Pfizer Posts 50% Drop in Q4 Profits Due to Lipitor

US pharma major Pfizer has announced its financial results for the fourth quarter and fiscal year (FY) ending 31 December 2011, with revenues dropping by 4% year-on-year (y/y) and up just 1% y/y, respectively. The financials witnessed a favourable foreign-exchange impact, which helped to boost growth figures. US growth registered a decline in both periods under review, primarily led by the products going off patent, thereby facing cheaper generic competition. The cost structure continued on a tight note with an across-the-board decline in y/y change providing some fillip to profitability. Operating income was at USD4.87 billion in the fourth quarter and USD23.76 billion in the full-year period. The firm said savings were generated in quarter four 2011 by reductions in the US field force and declines in promotional spending in response to product losses of exclusivity. These savings were partially offset by the addition of costs from legacy King operations and the inclusion of the US healthcare reform fee, however. Net profits were hence on a declining trend in the fourth quarter, down 50% y/y.

Among business segments, the fourth quarter figures continued to register a negative percentage change with primary care, oncology and speciality care affected. Primary-care revenues were particularly hit by about USD775 million in the fourth quarter on account of Lipitor (atorvastatin) and Caduet (amlodipine besylate + atorvastatin calcium) loss of exclusivity. The emerging markets decline was characterised by volume growth that was more than offset by the negative impact of foreign exchange and increased pricing pressures, as well as by certain other events, including changes in institutional purchase patterns in Turkey and Brazil, currency devaluation in Venezuela, and the loss of exclusivity of Lipitor in Brazil and Mexico during 2010, the firm said.

In terms of product performances, key products went off patent exclusivity. The fourth quarter saw the first full month of Lipitor generic competition from 1 December 2011, particularly in the United States, which saw sales dip. Apart from Lipitor, other drugs that experienced competition include Xalatan (latanoprost) and Vfend (voriconazole) in the US during March and February 2011. US Prevnar 13 (pneumococcal 13-valent Conjugate Vaccine [Diphtheria CRM197 Protein]) revenues in quarter four 2011 were lower than in the same quarter of the previous year, primarily because most patients eligible to receive the Prevnar 13 catch-up dose have already been vaccinated. Growth was experienced for in Enbrel (etanercept) in developed markets and Prevenar (pneumococcal 7-valent conjugate) in Japan, the firm said.

Outlook and Implications

Pfizer's financial performance during 2011 was challenging, as expected, particularly in the fourth quarter. Key positives included achieving cost-reduction targets associated with the Wyeth integration, generating more than USD4.0 billion in reductions on an operational basis in comparison with the 2008 combined costs of Pfizer and Wyeth.

In terms of product performance, the positives were primarily found in Celebrex, Lyrica, Pristiq, and Spiriva. With a greater number of its blockbuster drugs facing generic competition, starting with the once largest-selling drug Lipitor, the impact on revenues in the near term is expected to be even more challenging for the firm.

For 2012, Pfizer has reduced reported revenues and adjusted diluted earnings per share guidance ranges, primarily to reflect changes in foreign-exchange rates from mid-October 2011 to mid-January 2012. The firm also provided a 2012 guidance range for adjusted cost of sales as a percentage of revenues, which is at 20.5–21.5%, and has lowered the guidance range for adjusted SI&A expenses to USD17–18 billion from USD17.5–18.5 billion, indicating further tightening in the cost structure. Going forwards, the firm will see further weakening of Lipitor sales in 2012, and the focus is likely to shift to drugs such as Enbrel, Celebrex (celecoxib), Prevnar 13, and the newly approved Eliquis and Inlyta. We expect the trend of “patent cliffs” effects—faced by major Pharma—to continue, thus hurting growth in value-based drug sales and health spending, amid new competition from generics.