Pfizer reports big drop in profit
Rising sales of Pfizer Inc's key new medicines and prospects that more drugs will be approved soon have analysts speculating that the biggest United States drugmaker will not break up after all.
For five years, the maker of Viagra and fibromyalgia and pain treatment Lyrica has been mulling a split-up that might enable the resulting pieces to grow faster.
The impetus seemed to come from analysts, not Pfizer management. Over that stretch, Pfizer bought several companies and products, boosting sales enough to eventually offset losses from a tsunami of generic competition to multiple big sellers, most notably cholesterol pill Lipitor. It reigned for nearly a decade as the world's top-selling drug, with peak
annual sales of US$13 billion.
Pfizer also attempted and failed at two mega-acquisitions, first of Britain's AstraZeneca Plc, and this year of Ireland's Allergan Plc. Both deals were structured as tax inversions, meaning that they would move Pfizer's headquarters - on paper only - from New York to the other company's base, to reduce Pfizer's US tax bill.
New rules issued by the US Treasury Department this spring that aimed to specifically block the US$160-billion Allergan deal succeeded and apparently axed that strategy.
"Our updated thinking is now that the company is NOT likely to split itself up," Sanford C. Bernstein analyst Dr Timothy Anderson wrote to investors Tuesday.
Pfizer executives fielded numerous questions on the issue as they discussed second-quarter results with analysts on Tuesday, repeating that they will decide by year's end.
"This is not a make-or-break decision for the company," Pfizer CEO Ian Read told analysts. "Each of our businesses is performing well."
The company even reorganised from three business segments to two, folding its vaccines, cancer drugs and consumer, products into its newly named innovative health business - a likely sign that it will remain one company and focus on more modest acquisitions and internal drug development.
Pfizer in June bought Anacor Pharmaceuticals Inc, which could soon launch a promising new eczema drug called Crisaborole, and on Monday bought Bamboo Therapeutics Inc, a privately held biotech company developing gene therapies for rare neuromuscular and central nervous system conditions. Pfizer expects approvals over the next year or so for new drugs for diabetes and leukaemia, and will soon launch in Europe two drugs selling well in the US Xeljanz for rheumatoid arthritis, and Ibrance for breast cancer. Meanwhile, the company's purchase of sterile injectable drugmaker Hospira last year made Pfizer the top seller of biosimilars near-copies of biologic drugs produced in living cells and it is building new factories for those in Massachusetts and China.
Despite those positives, investors sold off Pfizer shares after it reported a 23 per cent drop in second-quarter net income, to US$2.02 billion, or 33 cents per share. Higher production costs and charges for restructuring, acquisitions and litigation dragged down Pfizer's bottom line, even though it slashed its tax rate and revenue jumped 11 per cent to US$13.15 billion.
Pfizer still beat Wall Street's expectations. Its adjusted earnings amounted to 64 cents per share, two cents better than analysts estimated, and sales exceeded expectations by US$150 million.
In the quarter, sales of Xeljanz, Ibrance and Lyrica rose significantly, as did sales of clot preventer Eliquis, which it markets with Bristol-Myers Squibb Co.
However, its top seller, the Prevnar 13 vaccine against pneumonia and other infections, saw sales drop 16 per cent to US$1.26 billion. It protects against six more bacterial strains than original Prevnar, but the number of people getting Prevnar 13 "catch-up" shots for that extra protection is dropping.
Sales for the innovative health business rose 7 per cent to US$7.11 billion, while sales of older medicines with patents ending jumped 16 per cent to US$6.04 billion, mostly due to the Hospira purchase.
Sales of consumer health products were flat at US$837 million, and Pfizer brought in about US$570 million from its contract manufacturing operation, infusion systems and biosimilar drugs sold outside the US.
Pfizer affirmed its prior 2016 financial forecasts, for full-year earnings of US$2.38 to US$2.48 per share and revenue ranging from US$51 billion to US$53 billion.
In early-afternoon trading, shares fell 98 cents, or 2.6 per cent, to US$36.33, as the broader markets declined.
At current prices, the stock remains inexpensive relative to peers, but this has often been the case over the last decade, Anderson wrote.