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Pfizer, Lilly beat Street; generics take toll

The entrance of Pfizer World headquaters in New York City, August 31, 2003. ECONM REUTERS/Jeff Christensen
The entrance of Pfizer World headquaters in New York City, August 31, 2003. ECONM REUTERS/Jeff Christensen

By Bill Berkrot and Ransdell Pierson

(Reuters) - Pfizer Inc and Eli Lilly and Co both reported a better-than-expected fourth-quarter profit as they weathered generic competition for once top-selling products through deals, cost cutting and strong sales of newer products.

The U.S. drugmakers also issued 2013 forecasts on Tuesday that passed muster with investors, sending shares of both companies up about 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 for Pfizer, plunged 71 percent to $584 million with the market flooded by cheaper generic copies.

Pfizer's 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.

"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 current biggest 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, which was better than Wall Street estimates, 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, which represents growth of 13 percent to 17 percent.

Pfizer forecast 2013 earnings of $2.20 to $2.30 per share, excluding special items, with a midpoint below the average analyst estimate of $2.29 per share, according to Thomson Reuters. 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. It also 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.

"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 were up 83 cents, or 3 percent, at $27.67, while Lilly shares rose $1.92, or 3.6 percent, to $54.56 in midday trading on the New York Stock Exchange.

(Reporting by Bill Berkrot, Ransdell Pierson and Caroline Humer; Editing by Jilian Mincer and Maureen Bavdek)

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