Pfizer (NYSE:PFE) reported a 19% drop in net earnings from $2.22 billion to $1.79 billion in its recently declared Q1 2012 results.  The results were heavily impacted by the loss of exclusivity in manufacturing cholesterol lowering drug, Lipitor, due to its patent expiry in the U.S. Other key drugs Xalatan and Geodon also saw a drop in sales due to patent expiry. Pfizer operates in pharmaceuticals, animal health, consumer healthcare and nutrition, and it competes with key players in the healthcare sector such as Merck (NYSE:MRK), Johnson and Johnson (NYSE:JNJ) and Abbott Labs (NYSE:ABT).
Sales Drop in U.S. and Margin Improvement
This quarter was marked with sales drop for a few key drugs such as Lipitor, Xalatan, and Geodon that lost their patent exclusivity. Overall, Lipitor sales dropped from $2.4 billion to $1.4 billion, nearly a 42% fall. And, Xalatan and Geodon sales also dropped 42% and 22%, respectively. Despite these discouraging results, drugs such as Celebrex, Enbrel and Lyrica showed sound growth in Q1 driven by the sales in China and Japan.
Pfizer has been aggressive in cutting costs over the past few months to stay afloat with the expectation of dropping sales in the future, and the results are visible as its margins improved in Q1. The company also lowered its guidance for expenses in 2012. It reduced the cost of goods sold (as a percentage of revenues) by 1% and selling, general and administrative (SG&A) expenses by nearly $700 million for 2012.
The company did report a drop of 19% in net earnings, but if we analyze the results excluding extraordinary items like restructuring costs, asset impairment charges and charges relating to legal matters, it posted a fall of 13% from $2.67 billion to $2.33 billion.
We are in the process of revising our forecasts to incorporate the Q1 results. The Trefis price estimate for Pfizer stands at $25.11, implying a premium of 13% to the current market price.Notes: