Pfizer Hit by Stronger Dollar, Patent Losses -- 2nd Update

By Jonathan D. Rockoff And Michael Calia 

Pfizer Inc. said a strong U.S. dollar and recent drug-patent losses contributed to a 52% drop in net income in the fourth quarter and would depress results this year.

Pfizer estimates foreign exchange will hurt 2015 sales by $2.8 billion, or 17 cents a share, if the dollar remains at its current high levels, Chief Financial Officer Frank D'Amelio said.

Johnson & Johnson and some rival health-products companies based in the U.S. have similarly warned about the strong dollar's effects on 2015 performance. The expected weakness shows the downside to the industry's search for faster growth in overseas markets. More than 60% of Pfizer's sales come from outside the U.S.

In addition, Pfizer has faced the loss of roughly $26 billion in sales between 2010 and this year from drugs losing patent protection. In December, its painkiller Celebrex began facing generic competition. To cope, the company has cut $5.5 billion in operating expenses over the last few years while trying to restock its R&D pipeline with heart and cancer drugs and vaccines.

Pfizer explored two big deals last year, but AstraZeneca PLC succeeded in rebuffing a $120 billion bid, and talks with Actavis PLC also foundered. Chief Executive Ian Read said Tuesday that the company remained open to doing a big deal, even one designed to lower its taxes, despite new rules the U.S. Treasury established to deter such transactions.

Yet, Mr. Read said Pfizer's "strong base business" didn't require such a large deal. "We don't have to do a deal. If we had to do a deal, we would have bought AstraZeneca. We didn't buy AstraZeneca" because Pfizer doesn't need to overpay, Mr. Read said in an interview.

Mr. Read said Pfizer was more inclined to do transactions that net the company products that are "close to market or on the market," rather than drugs in earlier stages of development.

Despite Pfizer's challenges, Mr. Read expressed optimism about the company's long-term future without a big acquisition, citing growing sales of new drugs like the blood-thinner Eliquis and rheumatoid-arthritis pill Xeljanz. He also described bright prospects for the company's drugs in development, including breast-cancer therapy palbociclib, which could be approved this year.

Pfizer's net income fell by 52% in the fourth quarter, to $1.23 billion from $2.57 billion in the prior-year period, largely due to sales lost on aging drugs and a stronger U.S. dollar.

The strong U.S. dollar accounted for nearly all of Pfizer's 3.3% revenue drop in the quarter, to $13.12 billion. Foreign exchange accounted for a 3% or $450 million hit to revenues, Mr. D'Amelio said.

Pfizer, of New York, N.Y., said it expected to post $2 to $2.10 a share in earnings and $44.5 billion to $46.5 billion in revenue for the new year.

Write to Jonathan D. Rockoff at [e-mail] and Michael Calia at [e-mail]

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