Pfizer, Lilly earnings drop on new generic rivals

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Pfizer ($PFE) and Eli Lilly ($LLY) are continuing the downward-sloping earnings trend that's dominated Big Pharma's fourth-quarter reports. Pfizer saw profits drop by half, while Lilly's earnings fell 27%. The culprit in both cases was generic erosion; Pfizer faced generic competition for its megablockbuster cholesterol drug Lipitor beginning Nov. 30, while Lilly has been trying since October to fend off copycats for its antipsychotic remedy Zyprexa.

Pfizer's earnings did beat market expectations, and the decline looks worse than it actually is because of a one-time tax settlement. But revenues also fell, and the company lowered its earnings forecast for the year. Drug sales dropped 6%, to $14.1 billion, dragging down overall revenues 3.5%. Ironically, it was once again Pfizer's animal health and nutritionals units that helped uphold the numbers; the soon-to-be sold or spun off businesses saw sales grow 13% to $1.1 billion and 22% to $598 million, respectively.

But it was the loss of Lipitor that really dragged Pfizer's numbers down. The pill's sales plummeted 24% to $2 billion, and that's with just one full month's worth of competition. The Lipitor drop in turn weighed on U.S. drug sales, which dropped 15%, twice as much as overall drug revenues. Just think how the first full quarter without Lipitor--Q1--might look, even if Pfizer's share of the Lipitor-and-its-generics market stays at its most recent 32% level.

Pfizer can take comfort, however, from Lilly. While Pfizer has several new drugs to sell, and a potential blockbuster, Eliquis, waiting in the wings, Lilly is less fortunate. Its new-product efforts are weighted on the spending side for now, as the company invests in new programs without yet seeing much fruit. Lilly's fourth-quarter net dropped to $858.2 million from $1.17 billion year-over year, and it reiterated its forecast of a big decline in earnings for the full year.

Again, it's generic competition causing much of the pain. Zyprexa's sales fell 44% for the quarter, faster than some analysts had expected. Lucky for Lilly, its antidepressant Cymbalta grew 20% and its diabetes drug Humalog 21%, so overall revenue only fell 2% to just over $6 billion.

Another plus: Analysts appear to be treating the company with patience, preferring to look forward to potential new products, particularly an Alzheimer's candidate that made it through a safety committee's review. "This quarter doesn't really matter," Leerink Swann's Seamus Fernandez told Bloomberg. "The most important thing for Lilly is that the solanezumab trial wasn't stopped."

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- read the Bloomberg story
- check out The Wall Street Journal piece
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