Pfizer (NYSE:PFE) is the largest pharmaceutical company in the world. The company has its headquarters in New York City and has a market cap of $169 billion, with a stock price of around $23.
Pfizer reported first quarter earnings on May 1st, and unfortunately for Pfizer earnings per share were down by 16%. Pfizer's earnings are down primarily because of the loss of patent exclusivity on Lipitor its largest selling drug. As a result of the patent expirations Pfizer is now in the process of reinventing itself.
Pfizer is approaching the challenge of losing patent rights by shedding or spinning off some of its "most profitable units in favor of doubling down on the risky pharmaceutical business." In an attempt to downsize, Pfizer announced on June 7th that it is planning to spin off its animal health unit into a separate company, named Zoetis that will be partially owned by shareholders. The animal health unit will spin off by July 0f 2013. The unit has around 9,000 employees and is expected to have a market cap of around $15 billion. Pfizer will make an initial public offering of about $3 billion and will use the other $12 billion " as a share exchange in which current shareholders turn in their Pfizer shares for Zoetis at a discount." More details on the IPO will come in this year's second-quarter earnings announcement July 31, 2012. Pfizer has already sold its profitable infant formula business to Nestle (OTCPK:NSRGY) for $11.9 billion in April of 2012.
Pfizer expects to use part of the proceeds from the Nestle deal to buy back about $5 billion by the end of the year. In a second move to reduce the company's size, Pfizer plans to reduce research spending from $8.5 billion in 2011, to $6.5 billion to $7 billion in 2012. Mr. Read in speaking about the company's future said "we are building two strong cores: an innovative core and a value core. Mr. Read conceded that "It will take a few years to fully determine our success in building the innovative and value cores."
Positives for Pfizer moving forward
In the first quarter Pfizer had strong growth for its arthritis treatment Enbrel, its fibromyalgia treatment Lyrica, its pain killer Celebrex and its treatment for the relief of menopausal symptoms Premarin. In addition, Pfizer was recently granted an extension of its patent exclusivity on Viagra, to April of 2020 from March of 2012.
The company has made notable progress in recent months, including the launch of the Prevnar 13 vaccine for adults and Inlyta for advanced renal cell carcinoma. The regulatory submission for its stroke prevention product, Eliquis, will likely be key as well, with approval expected during the first half of 2012.
On June 21st "The FDA OKs widening the use of Pfizer's (PFE +0.7%) blockbuster Lyrica drug to include treating pain that results from spinal chord injuries. Lyrica is already used to combat nerve pain caused by other conditions, such as shingles."
In the first quarter Pfizer increased its dividend by 10% to $0.88 per share.
Negatives for Pfizer moving forward
Of the 18 major drugs that Pfizer markets for annual sales of $26 billion, eight bring in more than $1 billion each in sales annually and together account for 76% of total drug sales. They include the anticholesterol pill Lipitor, antidepressant Zoloft and the blood-pressure drug Norvasc. During the next five years, four of the eight will lose patent protection.
On June 25th "The FDA asks for more information from Bristol-Myers Squibb (BMY -6%) and Pfizer (PFE -2.6%) about their new-drug application for Eliquis, which helps prevent strokes in patients with nonvalvular atrial fibrillation. The FDA wants an update on data management and verification from a study of the treatment, although the agency hasn't asked for a new trial."
Pfizer's loss of the patent exclusivity for Lipitor will cost the company plenty. Lipitor's sales dropped by 42% in the first quarter of 2012, to $1.4 billion. It is expected that Lipitor's sells will continue to drop through the end of 2012.
The purchase of Wyeth has helped Pfizer to replace revenues that will be lost to patent expirations and to beef up Pfizer's drug pipeline. However, even with the Wyeth purchase, Pfizer had an 11.6% drop in revenue since the fourth quarter, when Lipitor lost its patent exclusivity. It seems that Pfizer is likely to continue to have flat or lower revenues over the next couple of quarters. Investors had ample notice that Pfizer might have declining revenues and seem content with how Pfizer is handling its problems.
The stock price is up by 12.7% over the last 52 weeks and has been flat since the May 1st, first quarter earnings announcement. It is my feeling that Pfizer's investors are satisfied with the direction that the company is headed in, and like its relatively stable stock price and generous 3.9% dividend yield. I believe that Pfizer has done a good job of positioning itself for the future. However, I think that pharmaceutical companies such as Abbott Laboratories (NYSE:ABT) which increased year on year first quarter revenues by 4.5% and increased its stock price by 20.27% over the last 52 weeks and Bristol-Myers Squibb which increased it year on year first quarter revenues by 4.8% and increased its stock price by 20.26% over the last 52 weeks, will have faster earnings growth, and better stock performance over the next year.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.