Pfizer's Race to the Bottom

(MoneyWatch)  Pfizer's third-quarter earnings were pretty much what you might expect given that the company is on a cost-cutting drive: Overall business is flat at $11.9 billion; net income was up dramatically -- 199 percent! -- from a year ago.

However, the numbers show that in order to make net income jump so high, to $2.3 billion, the company is in a sort of race to the bottom, in which it is trying to cut its costs faster than its revenue is falling.

In part the profit rise was due to the axing of Exubera, Pfizer's failed insulin inhaler, which cost the company a bunch of money this time a year ago. So the massive run up in profits isn't wholly the result of the restructuring.

But Pfizer has been laying off thousands of employees, particularly sales reps, in recent quarters. Here's how the dollar numbers played out: The company's revenues have declined from $12.8 billion to $11.9 billion in recent quarters, and sales and marketing expenses have declined from $4.6 to $3.5 billion over the same period.

The company has been in a months-long struggle to redefine itself as it readies for the catastrophic loss of Lipitor, its gigantic sales leader. That struggle has included layoffs, a reshaping of R&D, a renewed focus on its late-stage cancer pipeline, and -- until recently -- a fairly disciplined approach to not trying to acquire its way out of trouble. The company is also suffering from the ill-advised sale of one its perenially successful divisions to Johnson & Johnson.

The current efficiency drive is probably a mere appetizer ahead of Lipitor genericization, when revenues really will go down dramatically.

Note: Due to an error in the author's spreadsheet, an item published yesterday about Pfizer's third quarter earnings titled "Pfizer's Wobbly Lines Tell Dramatic Story of a Company in Flux" contained incorrect information. This item replaces that one. I apologize for the screwup.