Pfizer Beats Estimates as Company Prepares for Split

Pfizer Inc.’s two new brand-drug units will operate on a separate basis, reporting independent profits and losses, under the leaders that Chief Executive Officer Ian Read elevated to head them.

The businesses, along with an established products line that could be split from the company after 2017, will report separate results that will show investors how each line of drugs, and the leaders managing them, are performing.

“I wanted to focus great executive talent on both of those segments of the business,” Read said in a telephone interview today after the New York-based company reported second-quarter earnings. The units, led by Geno Germano and Amy Schulman, have different needs and strategies, Read said.

Pfizer is in the middle of a transition that may see the world’s largest drugmaker broken up into a brand-medicine company, which Read calls the “innovative core,” and a generics business. Such a split almost certainly wouldn’t happen until at least 2017, in part because Pfizer needs three years of audited financial statements, as well as time to get the businesses running smoothly on a separate basis.

“Our current thinking is that this is about getting all three of these businesses to hum internally,” Chief Financial Officer Frank D’Amelio said today on a conference call. D’Amelio said it would be difficult to split the company before 2017 if Pfizer decides to take that ultimate step.

Earnings Beat

Earlier today, Pfizer reported second-quarter earnings excluding one-time items of 56 cents a share, 1 cent more than the average of 15 analysts’ estimates compiled by Bloomberg. Net income rose more than fourfold from a year earlier to $14.1 billion, or $1.98 a share, helped by the spinoff of the company’s animal-health unit and a patent settlement, Pfizer said in a statement.

Pfizer rose less than 1 percent to $29.67 at 4 p.m. New York time. The shares have gained 25 percent in the last 12 months.

Schulman, a lawyer who has run Pfizer’s animal health and nutrition businesses, has never been in charge of a pharmaceuticals unit before. Read, an accountant by training, said that doesn’t matter and mentioned the head of Pfizer’s cancer business.

“I don’t have specific in-depth oncology experience, but Garry Nicholson does. A leader can’t be an expert in each of those businesses,” Read said in a telephone interview. “Amy is a talented leader of organizations. She’s proven that in the way she’s run the general counsel’s organization. She’s done an excellent job in nutritionals.”

More Responsibility

Read has been giving more responsibility to Schulman since he took over as CEO in December 2010. He added to her responsibilities the infant nutrition unit, sold last year to Vevey, Switzerland-based Nestle SA for $11.9 billion. Then he gave her the $3.21 billion-a-year consumer business that includes ChapStick, Centrum vitamins, and over-the-counter drugs.

Read said that her businesses, which include vaccines, cancer and consumer products, require similar strategies.

“They have specific research efforts, small communities, with a very tailored way of delivering the message that often needs institutional selling,” Read said. “It was better to have executive leadership focused on that, and have other leaders focused on the complexities of the large primary care, specialty markets set.”

Germano’s Division

Germano will have those businesses, as well as the company’s inflammation and immunology, cardiovascular disease, rare disease, men’s and women’s health, pain and neurosciences, and rare diseases operations. His division will include new potential blockbusters Eliquis, a blood thinner, and Xeljanz, a rheumatoid arthritis drug.

The company has given Germano a more prominent role in investor presentations and media interviews. He previously ran the company’s specialty and oncology divisions.

The elevation of Germano and Schulman puts two of the company’s rising stars in even higher profile positions. They changes “definitely could be part of succession planning, and putting people where they’re strongest,” said Judson Clark, an analyst with Edward Jones & Co.

Read, when asked whether he was thinking about an eventual transition at the top should he leave or retire, said Germano and Schulman were among many talented leaders at Pfizer.

‘Talented’ Executives

“I don’t think I even came close to saying it,” he said when asked about succession plans. “We have a very talented CFO, probably the best in the industry, in Frank D’Amelio. I have a great research person. John Young is extremely talented, Geno’s talented, Amy’s talented. One of my responsibilities as CEO is to ensure that all of the executives who have capability and capacity have the opportunity to develop, and that’s what I’m focused on as part of my responsibility.”

Part of Germano’s role will be boosting sales of Xeljanz and Eliquis, introduced this year. The early sales of both have been slow.

Xeljanz generated $33 million in sales in the quarter, after analysts estimated it would sell $42 million. Pfizer said it expects to announce results from two studies of Xeljanz in psoriasis by the end of this year. Sales of Eliquis weren’t disclosed, though Bristol-Myers Squibb Co., which splits revenue from the drug with Pfizer, reported just $12 million in sales in the second quarter. Bristol-Myers said it was overhauling its plans to market the drug.

Below Expectations

“I would agree that Eliquis has recently gone below our expectations,” Read said in the interview. The company has more work to do getting the drug into hospitals as well as gaining preferred treatment by health insurers.

Read said he was happy with the company’s partnership with Bristol-Myers.

As for Xeljanz, “Our expectations weren’t as high as the street for the initial launch,” Read said. “It’s going to be a steady but sure growth in this product.” The drug isn’t yet approved in Europe, and may face a several-year wait before it is, the company said today.

The Eliquis and Xeljanz sales “continued to disappoint,” said Jeffrey Holford, an analyst at Jefferies International Ltd. “While better Lipitor and Celebrex sales helped to offset some of this, these are unlikely to help in the mid to long term as sources of revenue,” he said in a note to clients.

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