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Generics Still Nagging Pfizer

Cheap Norvasc is just one of its problems.



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can turn the tables on the generic-drug makers threatening its primary brands, it could struggle to meet its profit forecast for this year, at least two analysts believe.

Though it's the world's largest pharmaceuticals concern, just two products accounted for roughly one-third of Pfizer's total sales in 2006, and both are under attack.

Late last month,

Mylan Laboratories

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began shipping a cheaper version of Norvasc, Pfizer's second-best seller with revenue of $4.9 billion. Norvasc was set to retain U.S. marketing exclusivity until September,

but a complex legal ruling gave the generic copy an opening to come out early.

Unfortunately for Pfizer, Norvasc isn't the only problem. It also has to deal with serious concerns about the cholesterol medication Lipitor, its top offering and the world's biggest prescription drug.

Though Lipitor remains protected by patents, competitors Pravachol from

Bristol-Myers Squibb

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and Zocor from


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no longer are. That's opened up the market to a slew of less-costly alternative therapies.

Considering that Lipitor collected sales of $12.9 billion in 2006, by itself about one-quarter of Pfizer's revenue, it should come as no surprise that the company's watchers are on edge. Pfizer will report its quarterly results early April 20, and analysts will be anxious to ask management on the conference call that day about its plans for dealing with generics.

"We are particularly cautious about Pfizer ... as we see the risk of them revising guidance for 2007 and possibly 2008 in light of the Norvasc disappointment," Roopesh Patel of UBS Securities wrote in research report issued earlier this month.

Patel, like many analysts, is neutral on Pfizer. He expects first-quarter earnings of 57 cents a share, excluding items, which is in line with the Thomson First Call consensus. The average revenue estimate is $11.8 billion.

To partially ease the sting from the Mylan product, Pfizer is offering its own generic blood-pressure drug even as it continues to sell brand-name Norvasc. Still, Patel expects the setback to cost 7 cents to 10 cents a share for the year, and he speculates that Pfizer might use this as a "trigger" to reduce its full-year projection.

Pfizer has previously forecast a profit $2.18 to $2.25 a share, when items are stripped out, while the Wall Street consensus is $2.18. Patel's firm seeks to do and does business with companies covered in its research reports.

To understand some of what Pfizer is up against, it helps to know that generic Zocor, the Lipitor competitor, is getting cheaper, because there are now eight companies selling it. At the same time, managed care organizations have been steering their members and doctors toward the cheaper options and away from more-expensive brand-name Lipitor.

When Zocor lost patent protection, for 180 days only one company was allowed to sell a generic, thus easing the pricing pressure on Lipitor. Federal law gives a 180-day marketing advantage to companies successfully filing the first generic application of a brand-name drug with the Food and Drug Administration. The 180-day period expired in December, thus making the January-March 2007 period the first showdown with multiple generics.

Although total U.S. prescriptions have been rising for all medications that reduce bad cholesterol, Lipitor's total prescription volume is slipping, according to research by the medical data-tracking firm IMS Health and the A.G. Edwards investment banking firm.

Lipitor had about half of total U.S. prescriptions -- new orders plus refills -- for generic and brand-name cholesterol drugs at the beginning of 2004. For the four weeks ended in late March, its market share was heading toward 34%.

The latest Lipitor figure represents a 10% drop from the same period last year, while prescriptions for all other cholesterol drugs rose about 27%. Generic Zocor and generic Pravachol played a big role in those extra prescriptions.

Although Pfizer raised Lipitor's price by 5% in January and the FDA approved the drug for five new indications during the first quarter, the "trajectory of Lipitor's total prescription volume trend is troublesome," says Joseph Tooley, of A.G. Edwards, in a recent research report.

He's also concerned about estimates. "The longer it stays on this course, the more difficult we believe it will be for Pfizer to meet its earlier EPS guidance for the year, at least without increased cost-cutting," says Tooley, who has a hold rating.

He predicts that Lipitor's first-quarter U.S. sales will slip to $1.9 billion, down 4% from the year-ago quarter. U.S. prescriptions might fall 7%, while worldwide sales should be flat at $3.1 billion. Tooley adds that Lipitor is getting hit by brand-name competitors, such as Vytorin from Merck and




Citing the pressure on Lipitor, the Norvasc case and disappointments such as the inhaled insulin Exubera, Tooley cut his full-year earnings estimate by 5 cents to $2.20 a share. His first-quarter forecast is for 55 cents, up 2 cents from a previous estimate. His firm has had a noninvestment-banking relationship with Pfizer.