Drugmaker Pfizer's 2Q profit plunges 19 percent

TRENTON, N.J. - Drug giant Pfizer Inc. on Wednesday said its second-quarter profit plunged 19 percent, as the strong dollar pulled down revenue, and higher taxes and costs for its pending purchase of Wyeth hurt the bottom line.

But Pfizer raised its profit forecast slightly, sending shares up 26 cents to $15.96 in afternoon trading.

The maker of cholesterol fighter Lipitor, impotence treatment Viagra and stop-smoking drug Chantix said net income in the quarter ended June 28 was $2.26 billion, or 34 cents per share. Net income was $2.78 billion, or 41 cents a share, in the second quarter of 2008.

Excluding charges totaling $900 million, or 14 cents per share, Pfizer's earnings per share were 48 cents. Revenue totaled $10.98 billion, down 9 percent.

Analysts polled by Thomson Reuters were expecting earnings per share of 47 cents and revenue of $11.27 billion.

"Somewhat lackluster," wrote Miller Tabak analyst Les Funtleyder, although "the company exhibited good cost control."

Pfizer cut spending on research and on marketing and administration by double digits, and eliminated 3,750 jobs in the second quarter, leaving about 76,500 employees worldwide. The company has eliminated just over 10,000 jobs and closed several facilities since January 2008. It spent $330 million on such cost cutting in the latest quarter.

New York-based Pfizer, the world's biggest drugmaker by sales, expects to close on its $68 billion purchase of Wyeth — the industry's biggest deal this year — late in the third quarter or in the fourth quarter.

"We're trying to get the deal closed as quickly as we can," and are negotiating to sell parts of the two companies' European and American animal health businesses to approval from antitrust regulators in the U.S., Canada, China and Australia, Chief Financial Officer Frank D'Amelio said in an interview.

On Monday, 98 percent of Wyeth shareholders voted to approve the deal, which still requires approval from U.S. and other regulators. Pfizer spent $491 million in the quarter on financing and other acquisition-related costs.

"This earnings report shows how critical the Wyeth acquisition is to Pfizer's continued financial health," analyst Steve Brozak of WBB Securities said. "They're down in every single area, from operating cash flow to revenue to margins."

Pfizer said its tax rate jumped to about 26 percent, from just 1 percent a year ago when the company had a $305 million favorable tax adjustment. Meanwhile, unfavorable exchange rates reduced revenue by $1.1 billion, or 9 percent.

"On a constant currency basis, every one of our pharmaceutical units and animal health generated revenue growth during the quarter, with the exception of the established products unit," Pfizer Chief Executive Jeff Kindler told analysts.

Sales dropped 20 percent in that unit, which mostly sells products that have lost patent protection.

Pharmaceutical sales fell 9 percent to $10.06 billion, as sales declined for some top products. Lipitor, the world's top-selling drug, saw sales fall 10 percent to $2.69 billion amid increasing competition, blood pressure treatment Norvasc saw a 17 percent drop to $518 million due to generic competition, and Chantix saw sales fall 7 percent to $192 million, mainly due to U.S. warnings about suicidal behavior and depression in some patients.

Due to the exchange rates, revenue fell for all major Pfizer drugs except nerve pain treatment Lyrica and cancer drug Sutent, which each saw sales rise less than $20 million.

Leerink Swann analyst Seamus Fernandez noted sales were below expectations for Lyrica, Lipitor and Viagra. He wrote that Pfizer's overall results were "in line with our expectations, although the continued deterioration of Lipitor in the U.S. and international markets raises questions."

Lipitor is being hurt in the U.S. by generic versions of other, older cholesterol drugs.

"We continue to support the brand," Kindler said in an interview, noting foreign Lipitor sales were up 4 percent in the quarter.

Animal health sales fell by 9 percent to $648 million.

Pfizer increased its 2009 earnings-per-share forecast to a range of $1.30 to $1.45, up from $1.20 to $1.35. On an adjusted basis, Pfizer raised its range to $1.90 to $2 from $1.85 to $1.95.

Pfizer also narrowed its forecast for 2009 revenue, to a range of $45 billion to $46 billion, from the prior $44 billion to $46 billion. That indicates sales should pick up and currency effects should wane a bit in the second half, D'Amelio said.

Deutsche Bank analyst Barbara Ryan writes she thinks Pfizer could raise its dividend — slashed by half when the Wyeth deal was announced in January — by 10 to 15 percent this December. The current quarterly payout is 16 cents per share.

For the first six months, net income fell 10 percent, to $4.99 billion, or 74 cents per share, from $5.56 billion, or 82 cents per share. Revenue dropped by 9 percent, to $21.85 billion from $23.98 billion.

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