Pfizer 3Q profit jumps 26 percent on cost cutting

By LINDA A. JOHNSON

posted: 35 DAYS 11 HOURS AGO

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TRENTON, N.J. -Drugmaker Pfizer Inc. on Tuesday posted a 26 percent jump in third-quarter profit despite the recession, as sharp cost cuts made up for a dip in sales.

The maker of cholesterol fighter Lipitor, impotence treatment Viagra and smoking cessation drug Chantix slashed costs on everything from manufacturing and marketing to research and development to produce net income of $2.88 billion. That was up from $2.28 billion a year earlier, when the company had a big legal charge over improper promotion of its painkillers.

New York-based Pfizer will keep cutting costs, now that it has completed the biggest drug industry deal of the year. The $68 billion acquisition of Wyeth last Thursday cements Pfizer's position atop the industry, and the combined company is expected to eliminate nearly 20,000 jobs by the time integration is complete. Pfizer has cut 6,500 jobs in 2009.

Chief Executive Jeff Kindler told analysts the combined company has hit the ground running and will announce closures of research sites in one to three months and manufacturing sites in three to six months. Already, 112 senior Wyeth executives have accepted management posts, from country operations managers to leaders of three business units.

Pfizer had sales of $11.62 billion in the quarter, down 3 percent.

"I remain concerned by the unemployment (level). Unemployment takes people out of insurance, puts them in the cash market," said Pfizer's head of marketing, Ian Read.

He said a recent forecast by data firm IMS Health that U.S. pharmaceutical sales will grow 5 percent next year could be premature; he thinks the recession's impact may not be over.

"Overall, it was a decent quarter, driven by cost cutting," analyst Dr. Timothy Anderson of Bernstein Research wrote to clients. He said that excluding a 5 percent reduction due to unfavorable exchange rates, sales would have been up a "modest" 2 percent.

Sales declined up to 5 percent in the Pfizer businesses selling primary care, specialty care and cancer drugs. But the unit selling to emerging markets such as China and India saw sales rise 9 percent, excluding a big hit from exchange rates.

Chief Financial Officer Frank D'Amelio said in an interview Pfizer will continue investing in high-growth areas, particularly emerging markets.

"We've been adding sales people in China," and advertising more there and elsewhere in Asia, he said.

Pfizer also is partnering with India's Aurobindo Pharma Ltd. to make and sell generic versions of more than three dozen competitors' drugs in the U.S. and Europe, part of a long-term plan to boost sales in its established products unit, which sells off-patent drugs.

The primary care division, which produces half of Pfizer's revenue, saw sales fall 4 percent to $5.51 billion. Most of Pfizer's biggest sellers saw sales decline — some by double digits because of generic competition.

The one exception was Lyrica, for nerve pain and seizure control, with sales up 5 percent to $708 million.

Lipitor, the world's top-selling drug, had a 9 percent drop in sales to $2.85 billion because of lower sales in the U.S., where prescription benefit programs and cash-strapped, uninsured patients increasingly are opting for a generic version of another drug in the same class, Zocor.

Pfizer faces direct generic competition to Lipitor late in 2011, when it will rapidly lose most of the drug's $12 billion-plus annual sales. That's about one-the fourth of all Pfizer revenue and was a key impetus for the Wyeth deal.

Analyst Les Funtleyder of Miller Tabak & Co. wrote that Pfizer's "top line will remain lackluster for some time," but that he expects significant cost savings from the Wyeth integration. The companies have predicted $4 billion a year by 2012.

Pfizer said excluding one-time charges, earnings per share would have been 51 cents. Analysts were expecting 48 cents on revenue of $11.41 billion, according to a survey by Thomson Reuters.

The company updated its earnings forecast for 2009 to reflect Wyeth's impact. It expects earnings per share of $1.45 to $1.50, up from prior guidance of $1.30 to $1.45 per share. Revenue is expected to be $49 billion to $50 billion, up from $45 billion to $46 billion, as Pfizer will only receive revenue from Wyeth's products for part of the fourth quarter.

With the Wyeth acquisition, Pfizer has lucrative products in everything from traditional pills and animal and consumer health products to biotech drugs and vaccines. Those include Pfizer's painkiller Celebrex and blood pressure treatment Norvasc, plus Wyeth's antidepressant Effexor, children's pneumococcal vaccine Prevnar and Enbrel, a biotech drug for rheumatoid arthritis.

It also will have a better array of experimental drugs in development.

"You're going to see a number of really high-impact medicines coming out of this portfolio over the next few years," said Pfizer's head of pharmaceutical research, Martin Mackay.

In afternoon trading, shares of Pfizer rose 9 cents to $18.07.

2009-10-20 13:14:23