Pfizer profit misses mark
By Ransdell Pierson and Lewis Krauskopf
NEW YORK (Reuters) - Pfizer Inc <PFE.N> on Thursday reported a worse-than-expected drop in quarterly earnings due to higher expenses and plunging U.S. sales of its cholesterol fighter Lipitor, sending its shares down almost 4 percent.
The world's biggest drug maker said first-quarter profit fell 18 percent to $2.78 billion, or 41 cents per share, from $3.39 billion, or 48 cents per share, a year earlier, when it took a big restructuring charge.
Excluding special items, Pfizer earned 61 cents per share. Analysts polled by Reuters Estimates had forecast 66 cents.
Shares of rival Swiss drugmaker Roche <ROG.VX> fell 3.52 percent on Thursday, after it missed forecasts, held back by lower sales of its Tamiflu flu drug and waning sales growth of cancer drugs.
Pfizer said it still expects earnings this year to grow as much as 11 percent, due largely to a cost-cutting program that has cut 25,000 jobs, or 23 percent of the company's work force, since late 2004.
"We see potential challenges in meeting this guidance," said Morgan Stanley analyst Jami Rubin, who noted Lipitor sales were $300 million below her forecast and the main reason for the first-quarter profit shortfall.
Company revenue fell 5 percent to $11.85 billion, shy of the $12.06 billion Reuters Estimates forecast. Sales would have fallen 10 percent if not for the weak dollar, which raises the value of overseas sales.
Natixis Bleichroeder analyst Jon LeCroy cut his rating on Pfizer to "hold" from "buy," citing "terrible" quarterly results and operating expenses 10 percent higher than anticipated.
He said limited cost-cutting prowess will impair Pfizer's ability to withstand the blow of generic forms of Lipitor, expected as soon as 2010.
"As Pfizer adapts to its scale, it needs to bring down costs and in this quarter the costs ran a bit higher than what we were expecting," said Morningstar analyst Damien Conover.
Despite tough obstacles, company Chief Financial Officer Frank D'Amelio vowed to protect Pfizer's dividend, whose industry-topping 6 percent yield has induced many investors to hold onto their shares.
"Significant unforeseen events aside, we expect to generate sufficient cash flow going forward to fund the dividend at least at current levels," D'Amelio said in an interview.
The dividend costs Pfizer more than $8 billion a year, roughly equivalent to the company's annual net income.
Global sales of Lipitor, the world's top-selling drug, fell 7 percent to $3.1 billion. U.S. sales of the medicine plunged 18 percent as patients opted instead for cheap generic forms of Merck & Co's <MRK.N> Zocor.
Lipitor failed to benefit from widespread publicity since January about the failure of Vytorin, a rival drug sold by Schering-Plough Corp <SGP.N> and Merck, to reduce artery plaque in a closely watched trial.
"What's surprising to people was that despite a positive currency tailwind and some disruptions in the cholesterol market related to Vytorin, they still weren't able to pull it out" and meet the consensus earnings expectations, said Miller Tabak health care analyst Les Funtleyder.
Pfizer has been unable to come up with enough blockbuster medicines to replace those that have lost patent protection, a concern that has driven its shares down to lows not seen since late 2005.
"It becomes a question of what do they do next, what do they do to reverse the negative momentum in the share price," Funtleyder said. "And the longer they wait to do something, as the valuation goes down, the less flexibility they have."
Pfizer attributed the sales decline primarily to the loss of patent protection on hypertension drug Norvasc and Zyrtec, an allergy medicine the company stopped selling in January.
Norvasc revenues were cut in half, to $513 million, while Zyrtec sales plunged 75 percent to $117 million. Arthritis treatment Celebrex edged up only 2 percent to $611 million, a marked slowdown from recent quarters.
Lyrica remained a revenue sparkplug, with sales surging 47 percent to $582 million due to its effectiveness against nerve pain and newly approved use against fibromyalgia. Sales of Sutent, another newer drug that is now the gold standard for kidney cancer, rose 86 percent to $190 million.
Chantix, which helps smokers quit, was another bright spot in the bleak earnings report, as its sales jumped 71 percent to $277 million.
Pfizer shares fell 82 cents, or 3.9 percent, to $20.28 on the New York Stock Exchange at mid-afternoon.
(Reporting by Ransdell Pierson; Additional reporting by Lewis Krauskopf; Editing by Brian Moss, Mark Porter, Richard Chang)