Markets

Pfizer Q3: Healthy Profit Masks Revenue Decline

By Jim Edwards

Updated on: October 20, 2009 / 5:46 PM EDT / MoneyWatch

This merger with Wyeth can't come soon enough for Pfizer. The company's revenues were down 3 percent to $11.6 billion in Q3 2009, although net income was $2.8 billion up 26 percent.

That healthy profit growth masks the reality of Pfizer's business: Of all its drugs, only four saw growth:

Revatio up 18 percent to $111m
Lyrica up 5 percent to $708m
Vfend up 3 percent to $196m
Aromasin up 1 percent to $123m

Note that for Pfizer's size, only Lyrica is a significant revenue growth driver.

The profit, it turns out, comes from shrinking costs. Sales costs -- reps and ads -- were down 7 percent. Manufacturing costs were down 16 percent. And there was a 13 percent decline in R&D expenses.

So while the company may be more profitable, it's actually a story about a company that is getting smaller, mainly because generic competition is killing off its blockbusters (Lipitor lost 9 percent of its revenues). Pfizer noted that without foreign currency headwinds, it would have seen 2 percent growth in revenues.

Overall, the company became more efficient -- it generated those sales using fewer operating resources than this time last year.

When the combined Pfizer-Wyeth entity begins reporting joint numbers, it will distract from the revenue collapse because the new sales numbers will be nice and big. The question after that is, Will it ruin Pfizer's long-term trend of becoming more productive as the months roll by?