Last week, when Pfizer (NYSE: PFE) released its first-quarter earnings numbers, it looked like the trends were exactly what most investors had expected. Sales of Pfizer's smoking cessation treatment Chantix are booming, it is using its cash to buy up a bunch of drugs in development, and generic competition continues to eat into its top product, Lipitor, and other former blockbuster drugs.

For the quarter, Pfizer's revenue was down 5%, or about $625 million, partly because the company lost marketing exclusivity for Norvasc for high blood pressure last year and Zyrtec for allergies this year. Also, indirect competition from generic versions of Merck's (NYSE: MRK) Zocor helped to knock worldwide sales of Lipitor down by 7%, or $221 million. Even the falling dollar's 5% boost to revenue and a $0.03-per-share increase in earnings wasn't enough to jump-start Pfizer's earnings, as adjusted earnings fell to $0.61 a share this quarter from $0.68 a share in the year-ago quarter.

Pfizer also suffered a little chink in the armor of its Chantix smoking addiction treatment after new warnings were added to the treatment's label earlier this year. Chantix sales were still up a very respectable 33% in the U.S. versus the first quarter last year and 71% worldwide, but sales of the drug were actually down compared with the fourth quarter of last year.

Pfizer's declining top and bottom lines were expected; the first quarter was also significant for the number of new drugs the company added to its pipeline. Some had expected Pfizer to use its billions of dollars in cash on blockbuster biopharma acquisitions or other acquisitions of companies, but there was none of that. Pfizer did make several small deals in the first quarter and in the past week, including its cheap $195 million buyout of Encysive Pharmaceuticals (Nasdaq: ENCY).

Since I took the bear side on Pfizer early last year, the Pfizer story has continued to play out like I've expected it to. Shares are down 18% since then (although that's not counting the sizable dividend payments distributed to shareholders) as investors realize that Pfizer's meager drug pipeline will not produce enough new compounds to offset lower sales because of generic competition against so many former blockbuster products.

The fact that Pfizer's previous success with its drug pipeline is proving hard to replicate is not because of declining productivity, but rather shows how amazingly successful the company's small-molecule drug development programs have been. Lipitor will lose its exclusive status in 2010 (and other top drugs will lose their exclusivity soon after that), so until Pfizer demonstrates how it plans to sustain its earnings and cash flow, I won't want to be a shareholder.

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Fool contributor Brian Lawler does not own shares of any company mentioned in this article. The Fool has an A+ disclosure policy.