Is Pfizer Still a Big Pharma Kingpin?

Despite my recent obsession with Johnson & Johnson's restoration to health, I've long been a closet admirer of rival Pfizer . Seeing as the company posted solid gains last year -- beating the S&P 500 -- I regret that I never came out. Then again, that's not to suggest that it's too late.

While the company does deserve credit for some cost-cutting initiatives since the arrival of CEO, Ian Read in 2010, many of which have streamlined the business, I do wonder if there are enough near-term catalysts to push these shares higher beyond their current 52-week highs. And if fourth-quarter earnings were any indication, management seems determined to put its best foot forward.

Operating performance shows improvement
There aren't often many surprises from a company like Pfizer that is as closely followed, but management figured out a way to raise some eyebrows with a better-than-expected performance. Even though the company posted a 7% revenue decline, including a 2% drop due to an unfavorable exchange rate, sales still managed to beat Street estimates by around 4%.

What's more, even though fourth-quarter pharmaceuticals shed 9% year-over-year, when compared to the 16% decline in Pfizer's third-quarter results, the rate of deceleration slowed by 50%. It seems management put more of an emphasis this quarter on marketing its existing portfolio of products such as Lipitor and Norvasc. All of which contributed to an operational sales growth of 20% in emerging markets. And management mentioned the strong performance of China as a key contributor.

Profitability was a bit mixed, however. But that's not to say the results weren't encouraging. Net income arrived at $6.3 billion, or $0.85 per share compared to a net income of $1.4 billion in the year-ago quarter. The company received a big boost from the sale of the nutrition business to Nestle for $11.5 billion. Excluding the sale and other restructuring efforts, net income would have arrived at $3.5 billion, of $0.47 per share, which is still $0.03 better than Street estimates.

Time to take the competition seriously
Pfizer understands its big pharma status. That is to say, management has been a bit too confident about its portfolio. Granted, it's been for good reason as Pfizer has had some of the top-selling drugs on the market. But competition is beginning to chip away at its lead. And that's been the case for quite some time.

While management deserves credit for beating both top and bottom line estimates due to cuts, operating income/adjusted EPS did fall 4%. This means that despite strategic cost-cutting efforts -- specifically from sales and general administrative expenses, which arrived lower-than-expected -- margins continue to be an issue. It's worth asking how long the company can sustain competitive pressure from generic drugs.

For instance, the company's top-selling drug, Lipitor -- which is arguably the best-selling drug in the world during the past 10 years -- is getting attacked in several markets by generic alternatives. Lipitor's loss of exclusivity resulted in a huge hit to the company's revenue, with 93% and 70% fourth-quarter plunges in the U.S. and worldwide sales, respectively.

Where's the next leg of growth?
It wasn't all bad news, however. The consumer health business jumped 16% to $936 million -- helped by strong demand for Advil and Centrum vitamins. And several newer drugs posted double-digit growth, including fibromyalgia and pain treatment Lyrica. CEO Ian Read was pleased by the company's performance, saying: "We had a good year... looking forward to progressing our pipeline and bringing new products to patients this year."

The pipeline is the lifeblood of big pharma. And in order to keep the Street excited, continued pipeline expansion is key. It remains to be seen if/when management can score another top-seller like Lipitor. To that end, Read told investors that the company plans to unveil two new medicines, Xeljanz, which is a rheumatoid arthritis treatment, and a drug called Eliquis, which will be produced with partner Bristol-Myers Squibb . But will these names become Pfizer's next blockbusters?

That said, the stars may be aligning up for Eliquis, which after two delays, received clearance for the prevention of stroke and dangerous blood clots in atrial fibrillation patients. And clinical results from ARISTOTLE establish Eliquis as a superior treatment to current alternatives. A financial analysts from Credit Suisse seems to also love Eliquis after projecting that the drug can generate as much as much as $5.2 billion in revenue by 2020.

While investors should be encouraged by such optimism, Johnson & Johnson's Xarelto is an FDA-approved competitor. Pfizer will need to contend for market share. While Eliquis' sales prospects may not be of "Lipitor-esque" levels, if it can inject Pfizer with invigorated growth, investors should rejoice. In the meantime, however, Pfizer's declining revenue hardly qualifies as kingpin status. But with the company's continued improvements and solid pipeline, the crown is within its grasp.

Is bigger really better?
Involved in everything from baby powder to biotech, Johnson & Johnson's critics are convinced that the company is spread way too thin. If you want to know if J&J is nothing but a bloated corporate whale -- or a well-diversified giant that's perfect for your portfolio -- check out The Fool's new premium report outlining the Johnson & Johnson story in terms that any investor can understand. Claim your copy by clicking here now.

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Fool contributor Richard Saintvilus has no position in any stocks mentioned. The Motley Fool recommends Johnson & Johnson. The Motley Fool owns shares of Johnson & Johnson. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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