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Pfizer Tops Estimates as Investors Await Possible Breakup

Pfizer Inc., the world’s biggest drugmaker, reported third-quarter profit that beat analysts’ estimates as the company cut costs and sales of its top vaccine and pain drugs increased.

Earnings (PFE) excluding one-time items were 58 cents a share, 2 cents more than the average of 16 analysts’ estimates compiled by Bloomberg. New York-based Pfizer raised the lower end of its full-year forecast range, excluding certain items, narrowing it to $2.15 to $2.20 a share from $2.10 to $2.20 per share.

Pfizer is pushing to expand sales of Prevnar, a pneumococcal vaccine and its second-biggest product, since losing marketing exclusivity for Lipitor, once the world’s top-selling drug. It also used proceeds from the divestiture of units to buy back stock and boost earnings per share. Investors are now looking for detail on whether Chief Executive Officer Ian Read will break the company into two or three pieces, keep them separately in-house or sell part.

“Right now, we’re focused on setting up the new organizational model,” Read said today on a conference call with investors. “It’s too early to speculate on the future developments of those businesses.”

Pfizer rose 1.7 percent to $31.25 at 4 p.m. New York time, its highest price since October 2004. The shares have gained 23 percent in the last 12 months.

Photographer: Chris Ratcliffe/Bloomberg

Pfizer has been among the hardest hit by drugs losing patent protection. Close

Pfizer has been among the hardest hit by drugs losing patent protection.

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Photographer: Chris Ratcliffe/Bloomberg

Pfizer has been among the hardest hit by drugs losing patent protection.

Sales Decline

Sales fell 2.5 percent to $12.6 billion, from $13 billion a year earlier, or $14 billion including a now-divested animal health business, Pfizer said today in a statement. The drugmaker has been among the hardest hit by products losing patent protection. Lipitor began facing competition from generic copycats in 2011. Pfizer also faces patent expirations that will hurt sales there through 2016, Read said.

Net income declined 19 percent to $2.59 billion, or 39 cents per share, from $3.21 billion, or 43 cents. Third-quarter results include the loss of profit from Zoetis, the animal health business Pfizer divested in an initial public offering this year.

Costs, including expenses for research and development and sales and administrative expenses, fell 4.5 percent, or $341 million, the company said.

The company in July reorganized its operations into a generic-drug and off-patent business, and two brand-name units and may begin reporting the profits and losses of each business separately next year. Read has portrayed the move as a way to further focus Pfizer’s businesses, and help the company successfully develop and introduce new drugs to replace lost revenue.

Separate Results

The three units will begin reporting separate financial results next year. Read said the unit that has vaccines, oncology and consumer products will likely be a faster growing business, with higher R&D spending and lower product-introduction costs. The second brand-drugs unit will have Pfizer’s drugs in inflammation and immunology, cardiovascular disease, rare disease, men’s and women’s health, pain and neurosciences, and rare diseases.

That unit will have “a lot more infrastructure, a bigger medical audience to go to, more field forces, lower growth rate,” Read said today in an interview.

The CEO said the generics business could still be competitive inside Pfizer, or as a U.S.-based stand-alone. Some generic drug rivals such as Actavis Plc, have moved their headquarters from the U.S. to overseas as a way of lowering their tax rates. Read cited Mylan Inc. (MYL) as a counter-example.

Business Focus

“Mylan is a very, very good generic business that runs out of the United States and under U.S. tax regime,” Read said. “I feel like tax is a second-order issue. The first is to get the operations right, the business development right, the supply chains right.”

The drugmaker has been pushing ahead with palbociclib, an experimental breast cancer treatment that may be among its biggest future products if approved for use. Data released last year showed that the drug stopped disease progression for more than two years in 165 patients.

Pfizer also plans to restart development of tanezumab, an experimental drug for osteoarthritis that was put on hold by U.S. regulators. It will join as a partner with Eli Lilly & Co., splitting costs and sales. The U.S. Food and Drug Administration still has a partial hold on the drug’s development, which Pfizer said could be lifted after it gives the FDA data next year.

Heart Drug

The company is also starting final stage trials of bococizumab, a cardiovascular drug aimed at patients who can’t get their cholesterol under control on statins. Pfizer said it plans to test the drug in 22,000 people, focusing on high-risk patients.

The blood thinner Eliquis, which was cleared in December, was initially projected by analysts to generate more than $1 billion. Sales have been lackluster, however, and weren’t listed separately in the third-quarter results. Pfizer splits the drug with Bristol-Myers Squibb Co. (BMY) Xeljanz, also approved last year, sold $35 million.

“Initial Xeljanz and Eliquis launches have been off to a slow start,” said Jami Rubin, an analyst with Goldman Sachs Group Inc. “Long-term we continue to think these assets will contribute to growth.”

Judson Clark, an analyst with Edward Jones & Co., is skeptical that the drug will turn into a mega-blockbuster.

“Estimates keep coming down and pushing out and they still keep coming in a little light,” he said last week, after Bristol-Myers reported revenue of $41 million from Eliquis.

“We’re getting to the point where Eliquis may be a solid drug, it may not be the resounding success everyone thought.”

Sales of Lyrica, the pain medicine that’s now the company’s biggest drug, rose 9.6 percent to $1.14 billion from a year before. Prevnar revenue rose 1.1 percent to $959 million.

To contact the reporter on this story: Drew Armstrong in New York at darmstrong17@bloomberg.net

To contact the editor responsible for this story: Reg Gale at rgale5@bloomberg.net

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