Legacy Wyeth Products Boost Pfizer's 2010 Revenues by 36%, Job Cuts at U.K. Research Site

U.S. pharma major Pfizer has provided financial results for the fourth-quarter and full-year periods ending 31 December 2010, with revenue showing 6% year-on-year (y/y) growth in the fourth quarter and 36% y/y for the full year. U.S. revenues dropped 4% y/y in the last quarter but remained very strong in the full-year period with a 34% increase. International revenues, on the other hand, did not show that contrast, achieving 9% y/y growth and 28% annual growth respectively. U.S. revenues represented 43% and international revenues represented 57% of total revenues for the full-year 2010. According to the firm, the financial results from the periods under review reflect revenues from legacy Wyeth products and substantially lower restructuring charges associated with the Wyeth acquisition, but negative impacts primarily from lower revenues of legacy Pfizer products. In terms of the cost structure, the firm continued to report positive growth, with a marginal 0.13% y/y decline in research and development (R&D) charges in the fourth quarter of 2010. Operating income was up 7% y/y and 11.1% annually in the two periods under review. Net income tripled in the fourth quarter to US$2.89 billion, while it dropped 4% in the annual period.

The business units' sales breakdown saw continued pressure on the primary care, oncology, and established product units in the last quarter. This contributed to a subdued 3% y/y growth in total biopharmaceutical sales. However, in the full-year period only oncology reported a 6% drop in sales. In contrast, speciality care and emerging markets provided the momentum to keep topline growth in positive territory, with a double-digit percentage increase. Apart from these two segments, contributors to Pfizer's positive topline growth came from the nutrition and consumer healthcare units with sales growth of 158% y/y and 53% y/y respectively in the fourth quarter.

In terms of product performance, legacy Pfizer products witnessed increasing pressure primarily due to generic competition across key global markets. Negative impacts from the loss of exclusivity of Lipitor (atorvastatin) in Canada and Spain in May 2010 and July 2010 respectively, as well as Aricept (donepezil) in the United States in November 2010. The loss of exclusivity for these products reduced legacy Pfizer Primary Care revenues by approximately US$500 million, or 8% y/y in the fourth quarter, the firm said. Furthermore, the results were negatively affected by pricing pressures in major European markets and the U.S. healthcare reform. In contrast, growth from select brands, including Lyrica (pregabalin), Champix (varenicline), and Celebrex (celecoxib), in key international markets, most notably Japan, provided the positive momentum required. Legacy Wyeth products such as the Prevnar/Prevenar (pneumococcal conjugate vaccine) franchise in the speciality care unit, Protonix (pantoprazole) in the established products unit, as well as Enbrel (etanercept), Premarin (conjugated estrogens), and Pristiq (desvenlafaxine) bolstered Pfizer's sales growth.

U.K. Research Facility Closure

Pfizer has announced that it plans to close its U.K. research facility in Sandwich, and shift selected resources from Groton, Connecticut, to Cambridge, Massachusetts (both U.S. sites). Furthermore, outsourcing of certain functions is also to be initiated. The firm is planning to enhance its presence in Cambridge, Massachusetts, completing its five major research site hubs globally. This includes San Francisco, New York, La Jolla, and Cambridge, U.K., besides its Massachusetts site. The exit from the Sandwich facility will potentially threaten the jobs of 2,400 employees, with some being absorbed into its Cambridge facility in the United Kingdom and elsewhere. The move is aimed at adjusting R&D expenses as part of its 2012 financial targets, which is expected to see the planned reduction in the number of disease areas the company will focus on based upon commercial and medical impact.

Outlook and Implications

Pfizer has ended the year 2010 on a positive note as far as topline growth is concerned. Driven primarily by legacy Wyeth products, the firm has maintained its grip on sales growth as the largest pharma firm in the world. The contributions of its speciality and emerging markets units underscore the success of the firm's investments in recent times to boost operations in these segments. The firm has especially focused since 2008 on enhancing its presence in markets such as China and India, where the pharma markets are witnessing rapid growth. This strategy is expected to continue to reap benefits in the medium term. Looking at its cost structure, the recent major acquisitions—Wyeth and King Pharma—will continue to affect expenditure this year, thereby affecting targets for the short term.

The firm has maintained its financial guidance for 2011 with a reported revenues forecast of US$66–68 billion. However, in terms of the 2012 estimates, the firm has adjusted reported revenues between US$63–65 billion compared with the previous target of US$65.2 billion and US$67.7 billion. The decline reflects the elimination of projected revenue contribution from future business-development transactions previously included in the target as well as certain changes in market conditions, Pfizer said in a press statement. However, it does not go unnoticed that 2012 will see the first full-year impact of generic competition of its largest drug Lipitor, which will see its major patent expire in mid 2011 and as part of its settlement with Indian generic firm Ranbaxy, the first generic may be launched potentially in November 2011. Hence, the cautious approach from Pfizer in revising its revenues lower for the 2012 period is understandable.

Furthermore, the firm's initiative to cut R&D costs through sustained realignment in 2011 of its various research sites provides a new insight on its research priorities. Pfizer has not indicated yet if it will be pulling out of R&D development in specific therapeutic areas. However, the firm had indicated a restructuring of its operations including research focus in 2009. The exit from the Sandwich facility is not entirely a surprise, given the cost-cutting measures Pfizer had already embarked on in 2009 and 2010. Pfizer announced it was planning a restructuring of its manufacturing operations, with eight facilities affected in a May 2010 announcement, at which time the firm said it would be realigning manufacturing sites in Ireland, Germany, Puerto Rico, the United Kingdom, and the United States, as well as cutting 6,000 jobs (see United States: 19 May 2010: Pfizer Restructures Manufacturing Operations, Cuts 6,000 Jobs).