Drug Giants Post Mixed Results
Pfizer, Schering-Plough Battle Weak Sales of Cholesterol Drugs
By PETER LOFTUS
OCTOBER 21, 2008, 10:41 A.M. ET
Drug makers Pfizer Inc. and Schering-Plough Corp. posted mixed third-quarter results as both companies cut costs and tried to overcome weakness in the market for cholesterol drugs.
Pfizer's profit tripled from a year-earlier period weighed down by heavy costs for a scrapped product, but flat quarterly sales reflected generic competition in the U.S. Schering-Plough's profit declined 21% from a year-earlier period that was boosted by one-time gains, while sales jumped 63% thanks to the acquisition of Organon BioSciences late last year. Both companies reported earnings excluding one-time items that were ahead of analysts' expectations.
Pfizer and Schering-Plough displayed their "ability to manage their cost structure," said Edward Jones analyst Linda Bannister. Also, both companies posted strong sales outside the U.S., partly due to favorable exchange rates.
New York-based Pfizer said it was ahead of schedule in a cost-cutting program launched last year, and boosted its targeted reductions for 2008. Among other measures, Pfizer has cut its work force by 14,600 positions since January 2007.
Pfizer, the world's biggest drug maker by sales, has been battling generic competition for its top drugs, and its best-selling drug, the cholesterol-lowering Lipitor, loses patent protection in 2011. At the same time, it has had trouble bringing new products to market and has responded by cutting costs and revamping its drug research efforts.
For the three months ended Sept. 28, Pfizer said net income rose to $2.28 billion, or 34 cents a share, from $761 million, or 11 cents a share, a year earlier.
The latest quarter included a charge of $640 million for Pfizer's settlement of the bulk of litigation surrounding its pain drugs Celebrex and Bextra, and a charge of $150 million related to adjustments to prior years' product-returns liabilities. The year-earlier quarter included a charge of $2.1 billion related to Pfizer's decision to stop selling inhaled insulin Exubera.
Excluding the one-time items, earnings would have been 62 cents a share in the latest quarter, up from 58 cents a share a year earlier. The mean earnings estimate of analysts surveyed by Thomson Reuters was 60 cents a share.
Pfizer's third-quarter revenue eased to $11.97 billion from $11.99 billion, falling just short of the Thomson forecast of $12.01 billion. Pfizer said revenue was hurt by a $217 million adjustment to prior years' liabilities for product returns.
U.S. revenue declined 15% to $4.9 billion, while sales outside the U.S. rose 13% to $7.1 billion. The U.S. share of total sales dropped to 41% from 48% a year earlier.
Pfizer's pharmaceutical sales fell 1% to $11 billion, including a favorable impact of foreign-exchange rates of five percentage points.
Pfizer's top drug, Lipitor, had sales of $3.1 billion, down 1% from a year earlier. U.S. Lipitor sales dropped 13%, while non-U.S. sales rose 16%, helped by the weaker dollar. Lipitor's quarterly sales have bobbed up and down over the past few years, but the drug generally is under pressure from the availability of cheaper, generic options for cholesterol treatment.
Pfizer also said the global market for cholesterol drugs is facing decelerating market growth "and increasing cost constraints."
Pfizer's sales were hurt by declines in drugs that have lost U.S. market exclusivity, including blood-pressure treatment Norvasc, cancer drug Camptosar and allergy treatment Zyrtec.
Still, there were areas of growth. Pain drug Celebrex had third-quarter sales of $625 million, up 8% from a year earlier. Another pain drug, Lyrica, had sales of $675 million, up 45%.
Chantix, Pfizer's smoking-cessation drug, was previously a strong performer but this year has been linked to psychiatric side effects. Sales fell 24% to $182 million. Pfizer said it recently relaunched consumer advertising for the drug, which is known as Champix outside the U.S.
For full-year 2008, Pfizer has narrowed its revenue forecast to a range of $48 billion to $49 billion, from a previous range of $47 billion to $49 billion. Pfizer now expects earnings excluding items of $2.36 to $2.41 a share, versus a previous view of $2.35 to $2.45 a share. For 2008, analysts were expecting earnings of $2.37 a share on revenue of $48.73 billion.
Schering-Plough on Firmer Ground
Schering-Plough, Kenilworth, N.J., doesn't face the same degree of pressure from generic competition that Pfizer does.
"All in all, Schering has a very strong pipeline and solid operations," said Bert Hazlett, analyst with BMO Capital Markets. "We expect them to post solid earnings growth for the next several years, given the lack of material patent expirations they have."
However, Schering-Plough isn't without challenges. The cholesterol drugs Schering-Plough co-markets with Merck & Co. have had declining sales this year due to questions surrounding their effectiveness and safety. Combined sales of Vytorin and Zetia dropped 15% to $1.1 billion, Schering-Plough said, with lower U.S. sales partly offset by increased sales outside the U.S.
Schering reported third-quarter net income of $589 million, or 34 cents a share, down from $750 million, or 45 cents a share, a year earlier.
Excluding a divestiture-related gain and acquisition-related costs, earnings rose to 39 cents a share from 28 cents. The mean earnings estimate of analysts surveyed by Thomson Reuters was 31 cents a share.
Sales rose to $4.58 billion from $2.81 billion, ahead of the Thomson forecast of about $4.49 billion.
Like some of its rivals, Schering-Plough is weathering the U.S. economic downturn through strong overseas growth. In September, Fitch Ratings noted that only one-fourth of Schering-Plough's second-quarter pharmaceutical revenue was from the U.S.
Sales of anti-inflammatory drug Remicade rose 32% to $564 million. Schering markets the drug outside the U.S., while Johnson & Johnson markets it in the U.S. Sales of brain-tumor treatment Temodar jumped 27% to $273 million. Sales of allergy treatments Nasonex rose 6% and Clarinex rose 3%.
Schering has run up against a more cautious Food and Drug Administration this year. In August, the FDA rejected Schering's application to market an experimental surgical drug despite the favorable recommendation of outside advisers to the FDA. And Schering disclosed Tuesday that the FDA has missed the deadline for a decision on an experimental Schering-Plough antipsychotic, asenapine.
Schering is now cutting costs to respond to the challenges. In April, the company embarked on a plan to generate annual savings and synergies of $1.5 billion by the end of 2012. This included its September announcement of the elimination of 1,000 U.S. sales representatives, or about 20% of the field force.
Schering Chief Executive Fred Hassan said Tuesday the company continues to eye cost cuts in every part of its business. "Our goals have been to take costs out of the system to become more efficient," he told analysts during a conference call.
online.wsj.com |
