Rough quarter, but Pfizer keeps footing with acquisition
January 26, 2009 – 5:10 pm by Steven NilesThe fourth quarter of 2008 was bleak for Pfizer, which was destined to lose its industry-leading position within the next five years. With the planned acquisition of Wyeth, however, Pfizer should stay on top a while longer.
For the fourth quarter , Pfizer posted reported net income of $266 million, a decline of 90% compared with the prior-year quarter, and reported diluted earnings per share of just 4 cents, a decrease of 90% compared with the prior-year quarter. Fourth-quarter 2008 results were affected by charges to resolve various investigations as well as an increase in pre-tax charges associated with cost-reduction initiatives, which were partially offset by savings from those initiatives.
For the second year in a row, Pfizer reported flat revenue of $48.3 billion in 2008, compared with 2007 full-year revenues of $48.4 billion. The loss of exclusivity of Norvasc, Zyrtec, and Camptosar collectively decreased revenue by $2.6 billion. Poor performance in the United States was a major blow. U.S. reported revenue was $20.4 billion, a decrease of 12% year over year. For full-year 2008, Pfizer posted net income of $8.1 billion, essentially flat compared with the prior year, and reported diluted earnings per share of $1.20, an increase of 3% compared with $1.17. This was primarily attributable to savings associated with cost-reduction initiatives, the 2007 after-tax charges of $1.8 billion related to the decision to exit Exubera, and the favorable impact of foreign exchange.
Analysts with Datamonitor Plc. anticipated that cost-cutting initiatives within a combined Pfizer-Wyeth entity would continue the policy of cost containment that had been already underway at Pfizer. Based on Datamonitor analysis, by 2013, forecast sales for a combined Pfizer-Wyeth entity are anticipated to stand in excess of $54 billion. The merger, however, will not prevent a significant sales decline.
“This deal gives Pfizer scale but will not resolve the company’s negative pharma sales outlook,” says Simon King, pharmaceutical senior analyst, Datamonitor.
Pfizer is one of the pharmaceutical companies expected to be hardest hit by the impending patent cliff of patent expiries between 2008 and 2012 and thus subject to generic incursion. Based on current Datamonitor forecasts, 38.5% of Pfizer’s 2007 prescription pharmaceutical sales will be exposed to expiry threat between 2007 and 2013 prior to the Wyeth acquisition. Post acquisition, it is forecast that 34.7% of Pfizer-Wyeth’s combined 2007 prescription pharmaceutical sales will be exposed to expiry threat between 2007 and 13. As a result, Mr. King believes that shoring up the company’s mature product portfolio is a priority.
“Most significant for Pfizer is obviously the loss of patent protection for Lipitor, which comes off patent in the United States in 2011,” Mr. King says. “Lipitor alone accounted for almost $13 billion in global revenues for Pfizer in 2007; over 28% Pfizer’s total prescription pharmaceutical sales that year.”
With global revenue of $12.7 billion, Lipitor accounted for more than 28% of Pfizer’s total prescription pharmaceutical sales in 2007. Lipitor is due to lose U.S. patent exclusivity in 2011.
The deal also allows Pfizer to diversify its strategic portfolio. “Pfizer’s traditional focus has been on small molecules and the cardiovascular market,” Mr. King says. “This acquisition allows it to greatly improve its presence in the immunology & inflammation and infectious diseases sectors, and also integrate Wyeth’s expertise in the biologic and vaccines markets.”
Pfizer’s strong historical focus on the cardiovascular market will dissipate as a result of the acquisition, Datamonitor analysts say. Meanwhile the areas of immunology & inflammation and infectious diseases will become stronger areas of focus. Prior to the acquisition of Wyeth, Pfizer generated more than 98% of total prescription pharmaceutical sales from small molecule pharmaceutical products, based on forecast 2008 sales. A combined Pfizer-Wyeth entity will generate about 88% of total prescription pharmaceutical sales from small molecules, which Datamonitor analysts say illustrates the immediate impact of Wyeth on Pfizer’s biologics and vaccines exposure.
Prior to the announcement of the Wyeth acquisition, Datamonitor’s prescription pharmaceutical forecasts for Pfizer suggested that the company would have lost its industry-leading position by 2013. By 2013, Roche (inclusive of Genentech), Novartis, Sanofi-Aventis, and GlaxoSmithKline were all forecast to have overtaken Pfizer in terms of global prescription pharmaceutical sales. Factoring in forecast revenue for Wyeth, however, Datamonitor now anticipates that Pfizer-Wyeth will remain the biggest-selling prescription pharmaceutical company by 2013.
