Drug manufacturer Pfizer (PFE) will be reporting its fourth quarter earnings results on January 31 before the market opens. After its top selling brand, Lipitor, has gone generic since November 30, the focus is on how well the company is managing to retain its hold on the product and revenue growth.
Lipitor was contributing to one-sixth of Pfizer's annual sales and its sales assume significance. Though the product sale will not likely impact the results much since only one month, i.e. December, witnessed generic version sale, the trend might indicate what is in store for the drug maker.
Though the company did initiate various action plans to limit any significant impact arising after the product goes generic, it remains to be seen how much it could translate them into revenue. Pfizer had offered incentives and discounts for patients buying Lipitor. This apart, insurers and companies that process prescription claims in the initial two quarters are also offered incentives.
In 2010, the company generated $10.7 billion of revenue from Lipitor and the U.S. contribution alone accounted for $5.3 billion.
Expectations
Wall Street analysts are estimating the New York-based Pfizer to earn 47 cents a share on revenues of $16.61 billion for the fourth quarter. This represents flat earnings on revenue decline of 5.4 percent.
The company earned 47 cents a share on revenues of $17.56 billion in the 2010 fourth quarter.
Third Quarter Results
Pfizer reported adjusted net income of $4.82 billion, up from $4.35 billion and the earnings rose to 62 cents a share from 54 cents a share in the year-ago quarter. Revenues grew 7 percent to $17.19 billion from $16.00 billion in the previous year quarter.
Street analysts had estimated the company to earn 55 cents a share on revenues of $16.42 billion.
While releasing its third quarter results, the company increased its 2011 adjusted earnings forecast to $2.24 - $2.29 a share on revenues of $66.2 - $67.2 billion from $2.16 - $2.26 a share on revenues of $65.2 - $67.2 billion. But the company reaffirmed its adjusted earnings guidance of $2.25 - $2.35 a share on revenues of $62.2 - $64.7 billion for 2012.
Earnings History
In the last four quarter, Pfizer's earnings have consistently topped analysts' predictions. The company earned 62 cents a share, 60 cents a share, 60 cents a share and 47 cents a share in the third, second, first and last year's fourth quarter respectively.
On the top line side, the company generated revenues of $17.19 billion, $16.98 billion, $16.5 billion and $17.56 billion for the third, second, first and previous year's fourth quarter respectively.
Versus Peers
For the trailing twelve-month period, Pfizer's gross margin of 77.75 percent is better than Merck's (MRK) 69.42 percent and industry average of 50.64 percent. Similarly, the company's operating margin of 27.79 percent is better than Merck's 25.87 percent and industry average of 11.84 percent.
iStock Punch
The company's top line is not likely to be impacted by Lipitor going generic in the fourth quarter. Given Pfizer's intent to offer incentives to patients and insurers, the company may succeed in meeting the revenue estimations. But more discount or incentives means sacrificing the profit margin. The fourth quarter results will likely throw light on this to take a call.