Beyond the Q2 numbers, three big questions for Pfizer

Pfizer beat analyst expectations for earnings. That's not as positive as it sounds, and it's certainly not the whole story. The beat amounted to one penny. Revenue grew by just a smidgen. The company cut its full-year sales projections because of the expected hit from earlier-than-expected Celebrex generics. And Pfizer ($PFE) managed to maintain its full-year EPS forecast mostly via projected cost cuts in sales and admin.

But frankly, all those numbers are footnotes to market-watchers. After an ugly first quarter, expectations for Q2 weren't high. What do people really care about? These three questions:

Will Pfizer go back to AstraZeneca ($AZN) with a new-and-improved buyout bid? After that acquisition attempt failed, the scales fell from the eyes of investors who had been focused on a potential Pfizer breakup. Now, the conventional wisdom is that Pfizer needs a deal--whether it's AstraZeneca or someone else--to build some strength. Either that, or prove that it's perfectly fine without one.

How well did Pfizer's three new business units perform this quarter? After all, it's those numbers that could make CEO Ian Read's breakup brainstorm--or not. Those numbers are the reason why he engineered that three-way internal split, which went into effect in January.

And finally, what the heck does Pfizer plan to do about R&D?

The first answer won't come Tuesday. We'll get hints from the call with analysts scheduled for 10 a.m. Eastern time, but no absolute commitment either way. That won't stop people from trying to parse Read's words--including us--but the hunt for subtext will be just that.

The other two? As ISI Group analyst Mark Schoenebaum notes, there wasn't much change in the three new business segments. The established products unit--a.k.a. generics and soon-to-go-off-patent meds--still accounted for the lion's share of revenue and before-tax profits, at $6.5 billion and about 59% respectively. Established products sales beat the other two units--global innovative products; and vaccines, oncology and consumer health--combined.

But here's the thing: The established products business saw sales drop for the first half of the year, to $12.5 billion from $13.782 billion. And the unit includes Celebrex, which is set for generic competition by year's end. Before a surprise patent ruling earlier this year, Pfizer expected Celebrex to keep pumping out brand-level sales till the end of 2015.

Now, Pfizer is cutting its full-year revenue forecast by $500 million, citing those earlier-than-expected rivals. Just by nature of the fact that the GEP unit includes soon-to-go-off-patent and recently-off-patent meds, Pfizer will have to grow in emerging markets, where branded generics are big--and buy in new products, as it recently did with the $360 million deal for InnoPharma and its generic injectables--to make up for generic erosion.

Meanwhile, vaccines, consumer health and oncology all grew, for the quarter and the first half. That business unit won't outstrip established products anytime soon, but the trajectory is certainly more positive.

As for R&D, Pfizer says it's set to file for FDA approval on its most-talked-about new prospect, palbociclib, by August. That would imply an FDA decision next spring. But as FierceBiotech notes, the fact that palbociclib is Pfizer's best current prospect isn't as impressive as it once was, with recent data putting a bit of a damper on hopes. A broader picture of new-drug prospects should come during the analyst call. We'll keep you updated.

- read the Pfizer release (PDF)

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