Analysis: Pfizer's Q2 disappoints

WASHINGTON, July 18 (UPI) -- Pfizer's second quarter profits plunged 48 percent, a loss the company attributed to the patent expirations of Zoloft and Norvasc and lackluster sales of Lipitor.

Goldman Sachs analyst James Kelly expected Pfizer's stock price to take a hit in light of the company's poor second quarter.

"We would expect the shares to trade lower, as this report is clearly disappointing," Kelly stated in a research report.

But he noted the stock would find some protection from its already low valuation and the fact that Pfizer maintained its earnings guidance over the next couple of years.

Pfizer's stock was down 3.66 percent at $25.01 in late-day trade Wednesday.

Kelly said the main culprit for Pfizer's poor performance was drops in revenues of key products.

"The downside was primarily driven by revenues, with U.S. sales 14 percent below our view," he stated.

Worldwide pharmaceutical revenues for the quarter came in at $10.1 billion, a 7 percent decrease from the year-ago period.

Lipitor, with sales of $2.72 billion, was down 13 percent worldwide and 25 percent in the United States.

Goldman Sachs told United Press International Kelly was not available for comment.

Pfizer reported Wednesday its earnings per share for the second quarter came in at $0.42, falling just short of Wall Street's consensus estimate of $0.50. The pharmaceutical giant's revenues at $11.1 billion also missed the consensus expectation of $11.4 billion.

Net income plunged 48 percent from the year-ago period, dropping from $2.4 billion in the second quarter of 2006 to $1.3 billion this quarter.

Despite the poor performance, Pfizer said it was not adjusting its earnings guidance for this year or next.

"While there's no question that we faced difficult challenges in the second quarter of 2007 -- including the impact of the loss of U.S. exclusivity for Zoloft and Norvasc, the timing of some expenses and Lipitor's performance in the U.S. -- we're still on track to meet our previously announced 2007 and 2008 revenue and adjusted diluted earnings per share goals.," said Jeffrey Kindler, Pfizer's chairman and chief executive officer.

Kindler blamed the decline in Lipitor sales primarily on changes in the U.S. wholesaler inventory levels and differences in reconciliation of internal and external data. But, he added, these factors are not expected to have a negative impact on Lipitor sales for the remainder of the year.

Positive trends included a 49 percent increase in Lyrica revenues, a 50 percent rise in Caduet revenues and a 23 percent jump in Vfend revenues.

Bear Stearns analyst John Boris, who reiterated his peer perform rating of the stock, said Pfizer's mid-year price increase on its key products will help it generate an additional hundreds of millions in sales in the second half of the year and also ease the hit from the launch of generic Norvasc.

The price increase, which became effective July 14th, applies to Viagra, Chantix, Geodon, Sutent and Celebrex.

Boris, who projects the price increases will generate an extra $225 million to $350 million in sales, stated in a research report that each $100 million realized in additional sales corresponds to $.01 of earnings per share.

Products that did not see a price increase include Lipitor, Caduet, Lyrica, Exubera and Eraxis. But Boris said he anticipates Pfizer will apply its customary price increase across its entire product line in early January.

Regarding the Norvasc competition, Boris said, "the added revenue (from the price increase) offsets 55 percent - 80 percent of projected lost sales from the early launch of generic Norvasc."

Mylan, Apotex, UDL and Pfizer's own Greenstone are now selling generic formulations of the drug.

However, Pfizer is looking at stale growth of several of its key products that will leave a gap the company may struggle to fill.

Boris projects Lipitor and Celebrex will see negative growth, while Viagra will remain neutral.

"These products represent three of Pfizer's five largest franchises and account for 44 percent of U.S. pharma sales," he stated. "Stronger (prescription) trends on other key brands (Lyrica/Chantix/Geodon - accounting for 11 percent of U.S. sales) is encouraging but not enough to offset patent expirations and anemic trends of mature franchises."

Bear Stearns told UPI Boris was unavailable for comment.