WRAPUP 2-Pfizer, Lilly profits beat Street; generics take toll

Tue Jan 29, 2013 4:26pm EST

* Pfizer sees 2013 EPS $2.20-$2.30 excluding items

* Lilly sees 2013 EPS $3.82 to $3.97

* Pfizer, Lilly shares close up 3.2 pct

By Bill Berkrot and Ransdell Pierson

Jan 29 (Reuters) - Pfizer Inc and Eli Lilly and Co reported better-than-expected fourth-quarter profits as deals, cost cutting and strong sales of new products helped the pharmaceutical companies weather generic competition for once top-selling products.

The U.S. drugmakers also issued 2013 forecasts on Tuesday that encouraged investors, who sent shares of both companies up more than 3 percent.

Excluding special items, Pfizer earned 47 cents per share, topping analysts' average expectations by 3 cents, according to Thomson Reuters I/B/E/S.

But global sales for the largest U.S. drugmaker fell 7 percent to $15.1 billion as sales of Lipitor, formerly the world's top selling prescription medicine at nearly $13 billion a year, plunged 71 percent to $584 million. Sales of the cholesterol fighter began tumbling in November 2011, when its U.S. patent expired and cheaper generics flooded the market.

Pfizer's quarterly net profit quadrupled to $6.32 billion, or 86 cents per share, due to the November sale of its nutritional products business to Swiss food group Nestle SA for about $12 billion. It is also preparing to spin off its animal health business through an initial public offering expected to bring in billions more.

"I don't think the Lipitor expiration is an issue for our investors today," Chief Executive Ian Read said in an interview. "We've done what we needed to do and (investors) are focused on the future," he added, referring to the company's decision to spin off the nutritional and animal health units in order to focus on its more-profitable core pharmaceuticals business.

Pfizer recently won approvals for highly promising new products, including the blood clot preventer Eliquis, which it shares with Bristol-Myers Squibb Co, and Xeljanz for rheumatoid arthritis.

In mid to late-stage trials, it is testing treatments for cholesterol, psoriasis and numerous types of cancer. Read said Pfizer's biggest priority is developing the drug pipeline and getting the products to market.

"Pfizer is doing exactly what you want them to do," said Bill Smead, portfolio manager of Seattle-based Smead Value Fund that owns Pfizer shares. "Pfizer is moving back to their core with a strong balance sheet and a bright future."

Lilly's fourth-quarter net profit fell more than 3 percent as sales of its Zyprexa schizophrenia drug - at one time one of the world's top five sellers - fell 49 percent to $385 million.

Excluding one-time items such as asset impairments and restructuring charges, Lilly earned 85 cents per share, beating analysts' expectations by 7 cents per share.

Lilly's results and its 2013 forecast were dependent upon aggressive companywide cost controls. Strong sales of other drugs and animal health products helped offset the toll of generic Zyprexa in the fourth quarter.

"We are absolutely emerging from the loss of Zyprexa," Lilly Chief Financial Officer Derica Rice said in an interview. "We feel good where we are."

But the company is facing yet another daunting patent cliff at the end of this year when its best-selling product, the antidepressant Cymbalta, begins to face generic competition.

"They're negotiating the Zyprexa patent cliff pretty well by keeping costs down, but the question is whether they can keep tightening the belt to offset the patent expiration on Cymbalta," said Judson Clark, an analyst for Edward Jones. "It's a $6 billion a year drug, and a tough act to follow."

Lilly updated the 2013 earnings forecast it issued earlier this month, to include 7 cents per share from a delayed research and development tax credit. It now expects to earn $3.82 to $3.97 per share, up 13-17 percent from a year earlier.

Pfizer forecast 2013 earnings of $2.20 to $2.30 per share, excluding special items. The average analyst estimate was $2.29 per share, according to Thomson Reuters, and the midpoint of the company's range is less than that.

Pfizer earned $2.19 a share in 2012.

Pfizer earnings were propped up by rebounding sales in emerging markets, which rose 17 percent to $2.65 billion, and strong sales of its Prevnar vaccine for pneumococcal bacteria, which jumped 19 percent to $993 million.

"As they pare away non-pharmaceuticals businesses, that will allow Pfizer's drug pipeline to shine even more because it will represent a bigger portion of the company going forward," Clark said.

Smead likes the U.S. pharmaceutical sector as a whole. "The best business over next 20 years is keeping baby boomers alive and keeping their animals alive," he said.

Pfizer shares closed up 86 cents, or 3.2 percent, at $27.70, while Lilly shares rose $1.68, or 3.2 percent, to close at $54.32 on the New York Stock Exchange.