Net income rose 25 percent to $3.25 billion, or 43 cents a share, New York-based Pfizer said today in a statement. Earnings excluding one-time items beat by 8 cents the average estimate of 54 cents of 15 analysts compiled by Bloomberg.
Pfizer is reducing costs to counter eroding sales of its top-selling cholesterol pill Lipitor, which lost market exclusivity in November. The spinoff of the animal-health unit is part of Chief Executive Officer Ian Read’s plan to refocus the company on producing new drugs to replace Lipitor, once the world’s biggest-selling medicine.
“Read showed he is serious about cost cutting, and investors already rewarded him with a nice run-up in the stock price over the last 12 months,” Erik Gordon, a professor of business at the University of Michigan in Ann Arbor, said in an e-mail. “The new products have to pan out and Pfizer has to grow its non-U.S. sales in the face of a global slowdown. Both are riskier propositions.”
Pfizer shares rose 1.4 percent to $24.05 at 10:04 a.m. New York time. The stock had gained 9.6 percent this year through yesterday.
Expenses Drops
Revenue fell 9 percent to $15.1 billion in the quarter, led by declining sales of Lipitor, which dropped 53 percent to $1.22 billion. Adjusted expenses, including marketing, administrative and research and development costs, fell 16 percent to $8.27 billion. The company reiterated its 2012 adjusted earnings forecast of $2.14 to $2.24 a share.
“I’m not sure that cost cutting can’t continue in some form or fashion, especially as Pfizer has entered a period of a number of expiries,” Tony Butler, an analyst with Barclays Plc, said in a telephone interview. “Margins and the ability to hold back costs are much better than we as analysts predicted.”
Pfizer plans to sell the animal health business shares in the first half of next year, Read said. Along with the IPO, Pfizer plans to give current shareholders stock in the animal- health business, to be named Zoetis, he has said previously. The company hasn’t announced yet where the company will have its headquarters, nor said who will lead it.
In April, Pfizer agreed to sell its infant nutrition business to Vevey, Switzerland-based Nestle SA for $11.9 billion.
Money from the unit divestitures may be to be used for share buybacks, Read has said previously, calling such a decision “the case to beat,” compared with acquisitions and dividend payments.
Acquisition Alternative
The company has bid for other companies, including drugmaker Amylin Pharmaceuticals Inc., Bloomberg has reported. However, it hasn’t made a purchase worth more than $50 million during Read’s tenure, according to data compiled by Bloomberg.
“We remain open to all alternatives to maximize the after- tax return for our shareholders,” Read said in a statement accompanying the results.
The second quarter was the first in which Lipitor faced the full might of competition from generic versions of the pill. Six months ago, Ranbaxy Laboratories Ltd. and Watson Pharmaceuticals Inc. (WPI) were the only rivals.
Sales of Lyrica, used to treat pain, rose 14 percent to $1.04 billion. Enbrel, an injection to treat rheumatoid arthritis symptoms, generated $988 million in sales, an increase of 8 percent. Revenue from Prevnar, Pfizer’s vaccine for pneumococcal diseases, gained 12 percent to $916 million.
Pipeline Products
Pfizer is seeking U.S. Food and Drug Administration approval of tofacitinib, a rheumatoid arthritis treatment that may compete with Abbott Laboratories (ABT)’ top-seller, Humira. The FDA is scheduled to rule on the drug by mid-August.
Bapineuzumab, the Alzheimer’s disease drug being developed with Johnson & Johnson and Elan Corp., failed the first of four pivotal, final-stage clinical trials, Pfizer said on July 24.
The company is also seeking marketing clearance for Eliquis, a blood thinner that Pfizer is developing with New York-based Bristol-Myers Squibb Co. (BMY) The FDA rejected Eliquis in June, asking the companies for more information from existing trials.
The FDA could take as long as six months after the companies give regulators the data to respond. The agency hasn’t asked for a new clinical trial. The drug, aimed at patients with heart arrhythmia, would have $2.5 billion a year in sales by 2015 if approved, according to Tim Anderson, a Sanford C. Bernstein & Co. analyst in New York.
Pipeline Credit
Pfizer hasn’t gotten much credit from investors for the products the drugmaker is trying to develop, said Jami Rubin, an analyst with Goldman Sachs Group Inc. in New York.
“We continue to view Pfizer as very well positioned given a busy line-up of upcoming catalysts for which we see little value ascribed in the stock and could drive significant upside,” she said in a note to clients sent before Pfizer’s numbers were announced.
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