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Pfizer (PFEFree Pfizer Stock Report), the world's largest drugmaker and a Dow-30 component, has reported first-quarter results that fell below our expectations. Net income decreased 14%, year over year, to $1.79 billion, as stronger-than-expected generic competition to its cholesterol-fighting Lipitor product largely offset significant cost control efforts. Lipitor lost patent protection in the fourth quarter of 2011 and, as a result, a slew of cheaper generics flooded the market. In all, Lipitor sales plunged 42% in the first quarter, to $1.4 billion. Nonetheless, the stock’s price was just incrementally lower in morning trading in a generally strong equity market.

For the period, Pfizer's total revenues were $15.41 billion, down 7% from the comparable quarter of 2011. Sales in the United States declined 15%, to $6.0 billion, primarily reflective of the Lipitor impact, while international revenues of $9.5 billion were consistent with the year-earlier figure. From an operational standpoint, pharmaceutical sales retreated 8%, as strength in Established Products (+18%), and Emerging markets (+6%), were largely offset by weakness in Primary Care (-25%), Specialty Care (-9%), and Oncology (-7%). Animal Health and Nutrition operations increased 9% and 4%, respectively.

On a positive note, management recently announced that it has entered into an agreement to sell its Nutrition business to Nestle (NSRGY) for $11.85 billion. There was much investor speculation regarding a deal over the past several months, and the agreement gives some increased clarity moving forward. Although a strategy decision in regard to the Animal Health unit has not yet been finalized, Pfizer expects that any separation of the business will occur between July 2012 and July 2013. Management further noted that proceeds from the sale would likely go toward continued share buybacks. Pfizer repurchased $1.7 billion of common stock in the first quarter, and it expects to repurchase an additional $5 billion before year's end.

Looking down the road, we believe it is essential that Pfizer maintain a keen focus on business development and the growth of its pipeline to help offset additional patent expirations. Besides Lipitor, the company is scheduled to lose patents on Viagra, Celebrex, and Lyrica over the pull to 2018. The company has made notable progress in recent months, including the launch of the Prevnar 13 vaccine for adults and Inlyta for advanced renal cell carcinoma. The regulatory submission for its stroke prevention product, Eliquis, will likely be key as well, with approval expected during the first half of 2012.

All told, our investment thesis remains largely unchanged from our April 13th report. Pfizer is a strong company with solid fundamentals and sizable shares in most markets. Although patent expirations are a concern, we believe the drugmaker should be able to effectively weather the storm given its impressive track record. With several pipeline prospects showing promise in late-stage studies, we believe it is only a matter of time before these drugs are developed into meaningful top-line contributors. For investors seeking a strong total return play with relative stability, Pfizer's stock has an above-average dividend yield and a top rank for Safety (1). The company's Financial Strength (A+) is also outstanding.

About The Company:Pfizer is a major producer of pharmaceuticals, hospital products, consumer products, and animal health lines. Important product names include Norvasc (cardiovascular); Zoloft (antidepressant); Zithromax (antibiotic); Lipitor (cholesterol); Aricept (Alzheimer’s); Cardura (cardiovascular); Diflucan (antifungal); Zyrtec (antihistamine); Viagra (impotence); and Celebrex (rheumatoid arthritis and osteoarthritis). International sales accounted for about 60% of total sales in 2011.

At the time of this article’s writing, the author did not have positions in any of the companies mentioned.