Pfizer beats Street;looks beyond animal health unit IPO

[garbon]

http://news.yahoo.com/pfizer-beats-forecasts-helped-cost-cuts-111506994--finance.html

Pfizer Inc reported higher-than-expected quarterly earnings on Tuesday, thanks largely to lower spending on research and marketing, and said it may fully divest its animal health unit following an initial public offering of up to 20 percent of the business.

The largest U.S. drugmaker in June said it planned to separate its animal health unit into a standalone company, allowing Pfizer to focus on its core pharmaceuticals business. On Tuesday it said it plans by mid-August to ask regulators to approve an initial public offering of up to a 20 percent stake in the new animal health business, to be called Zoetis.

Pfizer's animal health unit, with $4.2 billion in revenue last year, has more than 9,000 employees and sells medicines, vaccines and other products for livestock and pets.

"If the IPO is successfully completed, which we are targeting for the first half of 2013, we will have a variety of options to achieve a full separation of Zoetis," Pfizer Chief Executive Ian Read said in a release, adding that he wants to maximize after-tax returns to shareholders.

Shares of Pfizer have jumped more than 23 percent in the past year, in large part because of the company's plan to divest its infant formula business and animal health units and return much of the proceeds to shareholders through share buybacks and hefty dividends.

The company in April agreed to sell its baby formula business to Nestle SA for $11.85 billion in cash, with the deal to be completed in the first half of 2013. The business was treated in the second quarter as a discontinued operation.

Pfizer earned $3.25 billion, or 43 cents per share, in the second quarter, up from $2.61 billion, or 33 cents per share, a year earlier.

Excluding special items, profit was 62 cents per share, well above analysts' average forecast of 54 cents, according to Thomson Reuters I/B/E/S.

Global revenue fell 9 percent to $15.06 billion, hurt by generic competition against cholesterol fighter Lipitor, but topped Wall Street expectations of $14.87 billion.

Sales would have fallen only 6 percent if not for the stronger dollar, which lowers the value of sales in overseas markets. Most other big U.S. drugmakers have been hurt by foreign exchange factors in the quarter, including Johnson & Johnson , which cut its 2012 profit view as a consequence.

But Pfizer stuck to its 2012 earnings forecast of $2.14 to $2.24 per share, excluding special items, a decline of no more than 7 percent from a year earlier despite plunging demand for Lipitor. That is largely because of huge cost cuts, especially to Pfizer's research budget.

Sales of Lipitor, which lost patent protection in November, fell 53 percent to $1.22 billion in the quarter.

Sales of nerve pain treatment Lyrica jumped 14 percent to $1.04 billion, while sales of rheumatoid arthritis drug Enbrel rose 8 percent to $988 million, helping cushion the Lipitor decline

Pfizer shares rose 1.4 percent in premarket trading to $24.05.

[The Minsky Moment]

thanks largely to lower spending on research and marketing

Easy to raise current period profits by cutting investment in future revenue generation; not sure why this is to cheer for,

[garbon]

You didn't crop out the marketing bit.

[The Minsky Moment]

You didn't crop out the marketing bit.

The story cites "huge cost cuts" primarily to the research budget.

For a big pharma company, marketing is also a kind of capex equivalent because it goes to maintaning the whole marketing infrastructure of reps, sponsorships, industry conference participations, etc. that is used to build future as well as present revenue.

The story that is told in this release is that of a company that is boosting its stock price by partially liquidating itself - funding big cash payouts to shareholders by disposing of units and slashing expenditures on revenue generating activities.  The question raised is what is the reason to think that the rump company that remains will be positioned for sustainability?  What is the industrial logic that stops short of full liquidation and what is the path to getting there?

[garbon]

Sounds to me like they are spinning out divisions that they think distract from their core strengths as well as killing research in areas that they don't think are going to be fruitful/profitable. I don't see why it's bad for a company to trim the fat.

[Syt]

Back when I was still in a CRO the (self-interested) mantra were fed was that pharma can't afford to slash research, because there's increasing amounts of patents running out, meaning loss of exclusivity and generics producers stealing market shares.

Related question: any indication of how much cost saving was achieved by outsourcing vs. just killing projects?

[garbon]

Related question: any indication of how much cost saving was achieved by outsourcing vs. just killing projects?

That's a good point.

[Admiral Yi]

I read somewhere that a number of big drug companies are adopting the model of shutting down all in house research and just buying up patents from smaller firms that show promise.  Sort of like pharmaceutical venture capital firms.

[Malthus]

Pharma companies are increasingly moving towards a model where pretty well everything is outsourced and all they do is act as a clearinghouse for information, marketing strategies, contracting and IP.

[The Minsky Moment]

All true but whether this is really a viable long-term business model has yet to be established.

[garbon]

All true but whether this is really a viable long-term business model has yet to be established.

Whether my career is viable long-term has yet to be established.