IHS Global Insight Perspective | |
Significance | Despite the pressure on topline figures, Pfizer's net income and operating income soared by 26% and 11% year-on-year during the third quarter of 2009. This spurt is attributed to the firm's cost-cutting efforts in the past year. |
Implications | The main challenges affecting Pfizer's results are generic competition and fluctuating foreign-currency exchange rates. The firm has, however, not included the sales made by its latest acquisition, Wyeth, a total consideration of US$68 billion. |
Outlook | The firm has provided upward revisions to its full-year sales forecast, expecting a smooth integration of Wyeth's operations and expressing confidence in the restructured business units. |
U.S. pharma major Pfizer has registered a dip in revenues, with US$11.62 billion for the third quarter ended 30 September. For the nine-month period ending 30 September, revenue also registered a drop of 7% year-on-year (y/y). Interestingly, the firm did not include figures from Wyeth, whose acquisition was announced earlier this year. In terms of expenditure, Pfizer reported higher restructuring and acquisition costs, including transaction costs relating to the Wyeth purchase for both periods. Furthermore, litigation-related charges of about US$900 million (combined for both periods under review) were included. This charge related to the resolution of litigation of non-steroidal anti-inflammatory pain drugs, namely Bextra (valdecoxib).
Cost-cutting measures employed to tighten operational efficiencies were reflected in cost of sales, selling, informational and administrative costs, and research and development (R&D) expenses, which registered falls of 16%, 7%, and 13% y/y respectively for the third quarter. This emphasis on cost cutting helped to lift the operating income and net income. Operating margins were up 5.13 percentage points higher y/y in the third-quarter period.
Pfizer, Selected Financial Results, 2009 (US$ mil.) | ||||
Q3 2009 | % Change, Y/Y (on a reported basis) | Q1–Q3 Period 2009 | % Change Y/Y (on a reported basis) | |
Revenues | 11,621 | -3 | 33,472 | -7 |
Cost of sales | 1,789 | -16 | 4,953 | -23 |
Selling, Informational, and Administrative (SIA) expenses | 3,282 | -7 | 9,508 | -13 |
R&D | 1,632 | -13 | 5,032 | -11 |
In-process R&D charges | - | -100 | 20 | -96 |
R&D as % of revenues | 14% | 1.70 pp lower | 15% | 0.69 pp lower |
Operating income* | 4,918 | 11 | 13,959 | 12 (12466) |
U.S. pharmaceutical revenues | 4,816 | -2 | 13,347 | -5-5 |
International pharmaceutical revenues | 6,229 | -4 | 17,495 | -7 |
Total pharmaceuticals revenues | 10,677 | -3 | 30,842 | -6 |
Net income | 2,878 | 26 | 7,868 | - |
Operating margin | 42.3% | 5.31 pp higher | 41.7% | 7.1 pp higher |
Source: Company, except *—IHS Global Insight calculation based on revenues minus cost of sales, SIA, and R&D expenditure. |
Reflecting the revenue drop trend in overall revenues, Pfizer's recently established new business units also reported an across-the-board dip in revenues, except for speciality care. Established products were the worst hit, with a 12% y/y dip in the third quarter at US$1.618 billion followed by the much-touted oncology products at 5% y/y. Primary care and emerging markets remained tied in third spot with a 4% drop. Speciality care, in contrast, reported US$1.6 billion in sales with an operational growth of 6% y/y driven by Rebif (interferon beta 1-a) and Revatio (sildenafil citrate). The product-wise performance also followed the familiar trend, with key drugs such as Lipitor (atorvastatin calcium), Chantix/Champix (varenicline), Neurontin (gabapentin), Camptosar (irinotecan), and Aricept (donepezil hydrochloride) all reporting dips in revenues.
Pfizer: Product Sales, Q3 2009 | ||
Worldwide Sales (US$ mil.) | % Growth Y/Y | |
Cardiovascular/metabolic | 4,042 | -11 |
Lipitor | 2,853 | -9 |
Norvasc | 488 | -13 |
Chantix/Champix | 155 | -15 |
Caduet | 130 | -12 |
Cardura | 109 | -14 |
Revatio | 111 | 18 |
Central nervous system | 1,504 | -3 |
Lyrica | 708 | 5 |
Geodon/Zeldox | 252 | -2 |
Zoloft | 128 | -5 |
Neurontin | 82 | -20 |
Aricept* | 108 | -17 |
Xanax/XR | 81 | -11 |
Relpax | 81 | -2 |
Arthritis/pain | 684 | -11 |
Celebrex | 602 | -4 |
Infectious diseases and respiratory | 877 | -11 |
Zyvox | 271 | -3 |
Vfend | 196 | 3 |
Zithromax/Zmax | 85 | -7 |
Diflucan | 93 | -1 |
Urology | 773 | -6 |
Viagra | 466 | -8 |
Detrol/Detrol LA | 283 | -5 |
Oncology | 575 | -11 |
Sutent | 246 | 9 |
Camptosar | 82 | -33 |
Aromasin | 123 | 1 |
Ophthalmology | 444 | -3 |
Xalatan/Xalacom | 436 | -3 |
Endocrine disorders | 293 | -1 |
Genotropin | 232 | 3 |
All other | 811 | 140 |
Alliance revenues** | 692 | 21 |
Animal health | 678 | -4 |
Other*** | 266 | -8 |
Source: Company |
Outlook and Implications
Pfizer's third-quarter performance was largely dominated by two key trends that have impacted most Big Pharma firms. This includes a sliding revenue growth from its key products primarily due to generic competition or increasing market challenges, and the negative impact of foreign currency exchange rates on sales. Nevertheless, the pharma major has managed to maintain the fall in sales growth to single digits by embarking on cost-cutting measures across all business units. In fact, a restructuring drive has resulted in the setting up of focused business units targeting areas such as oncology and primary care.
Beyond the data, however, the most significant feature for Pfizer was the acquisition of Wyeth earlier this year. The firm has successfully gained U.S. and Canadian regulatory nods for the acquisition and subsequent merger. The process is expected to culminate in some divestments, particularly in the animal health businesses. The pharma major will also be integrating and streamlining manufacturing and R&D facilities over the course of the next few quarters. Reflecting the addition of Wyeth's business and confidence in its own new restructured business units, the firm has upgraded its guidance figures for the full year 2009. While it is important to note that Wyeth's revenues have not been included in the nine-month or third-quarter periods, it is likely that Pfizer may decide to do so in the full-year figures. Final confirmation of this move is still awaited.
Pfizer: Forecast, 2009 | |
Guidance | |
Reported Revenues | US$49-50 billion |
Reported Diluted Earnings Per Share | US$1.45-1.50 |