Pfizer Takes $2.3 Billion Charge Linked to Bextra Probe

If you’re going to take a $2.3 billion earnings hit over government investigations, you might as well announce it the same day everybody’s more interested in your $68 billion deal.

Amid the hullaballoo over Pfizer’s bid for Wyeth today, Pfizer announced its fourth-quarter earnings, which fell to $266 million from $2.72 billion a year earlier, due primarily to that enormous charge. It stems from an agreement in principle that Pfizer made with the U.S. Attorney in Massachusetts to resolve probes over alleged off-label marketing of now-withdrawn painkiller Bextra, plus “other open investigations,” the company said.

That $2.3 billion charge dwarfs Eli Lilly’s recent record-breaking $1.42 billion settlement with the Justice Department over off-label marketing of antipsychotic Zyprexa.

Last October, Pfizer agreed to pay $745 million for agreements in principle to settle personal injury suits over Bextra and sister painkiller Celebrex. Plus, there was $60 million for attorneys general in 33 states and the District of Columbia, and $89 million to resolve class actions.

But those settlements didn’t apply to the “investigation by the Department of Justice of the marketing of the company’s Cox-2 medicines, particularly Bextra,” Pfizer said in a recent quarterly filing.

Pfizer’s earnings also show the kind of pain the company has been in that’s leading to the Wyeth deal. Sales fell 4% to $12.35 billion, weighed down by generic competition to allergy drug Zyrtec. Sales of smoking cessation drug Chantix also dropped 36% to $180 million amid controversy over its safety.

The company also said it expects a 10% reduction of its workforce, a new cost-cutting initiative that’s part of a broader 15% reduction in the combined Pfizer-Wyeth. Between the two companies, the job cuts will total around 18,000 people.

Wyeth also released its earnings, and they didn’t look so great either. Fourth-quarter profit slid to $960 million from $1.02 billion a year earlier, on sales that fell to $5.35 billion from $5.76 billion. One big issue was sales of heartburn drug Protonix, which dropped 60% to $185 million due to unexpected generic competition.

Two bright spots for Wyeth were Prevnar, whose sales rose 8% to $603 million, and Enbrel, which rose to $899 million. Those two products are key reasons Pfizer wants Wyeth.