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Pfizer, Schering-Plough beat modest expectations
2008-10-21
TRENTON, N.J. - Pfizer Inc. and Schering-Plough Corp. both managed to beat analysts' minimal expectations Tuesday, largely because of revenue buoyed by favorable currency exchange rates and growing sales overseas making up for slumping sales at home. The two drugmakers also posted lower third-quarter sales of their key franchise, cholesterol drugs, which are becoming less of the cash cows they once were as more health plans and patients prefer far less-expensive generic versions of Zocor. "The typical safe harbors (for investors) have been the pharmaceuticals," said analyst Steve Brozak of WBB Securities. "They're no longer safe; they're now the least bad choice." Despite flat sales, Pfizer's profit tripled, mainly because a huge charge depressed last year's results. But it reduced its 2008 earnings forecast -- to a range of $1.61 to $1.71, from $1.73 to $1.88 -- even as it raised the lower end of its revenue forecast. "We remain on track to meet our 2008 objectives," despite the turbulent global economy," Chief Executive Jeff Kindler said. In afternoon trading, Pfizer were up 41 cents, or 2.4 percent, at $17.75. The New York-based maker of impotence treatment Viagra and cholesterol fighter Lipitor said it earned $2.3 billion, or 34 cents per share, up from $761 million, or 11 cents per share, a year ago. Excluding one-time items such as $716 million worth of charges related to cost cutting and $894 million for a settlement to end most lawsuits over its painkillers Bextra and Celebrex, net income amounted to $4.18 billion, or 62 cents a share. That was 2 cents a share more than analysts surveyed by Thomson Reuters expected. In the year-ago quarter, Pfizer took a $2.1 billion charge over pulling inhaled insulin product Exubera off the market due to weak sales and safety problems. Revenue slipped to $11.97 billion from $11.99 billion, even though foreign-exchange benefits from the weak dollar boosted sales by 5 percent; analysts had been expecting $12.01 billion. Several drugs had double-digit sales increases, including Viagra, fibromyalgia drug Lyrica, schizophrenia treatment Geodon and Aricept for Alzheimer's disease, and Celebrex sales rose 8 percent. But generic competition to two big drugs and allergy drug Zyrtec going over the counter cut revenue by $627 million. Pfizer reported a 13 percent drop in U.S. sales of Lipitor, the top-selling drug in the world, and worldwide sales were down 1 percent at $3.14 billion as insurers pushed generic Zocor versions. Brozak said Pfizer has not been doing enough to acquire new products and instead is too focused on cutting costs to boost the bottom line. Cowen & Co. analyst Steve Scala had a similar view, saying "growth prospects appear modest over the next few years," will mainly be driven by cost-cutting and the company's pipeline has little promising in the near term. "Given these factors, we see little reason to own Pfizer stock now," he wrote in a research note. Scala reaffirmed a neutral rating for Schering-Plough, whose profit dropped 23 percent because of higher expenses and charges. He's awaiting more data on sales trends for Vytorin and Zetia, the cholesterol drugs it markets jointly with partner Merck and Co. Their sales have been slumping since a January report indicated they're no more effective than generic Zocor; in the third quarter, sales fell 15 percent to $1.1 billion as U.S. sales plunged 29 percent, offset by international sales rising 37 percent. The Kenilworth, N.J.-based company earned $551 million, or 34 cents per share, down from $713 million, or 45 cents per share, during the same period a year prior. Excluding acquisition-related expenses and other charges, the company earned 39 cents per share, 8 cents more than analysts anticipated. Revenue, meanwhile, rose 63 percent to $4.58 billion -- $100 million more than analysts expected, with 70 percent of that coming from overseas. In addition, the Organon Biosciences unit bought last year contributed $896 million in sales. Shares rose 30 cents, or 2.1 percent, to $14.80. "Schering-Plough's new management has succeeded in righting the ship, having stabilized the base business and grown its earnings base via the cholesterol joint venture with Merck and the Organon Acquisition," Deutsche Bank-North America analyst Barbara Ryan wrote to investors. But she reaffirmed a "hold" rating, saying cholesterol drugs still account for more than 50 percent of the company's profit. Also Tuesday, Switzerland's Roche Holding AG reported a 1.6 percent rise in third-quarter sales, as a good market for its cancer medicines was partly offset by currency effects and fewer orders for flu drug Tamiflu. Roche, which reports profit figures only for the half year and full year, said worldwide sales across all of its divisions rose to 11.3 billion Swiss francs ($9.8 billion), led by the cancer drugs MabThera, Herceptin and Avastin. It reaffirmed its $43.7 billion offer for California-based Genentech Inc., of which it already owns some 56 percent. Roche shares fell 5.6 percent to close at 173.12 francs ($149.90) in Zurich.
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