Pfizer, Lilly, Wyeth beat forecasts
Drugmakers overcome problems, thanks in part to Medicare D program for seniors.
By Aaron Smith, CNNMoney.com staff writer

NEW YORK (CNNMoney.com) -- Big Pharma companies Pfizer, Lilly and Wyeth beat analysts' expectations Thursday with reports of strong gains in third-quarter earnings, though Pfizer isn't expecting annual profit growth until 2009 and is ramping up its already ambitious cost-cutting efforts.

Newly-appointed Pfizer chief executive officer Jeffrey Kindler said, in a conference call with analysts, that he was aiming for "a leaner organization, with a more efficient cost structure," to make up for patent expirations on former blockbusters, like Zoloft.

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But overall, the successful quarter for these industry leaders shows that the drug business seems to be recovering from its market funk and a litany of woes, including lawsuits, withdrawn products and weak pipelines.

Les Funtleyder, analyst for Miller Tabak, said the drug companies appear to be enjoying the fruits of Medicare D, an insurance plan for seniors implemented by the U.S. government on Jan. 1.

"The common issue is Medicare part D, which is helping volumes [of drug sales] and not having the detrimental effect on price that some had expected at the beginning of the year," said Funtleyder. "I think you've seen almost across the board that everybody selling drugs in the U.S. aimed at seniors has done better than expected."

Pfizer

Pfizer Inc., (down $0.17 to $27.93, Charts) in particular, demonstrated that it can grow quarterly revenue despite the recent patent expiration on the antidepressant Zoloft, a former blockbuster that used to bring in $3.3 billion in annual sales.

However, Pfizer said sales and earnings growth for all of 2006 will be flat, and the company is not expecting to return to annual sales growth until 2009. Vice chairman David Shedlarz said, in a conference call with analysts, that he was "not satisfied" with that expectation and was "looking hard at all aspects of our operations to become more flexible and agile."

Jeffrey Kindler, who became Pfizer's CEO during the third quarter, said the company is stepping up its cost-cutting, on top of the previously-announced $4 billion restructuring, because sales from new drugs won't completely offset losses from patent expirations.

"There will be no sacred cows," said Kindler, in the conference call. "Everything will be on table. We will constantly work at making our business as simple and streamlined as possible."

Kindler said more details of the restructuring will be revealed at the company's Nov. 30 analyst day.

Pfizer, the world's biggest drugmaker in terms of sales, more than doubled its quarterly profit to $3.4 billion, or 46 cents a share, from $1.6 billion, or 22 cents a share, in the same period last year. The New York-based Pfizer also reported third-quarter sales of $12.3 billion, up 9 percent from $11.3 billion in the third quarter, 2005.

Pfizer's report was higher than the 45 cents a share earnings and $11.4 billion in sales projected by analysts interviewed by Thomson First Call. As a result, the company's stock price edged up more than 1 percent in morning trading.

The company took a large merger-related charge in 2005, which contributed to the surge in earnings for the third quarter of 2006. Sales for the third quarter were driven by the cholesterol-cutting Lipitor, the world's top-selling drug, which jumped 15 percent to $3.3 billion in sales. This is good news for Pfizer, because sales growth Lipitor had been slowing toward the end of 2005 and the beginning of 2006.

Sales for the newly launched Lyrica, a treatment for nerve pain, soared more than 300 percent to $340 million in the third quarter.

"We believe that Pfizer's shares represent excellent value, and we reiterate our 'buy' rating," wrote Barbara Ryan, analyst for Deutsche Bank North America, in a published report that mentioned a 12-month price target of $33 (from the current price of about $28). "New products, along with accelerated restructuring by the new management team, can drive long-term earnings per share growth in the high single digits."

Wyeth

Wyeth (up $0.06 to $53.25, Charts), the No. 6 U.S. drugmaker, reported a one-third jump in third-quarter profit, to $1.15 billion, or 85 cents a share, from $870 million, or 81 cents a share, during the same time last year.

Earnings from the Madison, N.J.-based drugmaker beat expectations from analysts interviewed by Thomson First Call, which forecast 81 cents a share.

The company also reported a 9 percent jump in third-quarter sales, to $5.1 billion.

Revenue increases were led by sales jumps for Enbrel, an anti-inflammatory for the treatment of rheumatoid arthritis and other forms of arthritis, and Prevnar, a vaccine for children and babies to prevent pneumococcal disease, which causes infections to the lungs, blood and brain.

Third-quarter Enbrel sales surged 37 percent to $378 million, compared to the same period last year, while Prevnar sales jumped 30 percent to $510 million.

Wyeth announced recently that an experimental form of Prevnar could drive annual sales to exceed $3 billion by 2010, and the company raised its full year 2006 guidance by 13 to 16 percent, to a range of $3.12 to $3.18 diluted earnings per share.

Ryan of Deutsche Bank North America wrote in a published report that Wyeth's sales and earnings growth was "superior to the drug group, and the overall market."

Lilly

The earnings report from Eli Lilly & Co. (down $1.06 to $57.19, Charts) was slightly higher than expectations, while sales were slightly below forecasts.

The seventh-largest U.S. drugmaker reported a 10 percent jump in profit, to $874 million, or 80 cents per share, from $794 million, or 73 cents a share. This was slightly ahead of the 79 cents per share expected by analysts, according to Thomson First Call.

The Indianapolis-based drugmaker reported $3.86 billion in third-quarter sales, up 7 percent from $3.60 billion during the same period last year. This was slightly behind expectations of $3.88 billion from analysts interviewed by Thomson First Call.

Lilly's top-selling product, the anti-psychotic Zyprexa, helped to fuel the revenue jump, with a 5 percent increase in third-quarter sales to $1.1 billion. Sales for the newly-launched Cymbalta, an antidepressant and treatment for nerve pain, surged more than 90 percent to nearly $350 million.

Ryan of Deutsche Bank North America wrote, in a published report, that the slowing growth rate for some of its products makes the company heavily dependent on Cymbalta, which might limit Lilly share prices to their current level.

Lilly announced this week that it would pay $2.1 billion to take over ICOS, so the larger drugmaker could have complete control of the sexual dysfunction treatment Cialis.

The analysts interviewed for this story do not own shares of company stocks mentioned here.

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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: © 2018 Morningstar, Inc. All Rights Reserved. Factset: FactSet Research Systems Inc. 2018. 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 2018 and/or its affiliates.