Pfizer profit down 48%, but lets put some lipstick on that pig!

Reading financial reports is fun. I'm not kidding.

When you get into the nitty gritty detail you discover the stuff the company press release seldom mentions.

Take Pfizer Inc.'s most recent quarterly report, filed today.

Things are going downhill pretty fast, with patent losses happening even faster than expected. It may not be as bad as the 48% drop in quarterly profits indicated, but believe me, it is bad.

Let's for instance look at Pfizer's flagship, Lipitor.

In Pfizer's first quarterly report for 2007 the company proudly announced, ""We posted sales increases for Lipitor . . . (up 8 percent) . . . We have implemented comprehensive plans that we believe will strengthen Lipitor's marketposition . . . On March 5, 2007, Lipitor was approved by the FDA for five new indications . . . "

Pretty upbeat, huh?

Well that changed pretty rapidly.

In the most recent report, Pfizer says that, "In addition, Lipitor, our most prescribed product, did not meet our expectations for the quarter . . . 25% decline in the U.S. Our U.S. Lipitor performance in the second quarter was negatively impacted by two factors we had highlighted in the first quarter of 2007 as positively impacting the brand.

These two factors, changes in the U.S. wholesaler inventory levels and differences in reconciliation of internal and external data that are normally seen each quarter to varying degrees, (really? couldn't find either the word "U.S. wholesaler inventory" or "internal and external data" in that first report) accounted for approximately 50% of the revenue decline in the U.S. second-quarter 2007 results and are not expected to have a negative impact on U.S. performance over the second half of the year.

Other contributing factors to the second quarter's performance include the decreased level of prescriptions as well as increased rebates associated with our more flexible contracting activity."

OK, so lets take that again, what is Pfizer really saying?

Well apparently some of the earlier Lipitor sales appear to have been driven by good ol' fashioned channel stuffing, and now the chickens came home to roost, and the wholesalers got rid of some of that inventory. That's quite a bit of channel stuffing. Isn't that what BMS got caught doing and paid some big fines and had a court monitor appointed for doing?

As far as "reconciliation of internal and external data" that sounds to me like "oops, we didn't really record sales correctly and now we're fessing up." All of this accounted for a whopping 50% of the decrease in sales.

The other half?

A "decreased level of prescriptions" and "rebates" which Pfizer tries to put a positive spin on, calling it a "more flexible contracting activity."

Isn't that what Detroit is doing with all those cars they can't sell?

I'm just asking . . .

But I guess those "comprehensive plans that we believe will strengthen Lipitor's marketposition," from the first quarter really didn't work out . . .

And the fantastic FIVE NEW INDICATIONS . . . no one cared about them.

At least not prescribing docs.

But there is more.

Since Pfizer's drugs lose patents faster than a seven year old loses her teeth, Pfizer has invented a new measurement:

"Pharmaceutical adjusted revenues, which excludes the revenues of major products which have lost exclusivity in the U.S. since the beginning of 2006."

Pfizer hopes by using this measurement, and comparing this number from year to year, they'll show investors how well they do on products that don't lose their patents.

But only a drug company in mortal fear of future patent losses would introduce such a measurement.

And, just to be on the safe side, Pfizer Inc adds:

"This additional revenue measure is not, and should not be viewed as, a substitute for the U.S. GAAP comparison of Pharmaceutical revenue."

If you're a Pfizer investor, this ain’t really funny. But if you aren't, this is the greatest smoke and mirror show in town.