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Pfizer Shares the Pain

Questions about its controversial painkillers may dull any positive earnings news it reports Wednesday.



unveils fourth-quarter and full-year earnings results Wednesday in what portends to be a day of many questions.

Most notably, what will happen to the company's arthritis franchise? The biggest dilemma involves its signature product, Celebrex, for which one recent medical study showed greater cardiovascular risk than for patients receiving a placebo. But all other tests have showed no problems. A recent Citigroup Smith Barney report predicted Celebrex's worldwide sales could reach $3.24 billion for 2004, then fall to $1.62 billion in 2005 and keep falling.

And what will be the long-term impact on the arthritis drug Bextra, whose label was recently made more strict regarding a rare but dangerous skin disorder? The label also was changed to reflect one clinical trial showing that patients receiving Bextra plus another arthritis drug had a higher risk of cardiovascular problems than patients receiving a placebo. But this test only covered heart bypass surgery, and Bextra isn't permitted for any surgical patients in the U.S. Citigroup Smith Barney said Bextra could achieve $1.25 billion in sales for 2004, then sink to $623 million in 2005 and continue declining.

Throw in some slow starts for a few new products, the generic assault on the epilepsy drug Neurontin and the recent sales slowdown for Viagra, and you have all the ingredients for an eventful earnings report and a lot of uncertainty for the next few years.

"We continue to stay on the sidelines with shares of Pfizer," said George Grofik, a longtime Pfizer watcher for Citigroup Smith Barney, as he told clients recently that he was maintaining a hold rating on the stock.

Grofik said Pfizer faces "a number of structural issues" over the next few years, including "multiple patent expirations," heightened competition for brand-name products and "an industry average pipeline." (Grofik owns shares; his firm has had an investment banking relationship with Pfizer.)

Grofik isn't alone in his caution. According to Thomson First Call, there are now 18 buy ratings vs. 13 neutral recommendations; three months ago, there were 18 buy recommendations and eight neutral ratings.

"We expect that Pfizer's results this quarter will exhibit a mixed bag of performance," said Albert L. Rauch of A.G. Edwards in a Tuesday report to clients as he held on to his hold rating. The result, he said, will be a fourth-quarter EPS of 59 cents and a full-year EPS of $2.13, which is in line with the Wall Street consensus.

Rauch is looking for a 2005 EPS of $2.29 -- Grofik predicts $2.05 -- while the consensus of analysts surveyed by Thomson First Call expects $2.15.

On the basis of prescription trends, Rauch said the strong performers for the fourth quarter of 2004 will be the cholesterol drug Lipitor, the blood pressure drug Norvasc, Celebrex and Bextra, among others.

The weak performers will be Neurontin and the antifungal drug Diflucan, both being hit by generic competition, and Viagra, whose sales are being hurt by brand-name competitors. (Rauch doesn't own shares; his firm doesn't have an investment banking relationship.)

Rauch predicts that Celebrex and Bextra "will likely demonstrate growth on a sequential and year-over-year basis," thanks to



withdrawal of Vioxx from the market on Sept. 30. But he warned about the "increased noise level as it relates to the cardiovascular side effects with Cox-2 inhibitors as a class."

Vioxx, Bextra and Celebrex belong to that class of drugs. An advisory panel of the Food and Drug Administration will hold three days of hearings in mid-February on all Cox-2 drugs, including Dynastat, a Pfizer drug that is sold in foreign markets. Pfizer recently submitted an application to the FDA for Dynastat's approval.

Sales of Bextra and Celebrex will be affected not only by the recent clinical trials but also by the FDA's recent recommendation that doctors be more conservative in prescribing such drugs. Four weeks ago, the FDA told doctors to balance the risks and benefits of Cox-2 drugs, especially for patients at risk for heart attacks or strokes.

The agency noted that many patients seeking pain relief also have a high risk for gastrointestinal bleeding. Some don't respond well to pain drugs such as ibuprofen. For patients who "are not doing well" on these drugs, Cox-2 drugs "may be appropriate candidates," the FDA said. These recommendations will stay in place until the agency completes its review of all Cox-2 drugs.

In Tuesday trading, Pfizer's stock was off 1 cent at $25.24. (It traded around $37 as recently as last April.) Since the beginning of the year, the stock has barely budged, and the daily trading volume has been lower than average -- a good indication that many investors, like many analysts, are on hold until the crucial financial announcement.