Leaner Pfizer Earns Plaudits; Products In Pipeline

The fact that Pfizer has cut costs has been exciting Wall Street for the past year, with the share price rising 25% during that time. The fact that it has some promising new products in the pipeline and is dedicating itself to “reinventing” its research and development, as Bloomberg News puts it, should excite Madison Ave. and Broadcasters Row, such as they remain.

“The company has three drugs with the potential to generate $1 billion each in sales that could reach the market next year, reports Bloomberg’s Drew Armstrong, “including treatments for heart disease, Alzheimer’s and rheumatoid arthritis. Eliquis, a blood thinner, could be approved in the first half of 2013.” 

President, chairman and CEO Ian Read tells Armstrong that “on the research side, we’re before the middle innings, because it takes a longer timeline” than cutting expenses. “We need to make it easier for people to make an impact and get things done inside a company that has 100,000 colleagues.” 

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Investors are betting on that future, but they also like the improved profit picture despite decreased sales and revenues. Its profit of $3.25 billion in the second quarter was up from $2.61 billion a year ago and the adjusted earnings of 62 cents a share beat consensus Wall Street projections of 54 cents a share, reportsThe [New London, Conn.] Day’s Lee Howard.

This is against a backdrop of U.S. revenue falling 15% to $5.7 billion and non-U.S. revenue dropping 5% to $9.3 billion. Lipitor, which now faces generic competition in the U.S., was “hit hard by the loss of exclusivity,” according to a report from Zachs Equity Research posted on NASDAQ.com, but it says the company’s deal with Watson Pharma regarding the sale of an authorized generic version of Lipitor had a favorable impact on revenues.

"This quarter's beat was driven primarily by strong cost controls as well as better-than-expected gross margins," according to Seamus Fernandez analyst Leerink Swann in a note to investors cited by Howard.

“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, writes in an e-mail to Bloomberg’s Armstrong. “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.” 

The company said yesterday that the Food and Drug Administration has asked for a "routine" analysis of trial data for its rheumatoid arthritis drug tofacitinib, which could delay a decision by three months or more beyond an Aug. 21 agency deadline.

"We started investigating this product 20 years ago, so another three months is not that important," Read tells Reuters’ Ransdell Pierson.

A late-stage study of the experimental drug released yesterday shows that it works better than the standard treatment with methotrexate, according to the company. 

“Data from a planned interim analysis found that after six months of treatment, half of study participants getting tofacitinib had fewer signs and symptoms of the disorder, as well as less structural damage, than those getting methotrexate,” reportsBloomberg Businessweek’s Linda A. Johnson.

Morningstar analyst Damien Conover is bullish on the company, writing that “the investment community under-appreciates the cost-cutting potential at Pfizer as well as its late-stage pipeline.” He projects that two potential blockbusters, tofacitinib and Eliquis for atrial fibrillation, have an “85% chance of being approved” and launched by next year. 

A sale of Pfizer’s infant nutrition business to Nestle for S11.9 billion is pending and it says it plans to file with the SEC by mid-August to sell as much as 20% of its Zoetis animal-health business in a potential IPO as it renews its focus on bipeds.

Read tells the Wall Street Journal’s Peter Loftus and Tess Stynes “that it is open to ‘all alternatives’ for the business that would maximize after-tax shareholder return” without elaborating on what the other options might be. He also said the company might make “modest” acquisitions.

"If the IPO is successfully completed, which we are targeting for the first half of 2013, we will have a variety of options to achieve a full separation of Zoetis," Read says in a statement.

Seeking Alpha has published a transcript of Pfizer’s earning call yesterday here.

"Given the potential of our late stage and emerging pipeline, our strong operating cash flow, streamed line organization and disciplined approach to capital allocation, we remain confident that we are well positioned for long-term success," says CFO Frank D'Amelio.

The words “marketing” and “advertising” don’t pop up in a search of the transcript but as sure and Carter has pills, they will be playing a leading part in that positioning.

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