Pfizer Ltd’s results indicate that it continues to be in an investment mode. Multinationals are focusing on emerging markets to drive growth, which has translated into more product launches, hiring of sales people and investments in marketing.

In the August quarter, Pfizer’s sales rose by 10% to 225 crore, with drug sales rising by 14% and animal health sales rising by 9%. While 14% growth may not seem outstanding, there is a difference between reported growth figures and primary sales data. For example, in the May quarter, reported sales was also 14%, but primary sales rose by 24%, as reported by IMS Health India. Pfizer’s animal health division’s sales growth has been affected due to discontinuation of some products.

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Pfizer has been following a sustainable strategy of minimum price hikes, instead focusing on volume growth and product mix. Its material costs fell by 7% during the quarter, which could be attributed to the mix or lower raw material prices.

Normally, its profitability would have risen as a result, but employee costs rose by 55%, while other expenditure rose by 28%. And, operating profit margins fell by 2 percentage points, compared with the year-ago period. Employee costs were virtually flat, on a sequential basis, adjusting for a provision for gratuity made in the May quarter.

Once the effect of a higher employee base gets over, higher sales growth could translate to better profitability. But that presupposes the company is through with hiring. More clarity will emerge after the company’s post-results conference call. In the August quarter, the drop in margins led to its net profit rising by just 3% to 42.5 crore.

Till it remains in the investment stage, its financial results will continue to be volatile. While its strategy does appear to be working in the pharma market, investors will be keen on seeing when it translates to higher earnings growth. They would also be keen on knowing Pfizer Inc.’s plans for Wyeth Ltd, its other listed subsidiary.

Pfizer and Wyeth have been collaborating, after Wyeth was acquired by Pfizer globally, in terms of shared services and even marketing of products. Wyeth’s August quarter sales rose by 8.3% year-on-year (compared with the September 2009 quarter, as Wyeth has changed its year end to November), and the pharmaceutical division’s sales rose by 11%.

But its profitability improved sharply, compared with Pfizer, rising by 3.5 percentage points to 33.2%. Key reasons were lower material costs, marginally higher employee costs and flat marketing costs. Its net profit rose by 18% to 42 crore. Pfizer’s shareholders will be hoping that both companies merge, combining Pfizer’s superior size with Wyeth’s higher profitability.

Graphic by Paras Jain/Mint

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