Wednesday, July 18, 2007

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.


Anonymous said...

Pfizer's bucket of money is only half full....

Anonymous said...

What about that brilliant finance department, huh? The brilliant financial leader whom Wall Street allegedly loved during the early & mid 90s? The one who is currently leading a function of corporate overhead and administration?

Why does he still have a job?

Pharmalyst said...

Dr. Rost - Honored to get your comment on my humble little blog. Obviously you know much more about the industry than I do and he issue you raised in your post is certainly something that the analysts appeared to be concerned about.
What one of the executives said (don't remember exactly who) is that January is when the prices go up on a regularly and so wholesalers may have stocked up....but who knows what exactly happened. Certainly these sort of issues have not cropped up with Lipitor in the past...
However Pfizer did disclose +ve impact of channel inventory after their Q1 they are not doing it on the sly like BMS. Perhaps channel stuffing in CYA mode since they are now headed by a lawyer CEO?!

Adam J. Fein, Ph.D. said...
This comment has been removed by the author.
Adam J. Fein, Ph.D. said...

Re: the inventory data

To be fair, neither Pfizer nor Wyeth have purchased third-party software for analyzing wholesaler data. Details on my blog:

Harry Potter and Wholesaler Inventory


Anonymous said...

that's funny when Pfizer has the state of the art software for tracking which doctors do or don't comport with their commitments to reps for increased prescription writing of Pfizer drugs (aka "Sherlock Analyzer" software) and software to track all of the daily movements of each of their employees minute to minute (Is this the 3rd Reich or a company that claims "life is our life's work? Get real!).

If our interest is "to be fair", maybe Wyeth can't afford such "state of the art" software; but why if Pfizer can buy and implement all of their Stalinist and Hitler-esque software can't they purchase and implement simple third-party software for analyzing wholesaler data instead of just software for analyzing which doctors to put the squeeze on when their prescription writing doesn't comport with Pfizer demands?