15.

J&J warned in January that the weak economy was weighing on parts of its business, although results from unlisted Biomet on April 8 suggest that the orthopedic reconstruction market, at least, is holding up fairly well.

Investors in Abbott, meanwhile, will be closely watching sales of its arthritis drug Humira amid some signs of weakness in prescriptions for such expensive medicines.

We believe that the economic environment, rising unemployment, and resulting loss of insurance coverage is negatively impacting use of high-priced anti-TNFs, UBS analyst Bruce Nudell said in a research note, referring to Humira's class of drugs.

ENLARGED ROCHE

Roche Holding AG unveils first-quarter sales on April 16.

The Swiss group, which does not report quarterly profits, said a month ago it had performed strongly in January and February, and analysts are confident its market-leading position in cancer treatment will help keep it on track.

For the quarter, Roche group sales are expected to have grown 5 to 10 percent. Michael Leuchten of Deutsche Bank said there was a chance of a bullish outlook statement.

Importantly, Roche may also give an update on the integration process at Genentech, which is now a wholly owned unit following last month's $47 billion buyout.

Citigroup estimates Roche will derive 40 percent of its 2009-12 earnings growth from cost savings and reduced financial expensive in the wake of the Genentech deal.

A wild card is the outcome of a keenly awaited clinical trial on cancer drug Avastin that could, if positive, be a major catalyst for Roche shares. Headline results from the so-called C-08 study are also expected in mid-April.

After holding up well last year, drug stocks have lagged recently, with the American Stock Exchange's pharmaceutical index <.DRG>, which includes top U.S. and European companies, underperforming the broader market by more than 10 percent since the beginning of March.

I see them doing pretty well if we're in a prolonged recession, because I think in time eventually they're going to get the defensive play, Morningstar's Conover said. Regardless of your outlook on the economy, I think it's a good spot to be in.

Indeed, pharmaceuticals usually shine in a recession but their performance in this bear market has been lackluster, reflecting the deep-seated problems facing the sector.

A looming cliff of patent expiries, growing political pressure in the United States and elsewhere, and a lack of new drugs coming out of research labs mean drug companies are struggling with over-capacity, just like other industries.

In a bid to tackle the problem, Pfizer Inc

and Merck & Co Inc -- two companies facing the biggest earnings crunch -- are spending a combined $110 billion to buy Wyeth and Schering-Plough Corp respectively.

Investors will be looking for more information on how both plan to achieve their aggressive cost savings targets when they report quarterly results later in the month.

So far, they have not been followed down the mega-merger path by other Big Pharma groups.

But other drugmakers on both sides of the Atlantic are stepping up drives to diversify and stabilize their businesses by buying promising assets in emerging markets and biotech, albeit on a smaller scale to Roche's move on Genentech.

(Reporting by Ben Hirschler and Lewis Krauskopf; Editing by Gary Hill)

Medicine