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As Lipitor Stumbles, Pfizer Reports 18% Drop in Q1 Profits
18 Apr 08
A tougher pharma environment for the world's largest drug-maker, Pfizer (U.S.), has persisted over the first quarter of 2008, with generic competition and buyout charges affecting profits.
Global Insight Perspective | | Significance | Key product sales were hit by generic competition over the quarter. Worryingly, Lipitor (atorvastatin) showed signs of weakening, with U.S. sales down 18%. Operating income was down 17.6%, while net profit dropped by 18%. | Implications | On the positive front, products such as Chantix, Sutent, and Lyrica have kept revenues afloat, along with cost-cutting measures. | Outlook | Guidance remains unchanged, but there is concern over whether it is achievable given the firm's dependence on blockbuster drug Lipitor. |
U.S. pharmaceutical major Pfizer reported a dip in revenues of 5% at US$11.84 billion for the first quarter of 2008. Domestic pharmaceutical sales were notably down 21%, with international revenues at US$5.76 billion absorbing some of the pressures of the challenging U.S. pharma scene. The company has attributed its sales decline to generic competition for key products Norvsac (amlodipine), Camptosar (irinotecan), and Zyrtec (cetirizine). Cost of sales and selling, informational and administrative (SIA) expenses were only marginally higher at 5% and 4%, respectively. Acquisition related in process R&D charges witnessed a 40% growth year-on-year (y/y), affecting total expenditure. However, restructuring measures and the favourable impact of foreign exchange mitigated some of the pressures of the cost structure this quarter. Selected Highlights: Pfizer Q1 (US$ mil. unless otherwise stated) | | | Q1 2008 | % Change Y/Y on Reported Basis | Revenues | 11,848 | -5 | Cost of Sales | 1,986 | 5 | Selling, Informational and Administrative (SIA) Expenses | 3,492 | 4 | Research and Development (R&D) | 1,791 | 8 | Operating Income* | 4,579 | -17.65 | U.S. Pharmaceutical Revenues | 5,141 | -21 | International Pharmaceutical Revenues | 5763 | 13 | Total Pharmaceuticals Revenues | 10904 | -6 | Net Income | 2784 | -18 | Source: Company except *Global Insight calculation based on revenues minus cost of sales, SIA and R&D expenditure |
In terms of product sales, Lipitor revenues dropped by 7% y/y despite the favourable impact of foreign exchange, which helped push up revenues by 4%. The product's U.S. sales were down 18%, mainly attributed to a cost-sensitive and highly competitive statins market. Lipitor's international sales helped mitigate some of the losses with a 13% y/y growth rate in the quarter. While generic competition affected Norvasc, Camptosar, and Zyrtec; growth was depressed for other products, including Zithromax, Diflunac, Relpax, and Neurontin. As the second-largest product contributor in value, Celebrex posted lacklustre growth at just 2%. However, Pfizer noted that international sales reported a 20% y/y growth rate, reflecting increased demand. Chantix/Champix, Viagra, Vfend, Sutent, and Xalatan have kept up their increased contributions to overall sales. Pfizer: Product Sales | | | Q1 2008 (US$ mil.) | % Growth | Cardiovascular/Metabolic | 4494 | -13 | Lipitor | 3137 | -7 | Norvasc | 513 | -52 | Chantix/Champix | 277 | 71 | Caduet | 147 | 1 | Cardura | 121 | -10 | Central Nervous System | 1386 | 11 | Lyrica | 582 | 47 | Geodon/Zeldox | 241 | 12 | Zoloft | 122 | -17 | Neurontin | 89 | -19 | Aricept* | 104 | 22 | Xanax/XR | 86 | 14 | Relpax | 77 | -7 | Arthritis/Pain | 755 | 1 | Celebrex | 611 | 2 | Infectious Disease and Respiratory | 931 | 2 | Zyvox | 259 | 1 | Vfend | 171 | 15 | Zithromax/Zmax | 120 | -8 | Diflucan | 89 | -19 | Urology | 748 | 4 | Viagra | 460 | 6 | Detrol/Detrol LA | 313 | 3 | Oncology | 637 | 7 | Camptosar | 192 | -16 | Sutent | 190 | 86 | Aromasin | 104 | 13 | Ophthalmology | 413 | 13 | Xalatan/Xalacom | 405 | 13 | Endocrine Disorders | 258 | 6 | Genotropin | 206 | 3 | All Other | 758 | -35 | Zyrtec/Zyrtec D | 117 | -75 | Alliance Revenues** | 488 | 23 | Animal Health | 619 | 6 | Other*** | 325 | 6 | Source: Company *Represents direct sales under agreement with Eisai (Japan).
**Aricept, Macugen, Mirapex, Olmetec, Rebif and Spiriva.
*** Includes Consumer Healthcare business transition activity, Capsugel and Pfizer Centersource. |
Pfizer has also announced that the Canadian federal court upheld its patent covering Norvasc (amlodipine besylate) in Canada against generic producer Pharmascience. The product faces patent expiry in August 2010. Outlook and Implications The first-quarter figures reflect the challenging landscape for branded pharmaceutical firms in the United States. Like in 2007, the pressures in terms of generic competition and a cost-sensitive climate have persisted into the first quarter for Pfizer. While cost cutting measures have helped mitigate some of the losses, the impact of international sales and the favourable influence of foreign exchange have been Pfizer's saving grace. The pharma major has reiterated its guidance for 2008, confirming the adjusted income of US$15.6-16.6 billion for 2008. However, the first-quarter performance has raised some concern as to whether this target is realistic. One of the issues relates to Lipitor and its contributions to topline, which has seen a fall this quarter, exposing the company's potential dependence on the drug in the short to medium term. Chief executive and chairman Jeff Kindler has admitted that the company is now seeking to "find a way to not be so dependent on one blockbuster," reports the Associated Press. The U.S. major is undertaking efforts to diversify and create a stronger product basket. Emphasis on alliances and acquisitions on a smaller scale have been seen to assume a greater role in an attempt to strengthen R&D pipelines; Pfizer's acquisition of Encysive Pharmaceuticals is one such example. The tough pharma environment is expected to continue to pressurise Pfizer's financial results in the forthcoming quarters.
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