Pfizer (NYSE: PFE) used to sell Lipitor exclusively in the United States. And it was a huge component of the company's revenue and earnings. Honest. I swear.
You certainly wouldn't know it from the company's earnings release today. Adjusted earnings were up 5% in the second quarter despite U.S. sales of Pfizer's top-selling drug falling 79% compared to the year-ago quarter.
How did the big pharma manage such a feat? Sales growth of a few key drugs helped keep the overall revenue decline to just 9%, but the earnings growth really came from cost-cutting measures. Adjusted selling, informational, and administrative expenses dropped 18% and adjusted research and development expenses dropped 19% year over year.
Normally I worry about a company cutting costs to make earnings look good. It's a good short-term move, but doesn't help the long-term growth because you can't cut costs forever.
But Pfizer had a huge earnings hole to fill, so some cost cutting was both necessary and justified. Spending less on R&D will theoretically produce fewer drugs, but Pfizer is working from a smaller revenue base, so it doesn't need its pipeline to produce as many drugs to get back to growing revenue.
The solid second-quarter earnings report wasn't the only good news Pfizer had for shareholders. The company also reported data from a phase 3 trial testing its rheumatoid arthritis drug tofacitinib in early-stage patients. At two different doses, tofacitinib beat the current first-line treatment, a generic called methotrexate.
The drug has already been submitted to the Food and Drug Administration, and after a positive 8-2 recommendation from an FDA advisory panel, an approval looks fairly likely. The big question is whether doctors will use it before the big three rheumatoid arthritis drugs -- Johnson & Johnson (NYSE: JNJ) and Merck's (NYSE: MRK) Remicade, Abbott Labs' (NYSE: ABT) Humira, and Enbrel, sold by Amgen (Nasdaq: AMGN) and Pfizer -- that are typically used if methotrexate isn't relieving the rheumatoid arthritis symptoms. This new data suggest that the drug can be used much earlier, even before methotrexate, although we'll have to wait for the full data set, including safety info, to see whether doctors will go for that.
The FDA was scheduled to make a decision on tofacitinib by Aug. 21, but Pfizer said it plans to submit additional data shortly, which could push the review time out by three months. With other oral rheumatoid arthritis drugs hot on its tail, a delay is less than ideal, but I think the new first-line therapy data more than makes up for any delay.
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