Pfizer 2Q mixed, maintains 2013 outlook
Pfizer’s second-quarter net income more than quadrupled, helped by the sale of its animal health business and a gain from settling litigation.
The world’s second-largest drugmaker beat Wall Street’s earnings expectations, though revenue continued to decline due to expired patents on former blockbuster drugs that once brought Pfizer sales of well over $1 billion a year.
Meanwhile, just a day after Pfizer announced it will reorganize into three businesses starting in January, analysts peppered company executives on a conference call with questions about how soon it could split up into multiple companies. Pfizer said that would take at least three years, but it hasn’t decided to do so.
The company noted unfavorable exchange rates cut revenue by 3 percent. Worse yet, Pfizer said growth is slowing in emerging markets such as China and India.
The company now expects that revenue to climb in 2013 by only a mid-single-digit percentage, down from prior forecasts of high-single-digits. That’s worrying because the pharmaceutical industry has pinned most hopes for future growth on those countries, as western governments continue to try to rein in prices.
“The emerging markets did not grow as fast as we expected,” Pfizer CEO Ian Read told The Associated Press in an interview. “This is in part due to some slowing up of purchases and some pricing pressure” by governments in emerging markets.
Still, the biggest problem was a continuing revenue decline due generic competition. The worst hit has been on cholesterol fighter Lipitor, which was the world’s best-selling drug for nearly a decade until it lost exclusivity in the U.S. late in 2011 and in much of Europe last year. Revenue from Lipitor, which once brought in nearly $13 billion a year, dropped 55 percent to $484 million in the second quarter. Meanwhile, generic rivals also hurt sales of Alzheimer’s symptom treatment Aricept and Spiriva, an inhaler for respiratory conditions.
When drug patents expire, generic versions flood the market and their prices eventually drop up to 90 percent. Most patients quickly switch to them.
Read told the AP that from now through 2016, Pfizer each year faces patent expirations for drugs with annual sales totaling $3.5 billion to $4 billion.
Many analysts have “Buy” recommendations for Pfizer, though, because of promising new and experimental drugs.
Pfizer, which makes Viagra and the pain medicines Lyrica and Celebrex, earned $14.1 billion, or $1.98 per share. That compares with $3.25 billion, or 43 cents per share, a year earlier.
Pfizer, long under pressure to boost what shareholders get from its dividends and share price appreciation, has been working to sell off non-core businesses and focus on prescription medicines, particularly for disorders lacking good treatments.
The company’s second-quarter profit jumped mainly on the spin-off of its animal drug business, completed in late June when it divested its remaining 80 percent stake in the new company, called Zoetis Inc. That gave Pfizer an after-tax gain of $10.6 billion, bringing its total take from the spinoff to $17.2 billion.
New York-based Pfizer also received $1.4 billion from a patent settlement with two companies that sold generic versions of popular heartburn treatment Protonix while they were challenging its patent, which hadn’t yet expired.
Excluding those gains, earnings were 56 cents per share, a penny better than expected.
The company said overall revenue fell 7 percent to $12.97 billion, just short of the $13.21 billion analysts polled by FactSet had predicted.
In midday trading, shares were up 23 cents at $29.77.
Pfizer has already divested its nutrition and capsule-making businesses and on Monday announced a reorganization into three divisions.
One will be devoted to products that have lost patent protection, or will through 2015. Those include Viagra, Celebrex, Lyrica and antibiotic Zyvox — but only in some countries. Another division will handle drugs with years of patent protection remaining. The third that will sell vaccines, cancer medicines and consumer products such as Centrum vitamins.
Leerink Swan analyst Seamus Fernandez said the restructuring “offers greater flexibility to continue the current shareholder friendly strategy of further focusing the business on its core operating businesses.”
Pfizer also announced plans to repurchase $10 billion in company shares, on top of $3.1 billion remaining under its previous buyback program.
Revenue from Prevnar 13, a vaccine for ear infections, meningitis and other pneumococcal infections, fell 3 percent to $969 million. Prevnar is the biggest-selling vaccine in history, with nearly $4 billion in yearly revenue.
Sales of Lyrica, for fibromyalgia and other pain, grew 10 percent to $1.13 billion, and anti-inflammatory pain reliever Celebrex rose 8 percent to $715 million.
Sales of impotence drug Viagra were nearly flat at $484 million despite a precedent-setting move in May to start selling it online to counteract massive counterfeiting on the Internet.
Linda A. Johnson can be followed at http://twitter.com/LindaJ_onPharma
AP Business Writers Matt Perrone in Washington and Michelle Chapman in New York contributed to this report.