Pfizer's Q1 profit, revenue decrease due to co-promotion expirations, ongoing exclusivity losses

Pfizer reported Monday that first-quarter profit dropped 15 percent from the year-ago period to $2.3 billion, while revenue declined 9 percent to $11.4 billion, falling short of analyst estimates by $730 million, mainly due to co-promotion expirations and the continued effects of generic competition for multiple drugs. However, CEO Ian Read stated that despite these "continuing revenue challenges," he looks forward "to the remainder of the year given the strength of our mid- and late-stage pipeline, the continued growth opportunities for our recently launched products, as well as opportunities for upcoming product launches."

For the first time, Pfizer reported separate quarterly results for three business segments it began operating under a new structure implemented in January, with a view to preparing for potential future divestments. The company said its global established pharmaceuticals (GEP) segment, which consists of off patent and older drugs, posted 13-percent lower revenue year-over-year to $6 billion, mainly due to generic competition for Detrol LA in the US since January and for Viagra in most major European markets since June 2013, as well as continued erosion of branded Lipitor sales from generic versions of the statin therapy. Specifically, Pfizer said Lipitor sales fell 27 percent to $457 million, while revenue for Celebrex declined 4 percent to $624 million.

The company reported that its global innovative pharmaceuticals (GIP) division, consisting of branded products, declined 7 percent to $3.1 billion, with Enbrel sales outside the US and Canada rising 4 percent to $914 million, while the rheumatoid arthritis drug Xeljanz, which garnered US approval in 2012, generated $52 million during the quarter. European regulators issued a negative opinion for the therapy in April last year. Meanwhile, Lyrica and Viagra, whose sales are included in both the GEP and GIP segments depending on the geographical region, had quarterly revenues of $1.2 billion and $374 million, respectively, reflecting a gain of 8 percent and a decline of 19 percent.

Sales for the Vaccines, Oncology and Consumer Healthcare segment totalled $2.2 billion, representing a drop of about $20 million from the year-ago period. Specifically, Pfizer said global sales for the Prevnar vaccine family were flat at $927 million, while revenue for the cancer drugs Xalkori and Inlyta both reached $88 million during the quarter. Frank D'Amelio, the company's chief financial officer, remarked that Pfizer's performance in the three-month period "was in line with our expectations and reflected the continuing impact of product losses of exclusivity, the expiration and near-term termination of certain collaborations and an operating environment that remains challenging."

Commenting on the report, Sanford C. Bernstein & Co. analyst Tim Anderson described the overall results as "a weak quarter with disappointing revenues," noting that investor focus is on the company's attempt to acquire AstraZeneca. The drugmaker indicated that it had hoped its latest offer to acquire AstraZeneca for 50 pounds per share ($84.47), which was submitted last week and subsequently rejected as being inadequate, "will provide the basis for AstraZeneca to engage with Pfizer and enter into discussions relating to a possible combination of the two companies." However, Read said the company was "very disappointed" with AstraZeneca's "unwillingness to engage in conversations," adding that "we have made public our offer to the board, and we remain open to considering all options on progressing those discussions." He suggested that the revised bid, which values AstraZeneca at over 63 billion pounds ($106.3 billion), represents a chance for investors of the UK-based drugmaker to "trade up" to a company with a "greater potential for value creation." For related analysis, read ViewPoints: AstraZeneca and Pfizer both play the R&D card as acquisition chase hots up and ViewPoints: Pfizer insists any AstraZeneca acquisition would not trigger U-turn on split aspirations, but can it convince onlookers this deal is not about tax rate?

Meanwhile, Morningstar analyst Damien Conover remarked that Pfizer's quarterly performance "on the top line, came in weaker than we were anticipating," adding that the company's earnings nonetheless met his expectations because it had reduced expenses. Richard Purkiss of Atlantic Equities commented that "what we're seeing is an unusually weak first quarter, but I'm not sure it will be reflective of the full year," noting that Pfizer had not lowered its full-year sales forecast.

The US drugmaker stated that because of rules in the UK Takeover Code, it is not currently permitted to confirm or update its 2014 reported diluted earnings per share guidance, but it did confirm its previously reported adjusted earnings and revenue outlook for the year of $2.20 per share to $2.30 per share, and $49.2 billion to $51.2 billion, respectively, which assumes that Celebrex will not face generic competition this year. "If necessary, we will update our financial guidance when we are in a better position to make an informed judgment about the market exclusivity of Celebrex in the US," D'Amelio said. Further, he added that the company "[continues] to expect to repurchase approximately $5 billion of our shares this year, with $1.7 billion repurchased" already.

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