Pfizer: Playing the Lipitor lift
Lipitor sales surge helps world's biggest drug maker meet earnings expectations ... but for how long?
By Aaron Smith, CNNMoney.com staff writer

NEW YORK (CNNMoney.com) -- Pfizer's old reliable - the anti-cholesterol drug Lipitor - could very well be the hero of the second quarter.

Lipitor, the world's top-selling drug for the world's biggest drug company, continued to grow in sales terms in the second quarter, despite analyst worries in recent months that its sales were due to slow down.

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The question is how long Pfizer can delay a slide in revenues from Lipitor and whether or not it can reshape itself in time and get other drugs in its stable to pick up the likely slack.

Lipitor sales surged 9 percent in the second quarter to $3.1 billion, helping to boost earnings and beat expectations.

The Lipitor patent lasts until 2011 or 2012, but other Pfizer blockbusters are going off patent, like Zoloft, the antidepressant worth $3.3 billion in annual sales that lost protection in June. A sales plunge occurs when a drug loses its patent because the product is then open to cheaper generic competition.

Analysts have voiced concerns that patent expirations would reduce Lipitor sales, even though Lipitor isn't yet losing the patent.

A main threat is Merck's (up $0.00 to $37.32, Charts) cholesterol-cutting drug, Zocor, worth $4.4 billion in 2005 sales, which lost patent protection in June. The patent loss opened up Zocor to generic challengers. Analysts worry that fight could lead to price competition and prompt patients to abandon Lipitor and flock to the Merck drug or its generic competitors.

But Lipitor sales figures increased, thanks largely to a 5 percent increase in price, said Les Funtleyder, analyst for Miller Tabak. This helped Pfizer beat analyst expectations Thursday.

Funtleyder said Medicare Part D, the federally funded health prescription drug plan enacted at the beginning of the year, was also key driver of earnings for Pfizer and other drug companies.

Pfizer reported earnings of $3.66 billion, or 50 cents a share, up about 11 percent from last year's figure of $3.32 billion, or 45 cents a share. The results beat the analysts' consensus estimate of 48 cents from Thomson Financial.

Pfizer reported second-quarter sales of $11.74 billion, about 2.5 percent higher than sales of $11.45 billion from the same period last year.

The stock price for Pfizer (up $0.34 to $23.64, Charts), the world's biggest drug maker, increased more than 2 percent in morning trading, but those gains were pared back later in the day.

Can such strong results continue?

Funtleyder said the generic Zocor squeeze on Lipitor sales won't come into play until the beginning of 2007. This could be why Pfizer executives keep saying that Lipitor sales will total $13 billion in 2006. But Vice Chairman Karen Katen admitted in an earnings press release that $13 billion is "a stretch goal in light of the recent introduction of generic [Zocor] in the U.S."

"They have a history of exceeding expectations," said Funtleyder of Miller Tabak. "They've generally surprised to the upside."

In the meantime, Pfizer has some other drugs in its cabinet.

Pfizer is engaged in a $4 billion cost-cutting campaign to offset the impending revenue void, but to achieve growth the company needs new blockbuster drugs. Pfizer is testing a combination of Lipitor, which lowers LDL or "bad" cholesterol, with an experimental drug torcetrapib, which raises HDL or "good" cholesterol, to differentiate its product and bring in additional sales.

Also, sales for arthritis painkiller Celebrex soared 17 percent to $471 million. That was welcome news to the company since the drug is a member of the same class as Pfizer's Bextra and Merck's Vioxx, which were both pulled from the market because of health risks. Celebrex is the only one of these anti-inflammatory drugs that was not removed from the market.

Chief executive officer Henry McKinnell said, in a teleconference with analysts on Thursday, that second-quarter sales were partly driven by the relatively new drug Lyrica, a nerve pain treatment for diabetics. Lyrica sales totaled $271 million in the second quarter, and the company projects the drug will hit the blockbuster level of $1 billion in 2006. Also, sales for antipsychotic Geodon rose 14 percent to $165 million, and Pfizer projects the drug will total $800 million in 2006 sales.

Letting go of Listerine

Along with squeezing more profits out of its drugs, Pfizer is also trying to thin out the cost side of the equation.

As part of this massive restructuring, Pfizer is selling off assets. The company is shutting down manufacturing plants and sold off its consumer health unit, maker of Listerine mouthwash and other products, to Johnson & Johnson (up $0.14 to $61.45, Charts) for $16.6 billion.

Pfizer hasn't said what it plans to do with the cash, but analysts believe it will be used to buy small biotechs with strong pipelines or to license promising new drugs.

Pfizer said it stuck to its estimate of $2 earnings per share for 2006 after announcing this sale, even though reclassifying EPS after the sale made them equivalent to $1.93.

Thank you for quitting

To try and maximize sales for two of its newest products - Exubera and Chantix - Pfizer has set up shop in the world's most populous country: China.

Speaking from Beijing in a teleconference with analysts on Thursday, Chief Executive McKinnell said that China is the fifth-largest pharmaceutical market in the world, and his company's presence there is expected to grow fourfold in the next six or seven years.

McKinnell said the increased presence in China will help his company expand, helped along by the introduction of Exubera, the first form of inhalable insulin, and Chantix, a smoking cessation drug, which are both being released into the market.

McKinnell said he has high hopes for Pfizer's plan to develop a smoking cessation plan with the Chinese government because "here in China there's 350 million smokers," a number that exceeds the U.S. population.

The analysts interviewed for this story do not own shares in Pfizer, though Deutsche Bank North America seeks business with them.

Related: Pfizer needs more drugs Top of page

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Most stock quote data provided by BATS. Market indices are shown in real time, except for the DJIA, which is delayed by two minutes. All times are ET. Disclaimer.

Morningstar: © 2014 Morningstar, Inc. All Rights Reserved.

Factset: FactSet Research Systems Inc. 2014. All rights reserved.

Chicago Mercantile Association: Certain market data is the property of Chicago Mercantile Exchange Inc. and its licensors. All rights reserved.

Dow Jones: The Dow Jones branded indices are proprietary to and are calculated, distributed and marketed by DJI Opco, a subsidiary of S&P Dow Jones Indices LLC and have been licensed for use to S&P Opco, LLC and CNN. Standard & Poor's and S&P are registered trademarks of Standard & Poor’s Financial Services LLC and Dow Jones is a registered trademark of Dow Jones Trademark Holdings LLC. All content of the Dow Jones branded indices © S&P Dow Jones Indices LLC 2014 and/or its affiliates.