Pfizer Worries Abate

The company's in-line guidance for the year has Wall Street feeling relieved.
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Updated from 10:13 a.m. EDT

Pfizer

(PFE) - Get Report

slipped Tuesday after the big pharmaceutical company trimmed 2005 earnings guidance.

But the move merely brought Pfizer's view of its full-year profit into accordance with Wall Street's expectations. The New York company also posted first-quarter numbers that exceeded targets.

The moves elicited a sigh of relief from some analysts. "No major surprises in first-quarter results or fiscal-year guidance," Morgan Stanley analyst Jami Rubin told clients in a research note Tuesday. The results were "marginally better than expected," Chris Shibutani of J.P. Morgan said in a brief report to clients.

Pfizer shares were off 34 cents, or 1.2%, to $27.26.

First-quarter earnings slid sharply from a year ago because of huge charges to repatriate foreign earnings and pay for the suspension of its Bextra painkiller.

Including one-time charges, Pfizer earned $301 million, or 4 cents a share, on revenue of $13.1 billion for the three months ended March 31. That compares with first-quarter 2004 earnings of $2.33 billion, or 30 cents a share, on revenue of $12.5 billion.

Backing out special items, Pfizer's earnings rose 1% from a year ago to 54 cents a share, beating Wall Street estimates by a penny. Sales rose 5% to $13.1 billion, about $600 million more than analysts had expected.

Pfizer tweaked its full-year 2005 guidance to reflect an expense of 15 cents a share for the suspension of Bextra and associated write-offs. The impact was lessened by the postponement of stock-option expensing after a

Securities and Exchange Commission

-sanctioned delay of accounting rules last week.

Pfizer now expects adjusted earnings of $14.7 billion, or $1.98 a share, for the year, compared with a Thomson First Call consensus of $1.97 a share. Previously, Pfizer had predicted an EPS of $2 for the fiscal year.

The company forecast double-digit earnings growth in 2006, including "renewed growth" for its arthritis drug Celebrex. For 2007, it sees "accelerating double-digit earnings growth."

J.P. Morgan's Shibutani, who has an overweight rating, says Tuesday's announcement is encouraging for the "absence of no new material negative news." Shibutani was pleasantly surprised by the higher-than-expected first-quarter sales growth, thanks to the cholesterol drug Lipitor and the antibiotic Zithromax. (He doesn't own shares; his firm has a non-investment-banking relationship, and it expects to seek or receive investment-banking compensation in the next three months.)

Morgan Stanley's Rubin, who has an overweight rating on the stock, says the company's reiteration of double-digit earnings growth in 2006 is "important." Such a prediction "likely assumes a reacceleration in growth for Celebrex, an assumption with which we are comfortable."

The Food and Drug Administration recently told the makers of arthritis medications and painkillers to put

stronger warnings about cardiovascular risks on drug labels.

The FDA announcement accompanied its request to Pfizer to suspend sales of Bextra, a cousin of Celebrex, because the agency says Bextra's risks are greater than its benefits. Pfizer complied with request but adds that it disagrees with the FDA's assessment and will speak with the agency about returning Bextra to the market.

"We believe that management is proactively addressing the challenges ahead," adds Rubin, citing Pfizer's

plan to cut $4 billion in costs.

The key dangers in the future, she adds, are a successful patent challenge to Lipitor well ahead of the 2011 patent expiration date and the delay or failure in development of a new cholesterol drug. She gives the patent challenges by

Ranbaxy Laboratories

only a 20% chance of success, reflecting the prevailing Wall Street sentiment. (She owns shares; her firm has an investment-banking relationship.)

In the company's main unit, human health, sales rose 4% from a year ago to $11.44 billion. Among its major sellers, Pfizer said, revenue from Lipitor rose 23% from a year ago to $3.07 billion; revenue from hypertension treatment Norvasc rose 3% to $1.18 billion; revenue from antidepressant Zoloft rose 4% to $845 million; revenue from Zithromax rose 71% to $797 million; and revenue from impotence treatment Viagra rose 5% to $438 million. Sales of the colorectal cancer drug Camptosar jumped 132% to $212 million.

The main drag on top-line growth was the company's troubled arthritis franchise, where sales of Celebrex tumbled 47% to $411 million in the quarter and sales of Bextra tanked 79% to $56 million. Generic competition hurt sales of the epilepsy drug Neurontin, which dropped 74% to $182 million. Sales of Difulcan, a treatment for yeast infections, fell 55% to $138 million because of generic competition.