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By the Way, Pfizer Reported Earnings

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Pfizer (NYSE: PFE  ) reported earnings on Tuesday, but investors seem to be much more focused on the pharma giant's plan to reorganize the company, which could facilitate Pfizer breaking up at some point down the road.

Starting next year, Pfizer will reorganize into three segments.

  • Innovative business segment #1 will include branded drugs that won't lose exclusivity until after 2015 in inflammation, immunology, cardiovascular, metabolic, neuroscience, pain, rare diseases, men's health, and women's health.
  • Innovative business segment #2 will include vaccines, oncology, and consumer health care products.
  • Value business will include Pfizer's generic drugs and those that are close to losing patent protection.

I understand the thought process for spinning out or selling off the generic drug unit. It's a pretty slow-growing business that's potentially dragging down Pfizer's valuation. The unit does help Pfizer eke out a little extra from its branded drugs once they lose patent protection, but maybe it's not enough to justify owning it.

I don't understand the breakdown of the two innovative segments. I'd rather have seen all the branded drugs in one unit and the consumer health care products in the other. You'll recall that Pfizer sold off its consumer health care segment to Johnson & Johnson (NYSE: JNJ  ) a few years ago. The only reason Pfizer has one now is because the segment came with its acquisition of Wyeth.

Getting rid of the consumer health care unit (again) makes a lot of sense -- maybe Johnson & Johnson would like to buy this one, too -- but not at the expense of the oncology and vaccine products. Oncology products grew 28% operationally in the second quarter thanks to the launch of new products.

About those earnings 
They weren't all that shabby, although investors should keep an eye on the new drugs.

Revenue fell 7%, but that's to be expected since the comparable quarter still had some Lipitor sales in Europe, and in the U.S., Pfizer was only competing against one generic for a portion of the year-ago quarter. A stronger dollar also knocked down revenues, which would have fallen just 4% had currencies stayed the same.

On the plus side, sales of Pfizer's new top selling drug, Lyrica, jumped 10%. When you're selling more than $1 billion worth per quarter, that's quite an added contribution. Celebrex, which contributed $715 million in the second quarter, also added quite a bit with its 8% bump.

But investors should really be focused on Pfizer's new drugs. They'll drive sales well into the future.

As mentioned above, new oncology drugs Inlyta and Xalkori are doing well. Inlyta managed sales of $71 million in the second quarter, and Xalkori tripled year-ago sales to $67 million.

Eliquis, which Pfizer sells with Bristol-Myers Squibb (NYSE: BMY  ) , is struggling as I highlighted when Bristol-Myers released earnings last week. While there's a decent market for new blood thinners, being third to the market has hampered the launch. Sales in the second quarter were just $12 million, down from $17 million in its first quarter on the market.

Pfizer's new rheumatoid arthritis drug, Xeljanz, also has blockbuster potential, but as expected, sales are starting out slow with just $22 million in the second quarter. Doctors are comfortable with the current offerings of rheumatoid arthritis drugs -- as evidenced by multiple megablockbusters -- so it'll take some time before Pfizer will be able to take a sizable chunk of the market. One potentially good sign: Almost half of recent prescriptions were for patients who hadn't taken one of the blockbuster biologic drugs -- Enbrel, Humira, or Remicade. Getting patients early in their disease progression will help with sales, but more importantly, it's a sign that those doctors aren't that worried about the safety of the drug (otherwise they'd use it as a drug of last resort after the biologics).

I think it's reasonable to give Pfizer some time with its new drugs, but we need to see accelerating sales at some point because its current top-selling drugs are eventually going to succumb to the same fate as Lipitor.

At least investors will be able to continue collecting a dividend while they wait for Pfizer to get growing again. If you're on the lookout for high-yielding stocks outside of the health care sector, The Motley Fool's special free report "Secure Your Future With 9 Rock-Solid Dividend Stocks" outlines the Fool's favorite dependable dividend-paying stocks. Grab your free copy today by clicking here.

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