Generic competition cut deeper into drugmaker Pfizer Inc.'s sales in the second quarter - with the U.S. patent expiration for its cholesterol fighter Lipitor, the world's top-selling drug, just five months away.
The world's biggest drugmaker eked out a 5 percent profit increase, thanks to lower taxes and reduced restructuring charges from its 2009 purchase of Wyeth. Still, Pfizer shares dropped nearly 5 percent.
The New York-based maker of impotence pill Viagra said its net income was $2.61 billion, or 33 cents per share, up from $2.48 billion, or 31 cents a share, in 2010's second quarter.
But its underlying profit, excluding one-time items, declined 4 percent from a year ago, to $4.73 billion, or 60 cents a share. Analysts surveyed by FactSet were expecting 59 cents.
Pfizer said its revenue totaled $16.98 billion, down 1 percent. That was just below the $17.02 billion analysts anticipated. Revenue was boosted 4 percent by favorable currency exchange rates and another 2 percent by products acquired when Pfizer bought King Pharmaceuticals Inc. in March.
Sales were down in all of Pfizer's pharmaceutical businesses except for the emerging markets segment, where they jumped 7 percent including the currency boost. U.S. sales fell 9 percent, generic competition reduced total sales by $1.5 billion, or 9 percent, and costs related to the U.S. health care overhaul lopped off another 1 percent.
"The patent expiration tsunami is washing away the benefits of everything else they've tried," said Erik Gordon, an analyst and professor at the University of Michigan's Ross School of Business. "Not even the King Pharmaceuticals acquisition or the gift of help from the weak dollar have been able to hold back the damage."
Sales in the biggest business, primary care drugs including Lipitor, Viagra and pain relievers Celebrex and Lyrica, dipped 1 percent to $5.87 billion. Specialty care drugs were down 2 percent to $3.7 billion, and established products - drugs that have lost patent protection - fell 15 percent, to $2.32 billion.
Animal health was a bright spot, with sales up 18 percent at $1.06 billion, from new products acquired with King and increased global demand leading to bigger livestock herds.
"Our results for the quarter are in line with our expectations and demonstrate that our business can remain resilient despite current macroeconomic challenges and the impact of loss of exclusivity of several products," Chief Executive Ian Read told analysts during a conference call.
The company maintained its 2011 profit forecast, for adjusted earnings per share of $2.16 to $2.26, with revenue of $65.2 billion to $67.2 billion, as well as its 2012 adjusted profit forecast of $2.25 to $2.35 per share. For this year, analysts are expecting $2.25 per share and revenue of $66.68 billion, on average.
"Overall, we expect the market to be disappointed as investors would like to have seen an earnings guidance increase from management," Jefferies Research analyst Jeffrey Holford wrote to investors.
Shares of Pfizer fell 87 cents, 4.6 percent, to $18.14.
Sales of Lipitor continued to decline, falling 8 percent to $2.59 billion. The cholesterol blockbuster has generic competition in Canada and three other foreign countries, and overseas sales declined 21 percent. Sales were up 8 percent in the U.S., where Pfizer has been heavily promoting it ahead of its Nov. 30 patent expiration.
Sales jumped 44 percent, to $821 million, for the children's vaccine Prevnar and Prevnar 13, an improved version that protects against more strains of pneumococcal bacteria, which can cause ear infections, meningitis and pneumonia. The Food and Drug Administration just delayed its decision on whether to approve the vaccine for use in adults aged 50 and up to review new study data.
Sales of immune disorder treatment Enbrel, pain treatment Lyrica and cancer drug Sutent were up by double digits. But generic competition eroded sales of former blockbusters Norvasc for high blood pressure and antidepressant Effexor XR, plus a half-dozen other drugs.
Consumer health revenue rose 6 percent to $721 million, driven by sales of Robitussin, recently launched Advil Congestion Relief and a strong cold season.
"I believe our late-stage pipeline is as strong as it's been in several years," Read told the analysts, adding he thinks it will lead to launches of several drugs over the next 12 to 24 months.
Those include experimental kidney cancer drug axitinib, lung cancer treatment crizotinib, tofacitinib for rheumatoid arthritis, Prevnar 13 in the U.S. and blood thinner Eloquis. That's a potential blockbuster that was approved in the European Union in May; Pfizer and partner Bristol-Myers Squibb plan to seek U.S. approval later this year.
Credit Suisse analyst Catherine Arnold called the quarter "uneventful," but wrote that Pfizer's "long-term improvement story remains intact," with "bright pipeline prospects."
Read, who became CEO in December after the board ousted his predecessor, recently finished a top-to-bottom review of all of Pfizer's businesses and now is exploring selling or spinning off the animal health and nutrition businesses acquired with the Wyeth purchase. He said it will take about a year to find the way that brings "the greatest after-tax return for our shareholders," then another year or two to complete that.
On Monday, Pfizer took one step in reshaping its portfolio, completing the sale of its Capsugel medicine capsule-making business for $2.38 billion in cash.