Pfizer Inc.'s (PFE) second-quarter profit dropped 19%, as
negative currency trends and generic competition hurt sales for
most of its top drugs, while smaller rival Eli Lilly & Co.
(LLY) had increased sales and earnings.
Both U.S. drug makers exceeded Wall Street expectations and
raised their earnings forecasts for 2009, helped by ongoing cost
cuts that have become common throughout the industry.
Given the reduced expectations heading into earnings season, the
reports of major drug makers have held up relatively well, as cost
cuts have allowed many to offset the weak economy and currency
headwinds. There have been signs that currency effects may
dissipate as the year progresses, and U.K. drug giant
GlaxoSmithKline PLC (GSK) said Wednesday it expects a better second
half.
Barclays analyst Tony Butler said drug makers have demonstrated
"resilience" in their ability to control costs. Pfizer alone has
shed 10,000 employees since the start of 2008, leaving it with a
current work force of 76,500.
Pfizer shares rose 41 cents, or 2.6%, to $16.11, continuing a
recovery from the low point below $12 in early March. Lilly shares
dropped five cents to $34.40.
Still, New York-based Pfizer saw sales of most of its top drugs
decline. Generic competition and drug-research setbacks were among
the factors that drove Pfizer to agree earlier this year to acquire
Wyeth (WYE) in a cash-and-stock deal originally valued at about $68
billion. The deal is expected to close by the end of the year.
Pfizer said net income attributable to the company dropped to
$2.26 billion, or 34 cents a share, from $2.78 billion, or 41 cents
a share, a year earlier. The latest quarter included costs related
to the pending Wyeth deal and other items; excluding these,
earnings were 48 cents a share, a penny ahead of the mean estimate
of analysts surveyed by Thomson Reuters.
Pfizer's second-quarter revenue dropped 9% to $10.98 billion.
Currency rates accounted for the entire decrease.
"Like many other businesses, we face a challenging economy and
tough competition," Pfizer Chief Executive Jeffrey Kindler told
analysts on a conference call.
Sales of cholesterol-lowering Lipitor, the top-selling
prescription drug in the world, dropped 10% to $2.69 billion.
Lipitor continues to be pressured by competition from brand-name
and generic drugs.
Sales of pain drug Celebrex dropped 7%, and smoking-cessation
drug Chantix continued to decline, hurt by reports of potential
neuropsychiatric side effects. Among the few Pfizer drugs that saw
sales gains were pain drug Lyrica and cancer drug Sutent.
Pfizer increased its forecast of adjusted 2009 earnings to a
range of $1.90 to $2 a share, from $1.85 to $1.95 per share.
Indianapolis-based Lilly said net income for the three months
ended June 30 rose 21% to $1.16 billion, or $1.06 a share, from
$959 million, or 88 cents a share, a year earlier.
The latest quarter included a pretax charge of $105 million, or
6 cents a share, to cover costs of a potential settlement of U.S.
state government investigations into Lilly's marketing of the
antipsychotic Zyprexa. Lilly said it's in advanced discussions with
several states that weren't part of the $1.4 billion settlement
reached earlier this year with state and federal entities probing
Lilly's marketing of Zyprexa for unapproved uses.
Excluding the Zyprexa charge, Lilly earned $1.12 a share, well
above the Thomson estimate of $1.02 a share.
Lilly's second-quarter revenue rose 3% to $5.29 billion.
Unfavorable foreign-exchange rates reduced growth by seven
percentage points. Excluding currency, the 9% operational sales
growth was driven by six percentage points of higher volume and
three points of higher prices.
While sales of Lilly's top drug, Zyprexa, were down 3% at $1.2
billion, Lilly posted solid growth for three other drugs: the
Cymbalta antidepressant, Humalog for diabetes and cancer drug
Alimta.
"We continued to have good, strong underlying operating
performance," Lilly Chief Financial Officer Derica Rice said in an
interview.
Lilly's Cialis erectile-dysfunction drug gained ground on
Pfizer's Viagra. Cialis second-quarter sales were flat at $363
million, while Viagra was off 9% at $423 million. Both drugs,
however, decelerated from the first quarter. Lilly executives said
Cialis is taking market share from Viagra in new prescriptions
written by U.S. doctors and has surpassed Viagra in Europe in
sales.
Lilly increased its 2009 earnings forecast - excluding one-time
items - to a range of $4.20 to $4.30 a share, from $4 to $4.25. But
the increased 2009 outlook seems conservative in light of the
upside to Lilly's earnings in both the first and second
quarters.
Rice said on a conference call with analysts that Lilly will
incur higher operating expenses to support the forthcoming U.S.
launch of anti-clotting drug Effient, and Lilly will increase its
direct-to-consumer advertising for various products. Effient will
compete with Plavix, the blockbuster drug co-marketed by
Sanofi-Aventis (SNY) and Bristol-Myers Squibb Co (BMY), and Lilly
hopes the new drug helps offset the looming loss of U.S. patent
protection for Zyprexa in 2011.
"With Lilly, it's a wait-and-see game," said Edward Jones
analyst Linda Bannister. "Everyone is focused on Effient and how
the launch will develop in the U.S."
Also, Rice told Dow Jones Newswires that marketplace challenges
remain, including a more difficult pricing environment due to
pressure by payers and increased utilization of generic drugs,
driven by the weak economy.
-Peter Loftus, Dow Jones Newswires; 215-656-8289;
peter.loftus@dowjones.com
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