Earnings Preview: Big challenges for Pfizer

OVERVIEW: Pfizer has been hurt by steady declines in U.S. sales, is in a dry spell for major drug approvals and, under its latest restructuring, is aiming to cut costs by $1.5 billion to $2 billion by the end of 2008. Its stock has been in a long slide. In the first quarter, it reported an 18 percent drop in profit, missing Wall Street forecasts, mainly on tougher generic competition for blood-pressure drug Norvasc and allergy drug Zyrtec.

In recent months, concerns about suicidal thoughts have dogged its smoking-cessation pill Chantix and Lyrica, for fibromyalgia pain and seizures. But Pfizer has managed to hold off several patent challenges to protect sales of its cholesterol pill Lipitor, the world's top-selling drug with 2007 revenue of about $12.7 billion.

The company recently has been expanding its oncology business, with a new business unit and some licensing or acquisition deals. The same goes for its animal health business, with the opening of a new center to develop veterinary vaccines in Belgium and the purchase of several vaccines and veterinary medicines from Schering-Plough Corp. in April. It also got U.S. approval for a new antibiotic for cats and dogs, Convenia, a one-time injection for common skin infections.

Pfizer agreed to pay a $975,000 civil penalty to resolve alleged violations of the Clean Air Act at its former manufacturing plant in Groton, Conn.

BY THE NUMBERS: Analysts polled by Thomson Financial expect, on average, earnings per share of 54 cents and revenue of $11.46 billion. In the year-earlier period earnings per share were 18 cents and revenue was $11.08 billion. In the first quarter, earnings per share fell 18 percent to 41 cents from 48 cents in the 2007 period.

ANALYST TAKE: Citigroup analyst John Boris expects U.S. pharmaceutical sales for the quarter to be down 5 percent, but foreign sales up 9 percent, with sales of Lipitor flat and Norvasc down 5 percent. Sales of Lyrica, impotence treatment Viagra and pain reliever Celebrex should be up by double digits, he wrote. But Boris thinks high-margin products are underperforming, so sustained investment is needed to offset cost cuts.

Lehman Brothers analyst Charles Butler writes that management needs to address slowing sales of Chantix and Lipitor, and he expects more cost-cutting moves to be discussed. But he expects to see strong global growth of Lyrica, "one of the few bright spots in the quarter."

WHAT'S AHEAD: Pfizer has said it still expects to meet profit expectations for the full-year: $2.35 and $2.45 per share. But it faces losses of patents for several key drugs from 2010 to 2013, including Lipitor, the world's top-selling medicine.

STOCK PERFORMANCE: Shares fell 16.5 percent to $17.47 during the second quarter. In the first half of 2008, shares fell 23 percent. They sold for $50 nine years ago.