Earnings Preview: Pfizer Expected to Post Lower but Inline Results

Pfizer (PFE), the maker of erectile dysfunction pill Viagra and the cholesterol fighter Lipitor, is expected to report lower quarterly earnings Wednesday (on an adjusted basis) than it did a year ago, even as it reports the combined results following its $68 billion acquisition of Wyeth, which it completed during the quarter. Following a quarter that saw both setbacks and good news for the company, what investors will want to know is how Pfizer's restructuring and diversification strategies are working out.The largest pharmaceutical company in the world is expected to post earnings of 50 cents per share in the fourth quarter, lower than last year's fourth quarter adjusted earnings of 65 cents per share for Pfizer and 1 cent per share for Wyeth. Analysts expect Pfizer to report sales of $15.97 billion. In last year's quarter, Pfizer's revenues were $12.3 billion and Wyeth's revenues were $5.4 billion.

Last week, Pfizer provided an update to its pipeline for the first time since the Wyeth acquisition. Pfizer has cut more than 15% of its combined drug-development programs from some 600 existing projects to about 500. The company said 70% of the remaining drugs are focused on six key therapeutic areas: oncology, pain, inflammation, Alzheimer's disease, psychoses and diabetes. Of particular note was the increase in the number of vaccines and biologics -- the result of (and the reason for) the Wyeth acquisition.

Beyond integrating its pipelines, Pfizer had to integrate a massive workforce. The company cut nearly 20,000 jobs in 2009, and more layoffs are expected.

During the quarter, Pfizer further diversified its business model: It made a stronger push into generics, moved into treating rare diseases, and invested in stem-cell therapies and generic biotechs. Pfizer is also expanding its penetration in emerging markets.

Among the good news during the quarter was the approval in some countries of an improved version of Wyeth's $2.7 billion vaccine Prevnar, for preventing ear infections, meningitis and other diseases in children. A U.S. decision is pending. Other drugs got approved for new uses in the fourth quarter, and the company entered a deal to co-promote popular Type 2 diabetes drug Actos with Japan's Takeda Pharmaceutical Co.

But Pfizer has also encountered setbacks, such as the failure in clinical trials of a once-promising lung cancer drug. Pfizer previously set a goal to boost its global cancer drug sales 10-fold by 2018. Pfizer also said it will no longer seek U.S. approval to sell pain drug Lyrica as an add-on treatment for anxiety.

Pfizer's position is no different than that of many other drugmakers struggling to overcome patent cliffs, increasing generic competition and insufficiently robust pipelines. Its strategies for coping have included mergers, partnerships, diversification and restructuring with massive cost-cutting -- and job-cutting -- moves. Pfizer has said its expense-reductions will save it roughly $3 billion a year.

With the company approaching the day in late 2011 when it will lose patent protection on its $12 billion-a-year cholesterol fighter Lipitor, the world's biggest-selling medicine, investors will want to know how Pfizer's other strategies are faring.

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