Pfizer Posts Strong Profits, Faces Strong Headwinds

By Ryan Cole,

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Pfizer (NYSE: PFE ) reported second quarter earnings that beat analyst estimates. However, with the loss of Lipitor exclusivity and Viagra next to go, the future remains challenging.

Pfizer's net income increased in the quarter, jumping 25 percent to $3.25 billion from $2.61 billion a year ago. Earnings minus one-time items reached 62 cents a share, beating estimates by eight cents.

Those increases, however, are the result of cost-cutting measures as opposed to top-line growth. The cost of sales dropped 23 percent, with research and development spending falling 24 percent. Administrative costs decreased 17 percent.

Meanwhile, revenue also fell 9 percent to $15.1 billion, with Lipitor sales alone dropping 53 percent to $1.22 billion.

Ever since the cholesterol drug lost exclusivity last November, sales have been in freefall. U.S. sales have been especially hard hit, falling 79 percent. Without another blockbuster drug in the pipeline, Pfizer is going to have to work hard to find solid growth moving forward.

Steps are being made in a positive direction, as Pfizer plans to spin off up to 20 percent of its animal health business in an initial public offering (IPO) this August. The goal at that point, according to CEO Ian Read, is to then focus the company on development, a renewed quest to find the next Lipitor.

To that end, Pfizer is also selling its nutrition unit to Nestle for $11.85 billion. The unit mostly makes baby formula.

Slimmed down and streamlined, the new Pfizer may indeed prove as profitable as analysts expect. However, at the moment the company lacks any real breakthroughs in its pipeline and it faces significant headwinds, as Viagra and other moneymaking drugs are losing exclusivity this year.

Pfizer remains one of the strongest pharmaceutical companies in the world, but for the short-term foreseeable future there aren't many things to like at the moment. Growth may have to come from the acquisition of smaller biotechs with promising drugs. While that path can work quite well, it will prove more costly than home-grown talent.

Until Pfizer's pipeline replenishes, expect to see plenty of quarters with solid revenues but few chances for outsized growth.

(c) 2012 Benzinga does not provide investment advice. All rights reserved.

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

This article appears in: Investing Stocks
Referenced Stocks: PFE

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