Pfizer Earnings Preview: Profit Down On Falling Sales

Cut cost-cutting should cushion the blow

Pfizer Inc. (NYSE: PFE), the world's largest drug developer by revenue, is expected to report a decline in second-quarter profits on declining sales of its top-selling cholesterol drug Lipitor and generic competition for its glaucoma pill Zalatan.

The New York-based drug maker, which reports Tuesday before the market opens, will post earnings of 54 cents a share, a decline of 9.3 percent from 60 cents per share in the year-earlier quarter. Revenue is expected to be down 12 percent to $14.93 billion from $16.98 billion, according to a Thomson Reuters survey of analysts.

Pfizer faces a double whammy on its sales. Lipitor, which reached a sales peak of $13 billion in 2006, remained a popular cholesterol fighter worldwide till it lost its patent exclusivity in November last year. The drug still generated $1.4 billion in the first quarter. However, repercussions from the patent exclusivity loss started sinking in from April, sending sales tumbling.

From April through June, Pfizer has also been struggling to retain many of its Zalatan customers amid fierce generic competition for the glaucoma pill. Even as competition intensified in June, prices of generic drugs plunged, depressing Zalatan sales further. The dip in the price of Zalatan comes after the expiry of insurer rebates or discounts that Pfizer offered various prescription plans to reduce customer co-payments to about $4 a month.

Some of the revenue loss is being cushioned by cost-cutting, according to Damien Conover, director of pharmaceutical research at Morningstar, an independent investment research analytics firm based in Chicago. These cost-reduction initiatives involve efforts to streamline manufacturing facilities, trim the company's sales force and hold marketing expenditures, including hiring costs of marketing staff.

Such measures, along with prospective drugs, bode well for the company, something that Wall Street may be ignoring.

"We think Pfizer is undervalued," Conover said. "Our fair value is (estimated at) $27, but the stock price is $23. We think the pipeline is under-appreciated by the investment community as is its cost-cutting potential."

Shares fell 10 cents to $23.73 in midday trading.

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