Tomorrow, Pfizer (NYSE:PFE) reports earnings for the first quarter of 2008. This is the same quarter in which it decided to buy Wyeth (NYSE:WYE). Has the hullaballoo over setting up the purchase, along with the work of getting it done, distracted management from running Pfizer? We won't know until tomorrow morning.

What analysts say

  • Buy, sell, or waffle? 10 analysts are saying accumulate shares, while seven say keep what you've got. Nobody is currently saying to dump the stock.
  • Revenue. $11.08 billion is the target, down 6.1% from a year ago.
  • Earnings. Nine analysts have come to a consensus of $0.49 in earnings per share, with a range of $0.45 to $0.53. That's down from $0.61 last year, when the company missed by $0.05.

What management says
Leading up to the closing of the Wyeth deal, management has been busy setting up the new structure of the company, both at the management level as well as with its all-important drug research operations. The company recently announced how its research and operations are going to be arranged.

Pfizer has also been working steadily to handle the logistics of the combination, including getting $13.5 billion in debt financing lined up. Said chief financial officer, Frank D'Ameio, in the announcement earlier this month of the new organizational structure:

Having our organizational structure in place is critical to the combined company being operational on Day One, and the appointment of these leaders will accelerate our ability to do so. We have made substantial progress in a short period of time, particularly in financing, as well as other requirements for closing. Our progress affirms how well these two companies fit together, the value of this combination, and the commitment of our companies to rapid and successful integration.

What management does
Both companies have high margins, but Pfizer is a bit more erratic when it comes to controlling operating costs, as can be seen in the lumpiness of the past several trailing-12-month periods. Wyeth's management seems to keep its margins steadier, and hopefully the combined Pfizer will inherit some of Wyeth's stability going forward.

Margins

9/07

12/07

3/08

6/08

9/08

12/08

Pfizer:

           

Gross

84.3%

84.0%

83.7%

83.7%

83.5%

85.1%

Operating

30.1%

30.5%

29.3%

31.1%

31.5%

34.8%

Net

30.9%

16.8%

15.8%

18.5%

21.6%

16.8%

Wyeth:

           

Gross

73.1%

72.9%

73.1%

72.8%

72.9%

73.7%

Operating

27.7%

28.3%

28.4%

28.4%

29.4%

30.4%

Net

20.4%

20.6%

20.0%

19.5%

19.2%

19.3%

Source: Capital IQ, a division of Standard & Poor's. Margins are for trailing 12 months for the quarters ending in the named month.

With merger-related expenses showing up this quarter, expect the margins at Pfizer to fall some.

One Fool says
As my Foolish colleague Brian Orelli recently wrote, this merger is likely distracting management and researchers at all levels. Increasing the company's size by over half is not a simple task. While management is rosy over the prospects, the devil is in the details.

The company was already in the middle of a rearrangement, going from geographic-focused divisions to product-focused divisions, which it started last fall. That plan's now expanding from five units to nine, as it plans to integrate Wyeth's products, including new units for consumer health and nutritional health. The last time Pfizer had a consumer health division, it sold it to Johnson & Johnson (NYSE:JNJ). Maybe management has seen how product diversification has helped J&J and Abbott Labs (NYSE:ABT) and now wants some of that steadiness to offset the highs and lows of being a pure maker and seller of pharmaceuticals.

That will certainly help, but Pfizer will still primarily remain a drug developer. And on that score, adding Wyeth's pipeline should help shore up an area of recent weakness for Pfizer. Between its reports from the end of last September and the end of last month, Pfizer's pipeline shrank by 14 candidates to a total of 100, with the losses coming from drugs in the earlier clinical trial phases 1 and 2. That's disappointing, as it is those early candidates that have the real potential to become the next big drug.

There are also opportunities to expand the use of certain drugs, but things have been bumpy for Pfizer there, too. A recent attempt to expand the label for Sutent from treating digestive-tract and kidney cancer to treating breast cancer hit a major bump when one phase 3 trial was halted early because Sutent wasn't doing any better than Roche's Xeloda. However, Sutent did do very well in a phase 3 trial for treating pancreatic cancer, the same type that Apple's (NASDAQ:AAPL) Steve Jobs is reported to have.

It's going to be a turbulent year for investors in Pfizer, as it works through finishing the Wyeth acquisition, still tries to maintain sales of its current set of products, and works to bring more drugs to doctors. Tomorrow is just going to be the beginning. Hang on for the ride.

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Fool biotech and pharma editor Jim Mueller likes roller coasters, but in real life, not with his portfolio. He owned shares of J&J and Apple at the time of publication. The Fool's disclosure policy is full of up and down thrills.