Pfizer Q3 Sales Dip, Profitability Rises on Cost-Cutting Measures

U.S. pharma major Pfizer has reported financial results for the third quarter and nine months ending 30 September 2008. Revenues for the third quarter were down marginally to US$11.9 billion, with contribution from the U.S. pharmaceutical market dropping by 15% year-on-year (y/y) to US$4.5 billion. Favourable foreign-currency exchange rates boosted international pharmaceutical revenues to US$6.4 billion, a growth of 14% y/y. Pharmaceutical sales were also impacted by a US$217-million adjustment to the prior year's product return liabilities. In terms of expenditure, the firm did well to curb selling, informational and administrative, and research and development costs by 7% and 6%, respectively. Particularly, the cost of sales dropped by 54% y/y, positively added to the operating income. Net income for the quarter under review jumped 199% y/y to US$2.2 billion. For the nine months ending 30 September 2008, net revenues were up 1% to US$35.9 billion.

The product portfolio revenue split reflects a weakening of top-line sales growth in its key therapeutic segment—cardiovascular. Other products, namely Lipitor, Norvasc, Chantix/Champix and Caduet, demonstrated lower sales growth, adding support to the company's decision to exit discovery research in certain cardiovascular drug classes. Although the majority were due to intense generic competition in the statin drugs market, Champix witnessed a 24% drop, attributable to growing concerns over psychiatric side-effects relating to the drug, particularly in the United States, with sales dropping by 69% y/y in that market.

On the positive front, products that have performed well include Lyrica, Geodon, Aricept, Viagra, and Zyvox. Oncology drug Sutent ended the quarter with a 49% growth, thereby mitigating some of the losses pertaining to Camptosar.

Extension of Fablyn Review

Meanwhile, Pfizer announced that the U.S. FDA has extended the review period for its osteoporosis drug Fablyn (lasofoxifene) by another three months, Reuters reported. The regulator observed that the extension would be utilised to the five-year data relating to the product's clinical trial called Pearl. The next FDA action date will be in January 2009. The product was developed by Pfizer in partnership with Ligand Pharmaceuticals as a once-a-day drug intended to treat osteoporosis in post-menopausal women, the source adds. The drug was rejected by the FDA in 2005 but, last month, an advisory panel extended a cautious nod to the marketing of the drug despite concerns over side-effects such as vaginal bleeding and blood clots.

Outlook and Implications

Pfizer's financial performance for the quarter under review was slightly below market expectations. The firm's dip in top-line growth for the second quarter this year will feature as a concern, affecting potential future growth prospects. The positive track record in curbing costs was maintained in the current quarter, which helped to sustain profitability. The firm has cut its workforce by 14,600 since early 2007 and is expected to continue to explore avenues for maintaining the cost structure trend followed so far. In accordance, Pfizer announced that it hopes to achieve a goal of reduction of absolute adjusted total cost by at least US$2 billion by the end of 2008. The financial guidance for the full year was also clarified, with net revenue range narrowed to US$48-49 billion. The firm also expects the full-year figures to reflect in part charges associated with the resolution of certain non-steroidal anti-inflammatory drug litigation. Contributions from the international markets are expected to grow in the ensuing quarters, even as economic pressures constrict the U.S. market, resulting in possible challenges to pricing and reimbursement activities.

The extension of the FDA review time will not necessarily be viewed as a setback for Pfizer as the firm gained some confidence in receiving support from the advisory panel last month. It is significant to note here that the FDA is not obligated to follow the recommendations of the panel. The three-month extension will be utilised by the FDA to review the efficacy of the drug as the safety profile was established at the earlier FDA panel meeting. Persistence with Fablyn could pay off with a potential 2009 launch date.

On Pfizer's future growth strategy, the firm has mentioned mergers and acquisitions as a key avenue that would add to its top-line growth. However, top management have adopted a cautious outlook on product and company acquisitions, resolving to focus on small-to-medium-sized firms in the US$500-million range. Although there is no suggestion that bigger value acquisitions are on the anvil, Pfizer may have better valuations to pursue in the current economic downturn climate as pharma and biotech firms struggle to raise capital and medium-sized firms would be easier targets.

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