Bloomberg News

Pfizer Plans August IPO Filing as Profits Top Estimates

July 31, 2012

Pfizer Schedules Animal Unit IPO as Profit Beats Estimates

Pfizer’s sales have eroded since its top-seller Lipitor, which generated $9.58 billion last year, lost market exclusivity in November. Photographer: JB Reed/Bloomberg

Pfizer Inc. (PFE:US), the world’s largest drugmaker, said it will start a filing in mid-August to sell as much as 20 percent of its animal-health unit in an initial public offering. The company also reported profit that beat analysts’ estimates as a result of cost cutting.

Net income rose 25 percent to $3.25 billion, or 43 cents a share, New York-based Pfizer said today in a statement. Earnings excluding one-time items beat by 8 cents the average estimate of 54 cents of 15 analysts compiled by Bloomberg.

Pfizer is reducing costs to counter eroding sales of its top-selling cholesterol pill Lipitor, which lost market exclusivity in November. The spin off of the animal-health unit and spending cuts are part of Chief Executive Officer Ian Read’s plan to refocus the company on producing new drugs to replace Lipitor, once the world’s biggest-selling medicine.

“We’re before the middle innings, because it takes a longer timeline,” to develop products than to reduce expenses, Read said today in an interview.

As part of a spending overhaul, Pfizer may cut as many as 10 more facilities in the next several years, Chief Financial Officer Frank D’Amelio said.

The company’s shares gained 1.4 percent to $24.04 at the close in New York, their highest price in more than four years. The stock (PFE:US) has gained 11 percent this year.

Serious Cuts

“Read showed he is serious about cost cutting, and investors already rewarded him with a nice run-up in the stock price over the last 12 months,” Erik Gordon, a professor of business at the University of Michigan in Ann Arbor, said in an e-mail. “The new products have to pan out and Pfizer has to grow its non-U.S. sales in the face of a global slowdown. Both are riskier propositions.”

The company has three experimental drugs in late-stage testing that investors are focused on as the near-term replacements for Lipitor.

Tofacitinib, one of those drugs, is meant to treat rheumatoid arthritis. U.S. regulatory approval might be delayed beyond its current August deadline, the company said today.

Pfizer also released a study today showing the drug was more effective than methotrexate, an older treatment. Tofacitinib was superior in easing pain and swelling of joints caused by rheumatoid arthritis and no new side effects were found, according to the study. Results were from the last of three stages of human tests generally required for Food and Drug Administration approval. The drug may compete with Abbott Laboratories (ABT:US)’ top-seller, Humira.

Other Setbacks

Other top prospects have had setbacks. Bapineuzumab, an Alzheimer’s disease drug being developed with Johnson & Johnson and Elan Corp., failed the first of four pivotal, final-stage clinical trials, Pfizer said on July 24. Results from the next trial will be released in August, Read said.

The company is also seeking marketing clearance for Eliquis, a blood thinner being developed with New York-based Bristol-Myers Squibb Co. (BMY:US) The FDA rejected Eliquis in June, asking the companies for more information from existing trials.

The FDA could take as long as six months after the companies give regulators the data to respond. The agency hasn’t asked for a new clinical trial. The drug, aimed at patients with heart arrhythmia, would have $2.5 billion a year in sales by 2015 if approved, according to Tim Anderson, a Sanford C. Bernstein & Co. analyst in New York.

Financial Results

The cost cutting helped Pfizer make its numbers this quarter. Revenue fell 9 percent to $15.1 billion in the quarter, led by declining sales of Lipitor, which dropped 53 percent to $1.22 billion. Adjusted expenses, including marketing, administrative and research and development costs, dropped 16 percent to $8.27 billion. The company reiterated its 2012 adjusted earnings forecast (PFE:US) of $2.14 to $2.24 a share.

“I’m not sure that cost cutting can’t continue in some form or fashion, especially as Pfizer has entered a period of a number of expiries,” Tony Butler, an analyst with Barclays Plc, said in a telephone interview. “Margins and the ability to hold back costs are much better than we as analysts predicted.”

Pfizer plans to sell shares of the animal-health business in the first half of next year, Read said. The company will file a registration statement with the Securities and Exchange Commission that will start the process of separating the business in August.

Zoetis Business

Along with the IPO, Pfizer plans to give current shareholders stock in the animal-health business, to be named Zoetis, he has said previously. The company hasn’t announced yet where the company will have its headquarters, nor said who will lead it.

In April, Pfizer agreed to sell its infant nutrition business to Vevey, Switzerland-based Nestle SA for $11.9 billion.

Money from the unit divestitures may be to be used for share buybacks, which Read calls “the case to beat,” compared with acquisitions.

The company has bid for other companies, including drugmaker Amylin Pharmaceuticals Inc., Bloomberg has reported. However, it hasn’t made a purchase (PFE:US) worth more than $50 million during Read’s tenure, according to data compiled by Bloomberg.

“We invest internally in projects that we believe have a return above our cost of capital,” Read said. “External opportunities are subject to the same analysis. We are not going to do projects that do not return our cost of capital because of issues internally or non-issues internally. Our willingness to do deal externally is driven by the value of the deals.”

The second quarter was the first in which Lipitor faced the full might of competition from generic versions of the pill. Six months ago, Ranbaxy Laboratories Ltd. and Watson Pharmaceuticals Inc. (WPI:US) were the only rivals.

Sales of Lyrica, used to treat pain, rose 14 percent to $1.04 billion. Enbrel, an injection to treat rheumatoid arthritis symptoms, generated $988 million in sales, an increase of 8 percent. Revenue from Prevnar, Pfizer’s vaccine for pneumococcal diseases, gained 12 percent to $916 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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Companies Mentioned

  • PFE
    (Pfizer Inc)
    • $29.26 USD
    • -0.13
    • -0.44%
  • ABT
    (Abbott Laboratories)
    • $42.23 USD
    • -0.01
    • -0.02%
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