Further Pfizer spin-offs still somewhere in the future

 Drugmaker Pfizer said Tuesday it might be years before the company separates its "innovative" products division from its more established products - if it does so at all - and leaders offered no definitive timing on selling more of its animal health unit, Zoetis.

Pfizer reported a revenue drop of 9 percent for the first quarter of 2013, citing generic competition, and lowered its earnings projections for the rest of 2013, mainly because of foreign currency exchange rates.

Pfizer is based in Manhattan and has a big operation in Collegeville, Montgomery County, but parts of its earnings report were distinctly foreign in nature.

The company's quarterly net income rose 53 percent from the same period in 2012 in part because it sold its minority stake in a Chinese joint venture.

Pfizer's net income was $2.75 billion in the first quarter compared to $1.794 billion in the same period in 2012. Some of the difference came from the $490 million Pfizer got for selling its 49 percent interest in Zhejiang Hisun Pharmaceuticals, known in China as Hisun.

Going forward - and the other way regarding revenue - chief financial officer Frank D'Amelio said the company was lowering it earnings expectations for 2013 of by $900 million "solely" because of the impact of currency rate changes that had nothing to do with operations.

In early April, the Bank of Japan said it would change its general, years-long monetary policy and inject about $630 billion into the economy during the rest of 2013 in hopes of raising inflation and stimulating the Japanese economy. Though there have been daily fluctuations since, the change in policy lowered the value of the Japanese yen.

"Japan is our second largest market and was about 10 percent of total revenue in 2012," D'Amelio said on a conference call with stock market analysts.

Selling a stake is a one-time gain, but generic competition is increasing and will continue.

Pfizer said its sales revenue for the quarter was $13.5 billion versus $14.9 billion in the same period of 2012, a decline of 9 percent.

In a statement, the company noted declines in sales of its antipsychotic drug Geodon and its cholesterol drug Lipitor. Lipitor once was the best selling prescription drug in the world, but its U.S. patent expired in November 2011. Lipitor still generated $626 million in first-quarter revenue, but that was down from $1.395 billion in the same period of 2012, a decline of 55 percent.

Another complicating factor in assessing the the quarter is that Pfizer partially spun off 19.8 percent of its animal health unit, called Zoetis. Several stock market analysts said they were surprised or confused by how company officials incorporated what market analysts assumed was money that would go directly to the bottom line sooner. Pfizer officials said it was mainly a "timing," issue with sale closing on Feb. 6, 2013 and that the money would flow to the bottom line over time, as would corresponding guidance calculations.

Chief executive officer Ian Read said Pfizer was still assessing what do with the remaining 80.2 percent of Zoetis. Read also deflected questions regarding timing of a possible financial separation of its human pharmaceuticals businesses, but did not dispute the suggestion by Bernstein Research analyst Tim Anderson that it might be 2016.

One branch of the drug business is new medicines in the pipeline and the launch of sales of those that get approval. The second branch would focus on selling older prescription medicine that still generates profit but does not involve as much promotion.

The internal process of separating the management of those two groups is still going on, Read said. While it has happened in the U.S. operations and other developed markets, the organizational change has not been completed in the rest of the world where Pfizer functions. Then there would be the issue of teasing out the financial information of each piece to present to would-be investors, if Pfizer decided to sell shares in a separate entity. For example, if a Pfizer factory makes new medicine and old medicine, which piece of the company would it fit into for financial reporting requirements?

"This is a decision year on how to structure" those businesses, Read told market analysts on the conference call. "We'd like to start operating more independently and give more visibility to you as investors and assess the advantages and disadvantages of operating within the same entity."

Bernstein's Anderson wrote in a note to clients that Pfizer was watching to see how the stock market reacted to Abbott Laboratories' split of its drug and device divisions.

Meanwhile, Pfizer is among the big pharmaceutical companies that laid off thousands of employees in recent years because of declining revenue, corporate acquisitions or other factors. Pfizer paid $68 billion for Wyeth in 2009 and the integration has included job cuts. D'Amelio, who said operating costs were reduced 7 percent in 2012, had said in a previous call with analysts that the overall cost-reduction process was in the "middle innings," to use a baseball analogy. Asked for an update, D'Amelio suggested the process was now in about the "7th inning," presumably of a nine-inning game.

That might not be the most encouraging outlook for Pfizer employees in Collegeville. However, there was no announcement of further jobs cuts within Tuesday's financial report and many Collegeville employees work in areas of oncology, which remains a core piece in Pfizer's product lineup and pipeline hopes. About 20 percent of Pfizer research and development spending is devoted to oncology, one official said, more than any other area.

In the past, Read was among the CEOs questioning the payoff from previous levels of funding. On Tuesday, he was asked about spending roughly 12 percent of revenue on R&D.

"We think we have the right balance allocated to research," Read said, adding that the company "would not shrink" from putting more resources into new research developments it deems worthy.

A link to Pfizer's announcement and numbers is here.