July 30, 2013 / 8:11 PM / 5 years ago

Cost controls help Pfizer, Merck weather weak quarter

(Reuters) - Big Pharma is still relying on belt-tightening to prop up financial results.

A woman walks past the Pfizer Inc. headquarters in New York, January 31, 2013. REUTERS/Brendan McDermid

Pfizer Inc (PFE.N) and Merck & Co (MRK.N) said on Tuesday their quarterly results were again hit by generic competition for once top-selling products and the toll of a strong dollar on overseas revenue. Controls on marketing and administrative expenses, and other costs, helped them report earnings slightly above Wall Street estimates.

But neither company offered investors a quick return to growth based on new products, even if the worst of the “patent cliff” for best-selling drugs that have lost marketing exclusivity is behind them.

“We are managing our costs in order for us to meet our bottom line (earnings) guidance,” Chief Executive Kenneth Frazier said on a conference call with analysts.

Frazier said the company continues to have faith in the value of its animal health unit and consumer healthcare business, both of which had lower sales in the quarter.

“If we were to view these assets as being more productive outside the company, we would consider other alternatives,” he said.

Pfizer earlier this year completed the spinoff of its own animal health business into a new company called Zoetis (ZTS.N), only months after selling off its nutritional products business. It aims to return billions of dollars in proceeds to investors through stock repurchases and higher dividends. But, like Merck, it is holding on for now to its consumer healthcare unit.

Pfizer Chief Executive Ian Read said the industry’s best hope is a crop of new drugs and vaccines now in clinical trials that could transform treatment for cancer, cardiovascular diseases and other ailments.

“Certainly in the second half of this decade, I foresee significant products coming to market which will be a catalyst for industrial growth,” he said in an interview.

The strength of the dollar, particularly against the Japanese yen, has hurt sales of many U.S. companies with extensive international business this year.

Merck said full-year sales were likely to be about 5 to 6 percent below last year’s levels, Even so, it stuck to its full-year profit outlook of $3.45 to $3.55 per share, excluding special items.

Pfizer, the largest U.S. drugmaker, said second quarter revenue fell 7 percent to $12.97 billion, with 3 percent of the decline due to an unfavorable foreign exchange rate.

But Pfizer also trimmed costs and expenses by 3 percent and reiterated its full-year earnings forecast of $2.10 to $2.20 per share.

Pfizer said income, excluding special items, fell 10 percent to $4 billion, or 56 cents a share, from $4.45 billion, or 59 cents a share, a year earlier.

Merck earned $906 million, or 30 cents per share, down from $1.79 billion, or 58 cents per share, a year earlier. Excluding special items, Merck earned 84 cents a share.


“It follows along with the bigger picture in healthcare where things are OK. They’re not horrible, but they’re not great either,” said Michael Liss, portfolio manager at American Century Investments.

Liss predicted that the next big catalyst for the industry would come when U.S. healthcare reform kicks into high gear next year, helping millions more Americans get insurance coverage for doctor’s visits and medications.

“People are just waiting to get insurance and then spending will pick up,” Liss predicted. “The rate of growth will improve. It’s going to come from people having insurance.”

But Pfizer’s Read said the company does not expect the Affordable Care Act to significantly bolster its sales or earnings.

“Most of those are younger and healthy patients, so we see no near-term impact on our business,” he said in an interview.

Pfizer’s results were hurt by generic competition for its cholesterol fighter Lipitor, formerly the world’s top selling medicine. Lipitor sales fell 55 percent $545 million, while Merck saw sales of its off-patent asthma drug Singulair plunge 80 percent to $281 million.

Pfizer shares closed down 13 cents at $29.67, while Merck fell 29 cents to $48.05 on the New York Stock Exchange.

Pfizer on Monday announced plans to internally separate its commercial operations into two units for branded products and a third for generics, leading to speculation that it was looking to split up the company.

Chief Financial Officer Frank D’Amelio told analysts on a conference call on Tuesday that Pfizer would need at least three years to consider whether to break up the company, and that the reorganization was essentially a test drive to more closely examine their respective operations.

“This is all about getting the three businesses to hum internally,” he said.

Reporting by Bill Berkrot; Editing by Michele Gershberg and Richard Chang

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