Pfizer (click ticker for report: ) and Eli Lilly (click ticker for report: ) reported their respective fourth-quarter results Tuesday, and we were pleased with the performance. Pfizer’s $15.1 billion in revenue (down 7%) and $0.47 in adjusted earnings per share (down 4%) topped estimates, while Eli Lilly’s $5.96 billion in revenue (down 1%) and $0.85 in earnings per share (down 2%) also surprised the Street to the upside.
Both companies are dealing with patent expiration on blockbuster drugs—Pfizer’s cholesterol-fighter Lipitor and Lilly’s schizophrenia drug Zyprexa. Pfizer expects to stem the losses from Lipitor with new drugs such as Xeljanz for rheumatoid arthritis and Eliquis, an anti-clotting drug that helps prevent stroke and systemic embolism in patients with nonvalvular atrial fibrillation. Pfizer also noted its impressive drug pipeline: “palbociclib (PD-332991) for advanced breast cancer, RN316 (PCSK9) for lowering LDL cholesterol, dacomitinib for advanced non-small cell lung cancer, inotuzumab for aggressive non-Hodgkin’s lymphoma and acute lymphoblastic leukemia, Xeljanz for psoriasis, and the rLP2086 vaccine for meningococcal B in adolescents and young adults.” Eli Lilly’s anti-depressant Cymbalta and animal health product sales may help offset weakness from lower Zyprexa sales in the near term, but Cymbalta will also face generic competition at the end of the year, offering yet another obstacle for the drug maker. However, Lilly has 13 potential new medicines in Phase III testing, so while the near term may be choppy, the long-term looks bright.
On its conference call, Pfizer’s CEO Ian Read hinted at a possible break-up of the company (one with patent-protected drugs and one with off-patent drugs), a move similar to that which Abbott (ABT) recently pursued with the spin-off of Abbvie (ABBV). Pfizer sold its nutritional business to Nestle in November, and it already plans to spin off its animal-health business (Zoetis). We’ll be keeping a close eye on news flow regarding a potential split, which if structured correctly, can unlock considerable value (as we’ve seen in a variety of spin-offs in the past few years).
Looking ahead, Pfizer’s 2013 guidance of revenue between $56.2-$58.2 billion and earnings per share of $2.20-$2.30 was in line with consensus estimates. Eli Lilly’s 2013 bottom-line forecast of $4.10-$4.25 per share (reported), however, came in better than expectations, but its revenue projection of $22.6-$23.4 billion was also in line. We like the drug pipelines at both companies, and their respective 3%+ annual dividend yields are certainly attractive. Pfizer boasts a Dividend Cushion of 2.6 (), while Eli Lilly boasts a Dividend Cushion of 1.7 (). Though Pfizer has a spotty dividend-growth track record, we continue to evaluate both for the portfolio of our Dividend Growth Newsletter.