Street's bullish on Big Pharma earnings

NEW YORK (CNNMoney.com) -- The Street is bullish on Big Pharma, and experts believe the launch of new, fast-growing drugs fueled earnings for most of the major U.S. drugmakers in the second quarter.

But Pfizer Inc., (up $0.09 to $26.00, Charts, Fortune 500) the world's leading drugmaker in terms of annual pharmaceutical sales, is lagging the pack with lackluster expectations for the quarter. Pfizer reports on July 18, and analyst consensus compiled by Thomson projects a 3 percent drop in revenue to $11.4 billion and a 1 percent slip in earnings per share to 50 cents, compared to the same quarter last year.

New York-based Pfizer has failed to impress investors: the stock has been flat this year. The company's pipeline could become a problem in 2011 when the patent expires on the cholesterol-cutting Lipitor, the world's top-selling drug with just shy of $13 billion in 2006 sales.

"Visibility of new products with major blockbuster potential remains low at this point," wrote Joseph Tooley, analyst for A.G. Edwards in a published note. But Tooley said Pfizer's patent problems are well-known to investors and "baked in" to the stock price. But Tooley, who rates the company a "hold," doesn't expect the stock to move much in the near future, because of a lack of "nearer-term catalysts that might jump-start this low valuation, low expectation stock."

Les Funtleyder, analyst for Miller Tabak, wrote in a published note that The Street "is generally pessimistic about Pfizer's near-term financial performance." Funtleyder said Pfizer's cost-cutting effort "is the most interesting part of the company in the near-term" and he does "not anticipate any major announcements from the R&D platform."

Overall, Big Pharma is enjoying a bit of a revival this year, with an industrywide bump in stock of 6.5 percent year-to-date. The earnings situation looks rosier for other U.S. drug giants like Merck & Co. Inc., Wyeth, Schering-Plough, Bristol-Myers Squibb and Eli Lilly & Co., according to projections from analysts, who seem to believe that the battered sector has left a lot of its problems in the past.

Christ Schott, analyst for Bank of America, expects that "solid top line performance and ongoing cost-cutting initiatives," as well as "emerging signs of recovery" will drive drug industry earnings for the second quarter, and for the year. In particular, Schott sees promise in Madison, N.J.-based Wyeth (down $0.13 to $56.70, Charts, Fortune 500) (reporting on July 19.) The company has five new product launches expected in the next year, said Schott, with a possible new drug launch only days away. On July 23, the Food and Drug Administration is expected to complete its review of Pristiq, a treatment for post-menopausal symptoms.

Schott isn't the only one who likes Wyeth. Analyst consensus from Thomson expects a 6 percent revenue increase in the second quarter to $5.5 billion, with an 8 percent jump in EPS to 87 cents, compared to same period last year. Investors have driven up Wyeth's stock price more than 11 percent.

But Wyeth's stock performance pales compared to Schering-Plough (down $0.11 to $32.37, Charts, Fortune 500), which has enjoyed a 37 percent surge in stock year-to-date, and Bristol (up $0.09 to $32.15, Charts, Fortune 500), which has soared nearly 22 percent.

Blockbusters are driving Bristol and Schering's performance, says Schott of Bank of America. Schott points to Bristol's blood-thinner Plavix and Schering's cholesterol-cutting Vytorin/Zetia franchise (which it shares with Merck) as key drivers for those companies. Analyst consensus from Thomson projects an 8 percent jump in revenue for Schering in the second quarter to $3 billion, as well as a 37 percent surge in EPS to 34 cents, compared to the same period in 2006. Bristol has much more modest projections -- 1 percent rise in revenue to $4.9 billion and 2 percent rise in EPS to 36 cents -- as the company recovers from a temporary plunge in Plavix sales last year resulting from generic competition that was eventually blocked by a court ruling.

Lilly (up $0.09 to $57.01, Charts, Fortune 500) is also expected to do well in the second quarter, with consensus projecting a 13 percent jump in revenue to $4.4 billion and an 8 percent rise in EPS to 82 cents, compared to the same period last year. Tooley of A.G. Edwards says earnings are driven by the sexual dysfunction drug Cialis, the anti-depressant Cymbalta, and the diabetes drug Byetta. Despite Lilly's 9 percent rise in stock year-to-date, Tooley believes the stock is trading at a "relative discount," calling Lilly a "high quality name with a favorable growth outlook and promising pipeline."

And then there's Merck (down $0.32 to $50.53, Charts, Fortune 500), saddled by relatively low expectations from The Street, and possibly from the company itself, but not by investors: the New Jersey drugmaker's stock has shot up 16 percent year-to-date.

Bank of America's Schott is bullish on Merck. He believes the company's 2007 guidance of $2.75 to $2.85 EPS is "conservative," considering Merck's relatively new and fast-growing products like Gardasil, the cervical cancer vaccine, and the diabetes drug Januvia.