Pfizer posted higher profits for the second quarter. That's the good news. The not-so-good is that sales dropped by 9%, thanks to increased competition for the newly off-patent Lipitor. The increase in profits came on the back of cost cuts across the company ($PFE), including big reductions in R&D.
The stronger dollar didn't help Pfizer's sales, either, and the 9% revenue decline--to $15.06 billion--was actually better than the 12% analysts had expected. Earnings also beat forecasts at 43 cents per share. And the company affirmed its earnings guidance for the year, figuring that it can overcome the currency hit.
High-school coaches call them "rebuilding years." Pfizer's 2012 is more of a refining year. The company has been refocusing itself on what CEO Ian Read calls its "innovative core," a.k.a., the branded drugs business. It's in the process of selling off its nutrition unit to Nestle. And it's moving right along with its animal health spinoff; today, Pfizer said it would file IPO documents with the Securities and Exchange Commission this month, for a 20% stake in the newly dubbed Zoetis unit.
Whether these two units are the last to be shed is open to debate. Some analysts have been calling for even more focus on biopharma, which would mean selling off consumer healthcare and, perhaps, the "established products" unit that focuses on off-patent drugs (and actually grew by 17% for the quarter). In an interview earlier this year, Read told Goldman Sachs analyst Jami Rubin that he'd consider more sales or spinoffs, if they made sense for shareholder returns.
Whatever Read chooses going forward, the company needs to beef up its branded drug sales--and that means making up the Lipitor gap. Primary care sales were down 25% year-over-year thanks to Lipitor erosion; the once-mighty cholesterol pill brought in just $383 million during the period, compared with $1.3 billion last year. Specialty sales also dropped, as Prevnar vaccine sales lagged and the antipsychotic Geodon lost patent protection. And new-drug candidates have met mixed success lately; an Alzheimer's hopeful failed a recent trial.
"Read showed he is serious about cost cutting," Erik Gordon, a professor of business at the University of Michigan in Ann Arbor, told Bloomberg, summing up the quarter. "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."