Pfizer sees healthier bottom line

Wednesday, August 01, 2012    

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Drugmaker Pfizer's second-quarter net income jumped 25 per cent as sharply lower costs for production, marketing and restructuring more than offset a plunge in revenue from cholesterol fighter Lipitor due to increasing generic competition.

The world's biggest drugmaker easily beat Wall Street expectations. Pfizer's stock rose 73 cents, or 3.1 per cent, to US$24.43 ($2,200) in morning trading.

The Viagra maker, based in New York, said yesterday that its net income was US$3.25 billion, or 43 cents per share, up from US$2.61 billion, or 33 cents per share, a year earlier.

Excluding one-time items, adjusted net income was US$4.67 billion, or 62 cents per share. That beat Wall Street expectations for 54 cents per share.

Revenue totaled US$15.06 billion, down nine per cent from US$16.49 billion a year ago. It still topped expectations for US$14.93 billion, according to FactSet.

Analyst Dr Timothy Anderson of BernsteinResearch wrote to investors that Pfizer's strong profit "was primarily driven by better revenues, better gross margins, and lower" selling, general and administrative spending. Profit margins on product sales were wider than expected, he noted.

The company noted that sales lost to generic competition cost it about US$2 billion in the quarter.

That's mainly because Lipitor, which reigned as the world's top-selling drugs for years and had peak global sales of US$13 billion a year, got US generic competition on November 30. Early sales losses to two generic versions were slowed by Pfizer's ground-breaking strategy to keep patients on its brand as long as possible. That included offering prescription plans huge rebates to exclusively cover Lipitor for the first six months and patients discount cards to get the pills for a US$4 monthly copayment, which continue. But the insurer rebates stopped at the end of May when many more generic versions flooded the market and prices plunged for all the generics.

As a result, during the quarter US Lipitor sales nosedived 79 per cent, to US$296 million from US$1.4 billion in the second quarter of 2011. Total Lipitor sales were down 53 per cent, to US$1.22 billion.

Newer drugs, particularly pain reliever Lyrica and Prevnar 13, a vaccine against ear infections, meningitis and other effects of pneumococcal disease, showed sizable sales jumps that helped pick up the slack.

Lyrica sales jumped 14 per cent to US$1.04 billion and Prevnar 13 sales rose 8 per cent to US$916 million, while sales of an older version protecting against fewer strains of pneumococcal disease fell 46 per cent to US$84 million. Sales of Enbrel, for rheumatoid arthritis and other immune disorders, rose 8 per cent to US$988 million.

Still, total pharmaceutical sales fell 10 per cent, to US$13.14 billion. Sales of veterinary medicines edged up 3 per cent to US$1.09 billion, while sales of consumer health care products, such as ChapStick and Centrum vitamins, increased 8 per cent to US$768 million.

Analyst Erik Gordon, a professor University of Michigan's Ross School of Business, said the question is what the impact will be from Pfizer's cost-cutting in research, sales force and administrative spending, and "whether Pfizer can move out of shrink-the-company mode and back to growth mode. That hope depends on the success of its late-pipeline new drug candidates and its ability to grow non-U.S. sales."

Overall, Pfizer said U.S. revenue fell 15 per cent to US$5.7 billion, while international revenue declined only 5 per cent, to US$9.3 billion. The company noted unfavorable exchange rates cut revenue by about 3 per cent.

"I am confident that Pfizer is well-positioned for long-term success given the potential of our innovative late-stage and emerging pipeline, strong operating cash flow, streamlined organization and disciplined approach to capital allocation," CEO Ian Read said in a statement.

Pfizer maintained its 2012 forecast for adjusted earnings per share of US$2.14 to US$2.24 and revenue of US$58 billion to US$60 billion.

Pfizer said it remains on track for the pending sale of its nutrition business, for US$11.85 billion to Swiss food and drink giant Nestle SA, and the potential separation of its animal health business. The company said it expects to register with the Securities and Exchange Commission by mid-August for a potential initial public offering of up to a 20 per cent stake in the company, to be called Zoetis.

"If the IPO is successfully completed, which we are targeting for the first half of 2013, we will have a variety of options to achieve a potential full separation of Zoetis," Read said.



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