With approximately half of the large pharmaceutical firms' fourth-quarter results in the books, we have seen three themes emerge: continued cost cutting, conservative 2010 outlooks, and slow product uptake for newly launched drugs. We expect these themes to continue when Pfizer, GlaxoSmithKline, Merck, and Sanofi-Aventis report in February.
With the exception of AstraZeneca, the fourth quarter brought more of the cost cutting that occurred in 2009. We expect further cost cutting from the remaining drug companies that have yet to report results, with Merck and Pfizer likely to lead the pack in magnitude of cuts. Also, while Glaxo needs to adapt to its patent losses by trimming costs, the company appears to be one of the less aggressive cost-cutting companies--a pattern we expect to see continue with its fourth-quarter results. Read our take on Astra's results here.
Turning to 2010 projections, we believe the majority of quarterly reports included conservative outlooks. We were particularity surprised by Abbott Laboratories' 2010 forecast; while it still projects strong growth, it looks very easy for the firm to beat, in our opinion. Therefore, we expect the company will raise its estimates as the year progresses. Turning to the remaining companies that haven't reported, we expect more conservative projections. Also, we believe Pfizer will become more conservative on its long-term outlook. Specifically, we expect Pfizer will slightly lower its 2012 expectations for sales of close to $70 billion. Since we, along with most Wall Street analysts, are projecting sales closer to $60 billion in 2012, management's lower projections may not be overly detrimental to the stock. While the immediate reaction to any potential reduced expectations may lower Pfizer's stock price, we believe the more conservative outlook will increase the market's confidence in Pfizer's forecast, which should bode well for the stock over the long term.
Regarding new product launches, most of the recently launched drugs are performing relatively weakly. Cardiovascular drug Effient, diabetes drug Onglyza, and immunology drug Simponi all posted sales lower than we expected. Given the increased consolidation within the managed care industry over the past decade and the ensuing increase in negotiating power, we believe that negotiations with these payers drag on longer than in the past, slowing the initial uptake for new drugs. Over the course of the year, we expect the sales trajectory of these new drugs to increase and the drugs will eventually become blockbusters. The fourth-quarter sales of Pfizer's antidepressant Pristiq may shed some light on new drug launches that are further along as the drug was launched in 2008.
Damien Conover is a senior stock analyst for Morningstar.
