Pfizer's Q1 Results Suffer as Lipitor and Champix Decline in Sales

U.S. pharma giant Pfizer has reported financial results for the first quarter ended 31 March 2009, with sales registering a decline of 8% year-on-year (y/y) to US$10.86 billion, as pharmaceutical sales dropped by 7% y/y. Not surprisingly, both U.S. and international pharmaceutical sales reported falls of 10% and 7% y/y respectively, indicative of a combination of the impact of foreign-exchange rate fluctuations and a drop in key product sales. Through the first quarter, Pfizer continued to keep a tight leash on its cost structure, with significant falls in its cost of sales and selling, informational and administrative expenses, at 29% and 18% respectively. Research and development (R&D) was at US$1.70 billion, a 5% drop. These measures are reflected in both a healthy operating income and good margins, as calculated by IHS Global Insight. However, a rise in tax and restructuring expenses marred bottom-line growth, with net income witnessing a 2% y/y drop at US$2.72 billion.

The firm's new business segments provided a fresh perspective on Pfizer's financials, with Specialty Care registering a 7% rise in sales at US$1.46 billion. However, all the other segments—Primary Care, Oncology, Established Products, and Emerging Markets, reported a fall. Specialty Care sales were primarily driven by a rise in sales for certain products: Xalatan, Zyvox, Vfend, and Revatio. The Established Products unit which consists of products that have primarily lost patent protection or marketing exclusivity in developed markets, have reported a decline in sales at US$1.61 billion. The firm is reportedly initiating programmes to increase patient and payor access to this portfolio of products.

In terms of product performance, the table below indicates a drop in the growth rate for the majority of Pfizer's main products. Lipitor, the drug with the highest value, has dropped 12% y/y in terms of sales growth, reflecting a weakening in the product market primarily due to increasing market presence of genericised versions of Merck & Co's Zocor (simvastatin) and AstraZeneca's Crestor (rosuvastatin). Pfizer's smoking-cessation drug Campix/Chantix (varenicline) also witnessed a drop in sales growth after neuro-psychiatric warnings were issued. Other drugs registering a significant fall in sales include Zyrtec (cetirizine), Diflucan (fluconazole), Xanax (alprazolam), Neurontin (gabapentin), and Camptosar (irinotecan). Products that did register a positive growth during the period included Lyrica (pregabalin), oncology drug Sutent (sunitinib), Aromasin (exemestane), Relpax (eletriptan) and Vfend (voriconazole).

Outlook and Implications

The financial performance of Pfizer is indicative of the general trend among Big Pharma firms, where foreign-exchange rates have negatively affected top-line growth. In the domestic market, the firm faces a challenging period as the pharma space sees a slowing of growth rates affecting key therapeutic segments. Product performance has therefore been affected on both the international and the domestic front. Chantix is one drug the firm is known to be investing in re-branding following the warnings on neuro-psychiatric conditions that were included on the product's labels. This led to a drop in sales, and Pfizer is said to be implementing a two-pronged strategy focusing on the physician and consumer awareness. The profitability was therefore propped up by cost-cutting measures, and this is set to continue into ensuing quarters.

Pfizer has reaffirmed its guidance for the rest of the year. However, given the challenging conditions in the global pharma market, the firm will be under pressure to sustain the numbers indicated in the full-year period. During the year ending 31 December 2008, Pfizer reported total revenues of US$48.29 billion.

The pharma giant is also seeking to secure regulatory nods for its mega-ticket acquisition of Wyeth announced in January this year. The acquisition is expected to be completed in the second half of the year. Throughout the course of this year, Pfizer is expected to continue to evaluate restructuring options as a precursor to the planned integration of Wyeth's operations once the go-ahead is achieved. Major strategic decisions are expected to be witnessed in the R&D pipeline and the rationalisation of marketing operations. The firm is also expected to accelerate investments in emerging markets, particularly the BRIC countries (Brazil, Russia, India, China) where there has been double-digit growth. The integration of Wyeth in these markets will play an important role, particularly in terms of the biotechnology market.

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