Pfizer investors on alert for more shrinkage clues

By Ransdell Pierson

NEW YORK (Reuters) - Pfizer Inc is expected to report slightly lower quarterly earnings on Tuesday, but investors will be more focused on any signs the world's biggest drugmaker will further shrink itself to weather looming competition from generic drugs for its Lipitor cholesterol fighter.

"We will be listening for commentary around potential divestitures as well as any color around potential larger moves," such as breaking up its pharmaceuticals business, JP Morgan analyst Chris Schott said on Monday.

Many investors fear Pfizer, which has bought three of the largest U.S. drugmakers over the past decade, will be far too big to deliver strong profit growth once its $10.7 billion-a-year Lipitor faces cheaper generics in November and more than a half dozen other Pfizer drugs lose U.S. patent protection in the next few years.

Wall Street expects Pfizer's new chief executive, Ian Read, to eventually sell parts of the company or cut Pfizer to a size commensurate with its expected narrowing revenue base.

In addition to its core pharmaceuticals business, Pfizer has an animal health business, nutritional products business and consumer products that could wind up on the auction block.

Three months ago Read delighted investors by vowing to slash the company's research budget by up to $2 billion, to between $6.5 billion and $7 billion, eliminating thousands of research positions.

The move allowed Pfizer, which turned over the reins to Read in December after the abrupt departure of Jeffrey Kindler, to stick to its earlier 2012 profit forecast of $2.25 to $2.35 per share. That would reflect some actual growth over earnings of $2.23 per share last year and $2.24 per share expected this year by Wall Street.

Pfizer further endeared itself to investors in early April by announcing plans to sell its Capsugel unit, the world's largest maker of hard capsules, to private equity firm KKR & Co for $2.38 billion. The deal will enable Pfizer to make additional share repurchases this year beyond its previous plans for $5 billion in buybacks for 2011.

Its shares have risen 12 percent since February 1, when Read pointed his axe at the company's R&D budget.

Schott said Pfizer, even more than other drugmakers that have already reported first quarter results, should get an earnings boost from the weaker dollar.

Even so, Schott and other Wall Street analysts expect Pfizer earnings to be slightly below the year-ago period, hurt by tumbling sales of drugs already facing competition from generics. They include the antidepressant Effexor acquired through Pfizer's purchase in 2009 of rival U.S. drugmaker Wyeth.

(Editing by Bernard Orr and Matt Driskill)