Pfizer's Forecast Disappoints

The drug giant says this year's sales and adjusted earnings will probably be in line with 2005.
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Updated from 10:23 a.m. EST

Pfizer

(PFE) - Get Report

said Friday that 2006 will yield flat sales and slightly lower earnings per share, but the drug giant indicated that its top-line growth should resume in 2007 as new drugs more than offset the loss of patents on its existing medications.

The company is looking for what it calls an adjusted profit of about $2 a share this year, excluding items, or $1.52 to $1.56 when calculated using generally accepted accounting principles. Pfizer's projection that revenue in 2006 will be "comparable" to last year implies overall sales of about $51.3 billion. The consensus Wall Street estimate is just under $51.6 billion.

On average, analysts surveyed by Thomson First Call were looking for an adjusted profit of $2.04 a share this year. In 2005, Pfizer earned $2.02 a share, before items. GAAP earnings were $1.09 a share last year.

Pfizer also forecast "high single-digit average annual growth" in 2007-2008 adusted earnings per share. Depending on how you define "high single digits," Pfizer's EPS estimates for the next two years, excluding items, appear to fall below the consensus forecasts of $2.16 in 2007 and $2.30 for 2008. Pfizer's earnings estimates include its consumer-products business, which the company said earlier this week

would be evaluated for a spinoff, sale or perhaps retention.

"Over the next three years, a new generation Pfizer will emerge, and our company will have the operating and financial strength to sustain value," said Hank McKinnell, the chairman and CEO. "We are taking a fresh look at everything we do."

Adding that Pfizer's transformation won't happen overnight, McKinnell said his company's goal is to "play our best game better" as well as to "change the game."

Investors weren't terribly happy with what they heard. By early afternoon, the stock was down 39 cents, or 2.5%, to $25.95. The stock fell as low as $25.35 in heavy trading.

The decline was contagious, as shares of U.S. and foreign Big Pharma companies fell.

Strategic Thinking

Pfizer's announcement had been highly anticipated ever since the company

withdrew its 2006 and 2007 forecasts in October, citing "current and anticipated business conditions."

Analysts have been predicting that Pfizer would soon take some emphatic actions given its strong cash flow from operations (more than $16 billion predicted this year), solid balance sheet and top-grade credit rating. Pfizer also is aided by an infusion of $37 billion it received thanks to last year's repatriation of profits from foreign subsidiaries.

"We have no interest in massive acquisitions," said McKinnell, adding that his takeover strategy is focused on technology and products.

The company expects to reach a decision on its consumer-products unit in the third quarter. The consumer division oversees a number of well-known brands, including Listerine, Benadryl and Visine, and it had sales of $3.88 billion last year, or 7.5% of corporate revenue.

David Shedlarz, a vice chairman, said the unit had pretax income of $700 million last year and would be worth more than $10 billion as a stand-alone company. Given the premium now placed on consumer-products companies, "this is an opportune time" to review corporate strategy, he said. McKinnell added that Pfizer has "no interest" in divesting consumer products piece by piece.

The company said this year's Lipitor sales will likely exceed $13 billion, up from $12.2 billion last year. Lipitor, a treatment for high cholesterol, is the world's biggest-selling drug.

McKinnell said he expects Lipitor sales growth in 2007, although he didn't provide an estimate. Analysts are worried that Lipitor's U.S. sales will come under pressure following the patent expirations in the next few months of Pravachol from

Bristol-Myers Squibb

(BMY) - Get Report

and, more significantly, Zocor from

Merck

(MRK) - Get Report

. The fear is that managed-care firms will press patients and doctors to seek cheaper generics instead of brand name cholesterol fighters like Lipitor.

Pfizer said sales of the arthritis drug Celebrex should surpass $2 billion in 2006, up from $1.73 billion in 2005. The company says sales of the nerve-pain and epilepsy treatment Lyrica will be more than $900 million, rising from $291 million last year. The company plans to launch six new products this year, and said it will file for approval of five more drugs this year and next, including medications for HIV, schizophrenia and cancer.

The company needs growth from existing products, as well as new drugs, to offset the loss of $3 billion in sales this year as generics eat away revenue from brand-name medicines whose patents are expiring. Last year, patent expirations affected products with $2.8 billion in sales.

Additionally, Pfizer said it plans to buy back at least $1 billion in stock this year. Given Pfizer's enormous size, that buyback represents 1 cent a share. Shedlarz said the buyback prediction is "very conservative," adding that he expects to revisit the strategy later in the year.