Generic Lipitor Hits Pfizer, View Trimmed - Analyst Blog


Pfizer Inc. ( PFE ) posted fourth quarter earnings of 50 cents per share, 3 cents above the Zacks Consensus Estimate and the year-ago earnings of 47 cents. Revenues, however, fell 4% to $16.7 billion, in-line with the Zacks Consensus Estimate. Despite a decline in revenues, a lower share count and cost control helped earnings increase from the year-ago period.

Full-year earnings came in at $2.31 per share, 4% above the year-ago earnings and 3 cents above the Zacks Consensus Estimate. 2011 revenues increased 1% to $67.4 billion, above the Zacks Consensus Estimate of $66.9 billion.

Including one-time items, fourth quarter earnings fell 47% to 19 cents.

The Quarter in Detail

While foreign exchange favorably impacted fourth quarter revenues by $157 million or 1%, operational factors impacted revenues negatively by $765 million or 5%. International revenues increased 3% to $10.4 billion, reflecting 1% operational growth and a 2% favorable foreign exchange impact. Meanwhile, US revenues declined 12% to $6.3 billion.

Biopharmaceutical products delivered fourth quarter revenues of $14.1 billion, down 6%. All units in the Biopharmaceutical segment posted a decline in sales.

The Primary Care unit recorded an 8% decline in revenues. Despite favorable currency movements and strong performances by products like Celebrex, Lyrica, Pristiq and Spiriva, Primary Care revenues fell due to the genericization of Lipitor and Caduet in Nov 2011. Generic competition for Lipitor, Caduet and Aricept impacted revenues by $775 million or 13%. King legacy products boosted revenues by $93 million, or 2%.

Lipitor, which posted revenues of $7.6 billion in the first nine months of 2011, was hit hard by the loss of exclusivity in the US. Despite making significant efforts to reduce the impact of generic competition, Pfizer saw Lipitor sales falling 42% to $816 million in the US after facing just a month of generic competition.

International sales fell 3% to $1.2 billion, with total sales falling 24% to $1.9 billion in the fourth quarter. Caduet sales fell 26% to $103 million.

The Specialty Care segment reported strong growth of Prevenar 7 in Japan and Enbrel in most developed markets. Total revenues, however, declined 5% to $3.8 billion. This was mainly due to the impact of the loss of exclusivity of Vfend and Xalatan in the US in February and March 2011, respectively.

Moreover, Prevnar 13 sales in the US were also impacted as a fewer number of patients received the catch-up dose. Generic competition impacted Specialty Care segment revenues by about $205 million or 5%  in the fourth quarter of 2011.

Meanwhile, the loss of exclusivity and increased competition for Effexor XR, Protonix and Zosyn in the US contributed to the 5% decline in Established Products revenues which came in at $2.3 billion. The loss of US exclusivity of the above-mentioned products impacted revenues by $208 million, or 9%.

Sales of oncology product Sutent increased 7% to $317 million. Wyeth legacy products like the Premarin family and Enbrel posted sales of $256 million and $925 million, respectively.

The fourth quarter also saw Emerging Markets performing below expectations with sales declining 4% to $2.3 billion. Performance was affected by several factors including unfavorable currency movement, increasing pricing pressure, changes in institutional purchase patterns in Turkey and Brazil, currency devaluation in Venezuela and the loss of exclusivity of Lipitor in Brazil and Mexico in 2010.

Both the Animal Health (up 13% to $1.1 billion) and Consumer Healthcare (up 8% to $817 million) segments recorded a growth in revenues. The addition of King's Animal Health products and  strong performance in the global livestock portfolio drove Animal Health results.

Growth in the Consumer Healthcare unit was driven by the non-recurrence of the temporary voluntary withdrawal of Centrum in Europe in the third quarter of 2010 and increased sales of core brands like Advil, Caltrate and Robitussin.

Nutrition revenues grew 22% to $598 million thanks to favorable currency movements, higher demand for premium products, new product launches and overall strength in China, Hong Kong and Middle Eastern markets.

Pfizer reiterated its intention to evaluate strategic alternatives for its Animal Health and Nutrition businesses. An announcement should be made between July 2012 and July 2013. Last year, Pfizer had sold off its Capsugel unit to Kohlberg Kravis Roberts & Co L.P ( KKR ).

Selling, informational and administrative (SI&A) expenses fell 6% to $5.3 billion during the quarter. R&D expenses fell 17% to $2.3 billion. Pfizer remains committed to its cost-containment efforts and should realize cost savings due to workforce reductions, actions taken with the R&D portfolio, as well as savings from a smaller physical footprint.

2012 Guidance Revised

Pfizer cut its earnings and revenue guidance for 2012 in order to reflect changes in foreign exchange rates from mid-October 2011 to mid-January 2012. Pfizer now expects earnings of $2.20 - $2.30 per share on revenues of $60.5 - $62.5 billion. Earlier, Pfizer was expecting to earn $2.25 - $2.35 per share on revenues of $62.2 and $64.7 billion in 2012. The Zacks Consensus Estimate currently stands at $2.29 per share.

Pfizer maintained its R&D guidance of $6.5 - $7.0 billion. Pfizer intends to focus on those disease areas which represent higher potential. However, the company reduced its SI&A spend to $17 - $18 billion (old guidance: $17.5 - $18.5 billion).

Lower R&D spend and share buybacks should help drive earnings. Pfizer expects to buy back shares worth $5 billion in 2012 under its current $10 billion share buyback plan.

We currently have a Neutral recommendation on Pfizer, which carries a Zacks #3 Rank (short-term Hold rating).

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.

This article appears in: Investing , Business , Stocks

Referenced Stocks: KKR , PFE

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