Pharma Earnings Winner: Pfizer Versus Merck (MRK, PFE, LLY)

Merck & Co. Inc. (NYSE: MRK) released second-quarter results last Friday and Pfizer Inc. (NYSE: PFE) reported this morning.  The results of both drug behemoths are largely in line with analysts estimates and with prior guidance.   Differences between the two companies is most evident in the strategic measures the big pharma players seem to be taking to meet challenges arising from the expiration of key patents and the rise of generic competition.

Pfizer’s strategic decisions center around its divestiture of all four of its non-pharma units, including nutritionals, consumer health, animal health and a capsule manufacturing operation.  Eli Lilly & Co. (NYSE: LLY) has already shown interest in Pfizer’s veterinary products unit.

Merck’s strategic approach calls a glide path involving planned job cuts and a flat-to-down paring of its massive research and development budget.  After its 2009 acquisition of Schering-Plough, a 15% cut to the combined 100,000-person work force had been expected.  This number was revised upward and additional cuts have reduced the current Merck workforce to 91,000.  The company expects to further reduce its payroll by another 12,000 positions by 2015.  The company also plans to cut its $8.3 billion R&D budget by $100 million.

Pfizer Inc. (NYSE: PFE) reported its revenue totaled $16.98 billion largely in line with analysts estimates.  Excluding one-time items, Pfizer posted earnings of $0.60 per share.  Analysts estimates had called for $0.59 EPS for the second quarter and $0.56 for the third. The company’s FY2011 guidance looks for per share earnings of $2.16 to $2.26 on revenue of $65.2 billion to $67.2 billion.  The shares recently closed at $19.01.  Its 52-week price range is $15.10 to $21.45.

Merck & Co. Inc. (NYSE: MRK) reported results in line with analysts estimates of $0.95 EPS for the second quarter and $0.91 for the third on revenues of $11.8 billion and $11.4 billion. The shares recently closed at $33.44.  Its 52-week price range is $31.06 to $37.68.

At the end of the day, you have Pfizer trying to gear down to win from its prior R&D efforts while Merck is digging in with cost cutting efforts.  Pfizer pays 4.2% but offers perhaps more of a changing landscape, while Merck is looking less aggressive in change but has a higher dividend rate of 4.5%.

Jim Berdou