A healthy quarter, but Pfizer investors wary
Drugmaker posts solid gain in earnings but stock falls as sales slip; concerns over Lipitor persist; McKinnell hints at successor.
By Aaron Smith, CNNMoney.com staff writer

NEW YORK (CNNMoney.com) - Pfizer Inc., the nation's biggest drugmaker, easily topped first-quarter estimates Wednesday and reiterated its earlier revenue and earnings guidance for this year and beyond.

The New York-based drugmaker said earnings excluding one-time items rose to $4.5 billion, or 61 cents a share, in the quarter, from $4 billion, or 54 cents a share, a year earlier. Analysts surveyed by earnings tracker First Call had forecast Pfizer's earnings would slip to 53 cents a share.

Including special items, net income rose to $4.1 billion, or 56 cents a share, from $301 million, or 4 cents a share, a year earlier.

Revenue slipped to $12.7 billion from $13.1 billion, just short of the First Call forecast of $13 billion. The company cited changes in exchange rates, and a $721 million revenue hit from the loss of patent protections for a series of drugs, as well as the withdrawal of Bextra during the last year.

Pfizer's (down $0.12 to $24.81, Research) stock edged lower in late trading on the NYSE.

Looking forward, chief executive officer Henry McKinnell, who faces mandatory retirement in February 2008, said during an analyst call that Pfizer is considering "three or four candidates" from the company as his successor, but he did not identify them.

"We have no shortage of talent here at the company," said McKinnell. "I think I'll come with a recommendation to the board the day before I walk out the door."

Analysts have said that Karen Katen and David Shedlarz, both appointed as vice chairmen in 2005, are likely successors to the throne.

Earnings for the drugmaker were partly driven by Pfizer's $4 billion cost-cutting effort, analysts say. But slowing sales growth for Lipitor, a cholesterol cutter and the world's top selling medicine, remains a concern.

Les Funtleyder, analyst for Miller Tabak, described Pfizer as a "capable cost cutter," but said he was troubled by the fact that "they're not growing."

"In the near term, Pfizer's going to be choppy," said Funtleyder. "That's why I keep my rating 'neutral,' because I don't see this thing galloping."

Lipitor challenge

Pfizer saw weaker-than-hoped for sales of its key drug Lipitor, though McKinnell said the company still plans to meet its 2006 goal of $13 billion in sales.

The company has also set a 2006 sales goal of $2 billion for Celebrex, a painkiller from the same troubled class of arthritis treatments as Merck's (down $0.03 to $34.45, Research) Vioxx and Pfizer's Bextra. Unlike the other drugs, Celebrex was not taken off the market, but it's label received a "black box warning," the most serious, last July to reflect health risks.

Sales for Celebrex plunged in 2005, but jumped 19 percent in the first quarter to $491 million. Lipitor sales were $3.1 billion in the first quarter, which McKinnell called a "slower-than-hoped-for start to the year."

McKinnell said he'd set "admittedly aggressive goals for Lipitor and Celebrex." But the CEO said Lipitor sales would be fueled by an advertising campaign and strong data showing the drug's "unique" benefits to patients suffering heart attacks and strokes.

The company reiterated its full-year earnings guidance of $2 a share, down from $2.02 in 2005. Pfizer also reiterated its projection for "high single-digit" percentage growth for adjusted diluted earnings per share for 2007 and 2008.

"The question is whether Pfizer can deliver earnings in the face of lower-than-expected Lipitor sales and the answer is a resounding 'yes'," said Barbara Ryan, analyst for Deutsche Bank North America, who has a "buy" rating for the company. "I think from a shareholder perspective that's a real positive."

But Ryan was skeptical as to whether Pfizer can meet its Lipitor revenue goal for the year. "I don't think the market believes Pfizer's more optimistic view on Lipitor," she said.

Some analysts say Lipitor sales could get squeezed by competition from a generic form of Zocor, the cholesterol-cutting drug from No. 2 U.S. drugmaker Merck (down $0.03 to $34.45, Research), that is slated to lose patent protection June 23.

"Nonetheless, in light of management's cautious comments, the upcoming Zoloft patent expiration in June, and continued concerns about Lipitor's ability to grow in the face of additional generic competition, we are unlikely to raise our forecasts despite the bottom line beat," Morgan Stanley analyst Jami Rubin, who rates the company a "buy," wrote in a note to clients.

Pfizer also said it intends to buy another $1 billion in stock in the second quarter on top of $1 billion in the first quarter, and it said it hopes to purchase up to $4 billion in total this year.

To read about the first Celebrex lawsuits, click here.

To see how about Big Pharma stocks are outperforming biotechs, click here.

For FORTUNE's look at Pfizer's puzzle, click here.

Rubin owns Pfizer stock, but the other analysts interviewed for this story do not. Deutsche Bank owns Pfizer stock and seeks business with them.

-- CNNMoney senior writer Chris Isidore contributed to this report. Top of page

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