Pfizer (NYSE:PFE) is all set to announce its Q1 earnings for 2012 on May 1. The results may not be very encouraging this time as a fall in revenue and a drop in profitability margins is on the cards because of patent expiration of Lipitor in November 2011 and Geodon in February 2012. However, it gained FDA approvals for some key drugs and entered into noteworthy strategic agreements during this quarter, which can be deemed as a positive for Pfizer going forward. And with the sale of its nutritionals business to Nestle, its cash reserves has significantly risen and we should not rule out either a share buyback or an acquisition happening in near future.
Pfizer operates in pharmaceuticals, animal health, consumer healthcare and nutrition. It competes with other key players in the healthcare sector like Merck (NYSE:MRK), Johnson and Johnson (NYSE:JNJ) and Abbott Labs (NYSE:ABT).
Sales Dip; Margins Fall
Lipitor was a major source of revenues for Pfizer and brought $9.6 billion in sales, nearly 14% of the total $67.4 billion sales in 2011. Due to November 2011 expiration of Lipitor patent, the company entered 2012 without the exclusivity of manufacturing Lipitor. It also lost almost 50% market share for Geodon in March after Geodon went off-patent in February 2012.
When a patent for a drug expires, competition from cheaper generic products developed by competitors inevitably eats into these businesses. This leads to significant drop in sales for that drug because of loss in market share and drop in average selling price of the drug. Margins are impacted right away because revenues decline but costs do not. Hence, we expect Pfizer to register decline in sales and margins. Lipitor is a cardiovascular drug and Geodon is a central nervous system (CNS) drug. Cardiovascular drugs and CNS drugs form nearly 14% and 12% of the company value.
Positives for the Quarter
In February, Pfizer acquired a vitamin supplements company Alacer Corp., which will help it add Emergen-C, a established brand to its product offerings. Additionally, Pfizer has been a prolific R&D spender and as a result maintains a very healthy product pipeline. During January and February, the company got FDA approvals for some of the important drugs, namely, Tafamidis meglumine, Inlyta, Bosutinib for newer applications. Inlyta is an oncology drug and was launched during the quarter. We expect significant incremental revenues from Inlyta. Apart from this, other R&D catalyst like Tofacitinib and Eliquis are awaiting FDA approvals and are expected to be launched later during the year. Prevnar/Prevenar is another product in the pipeline which got approval last year in the U.S. and looking for approval in other markets as well. We are yet to assess the success of this product.
This quarter may be affected on account of lost sales, but the longer term outlook for the company is still sound and we expect upside to the shares if the product pipeline fetches commercially successful drugs in the future with popularity as Lipitor.