Patent Losses, Prevnar Weakness Weigh on Pfizer Growth
Pfizer (PFE) reported first-quarter results that were slightly ahead of both our and consensus earnings expectations, but we don’t expect major changes to our fair value estimate. We continue to view Pfizer as undervalued, with several underappreciated assets, including cancer drug Ibrance and early-stage vaccines and cancer drugs. Further, Pfizer’s strong portfolio and developing pipeline continue to support our wide moat rating.
In the quarter, recently launched products helped offset patent losses and weakness in the Prevnar 13 vaccine, leading to a 1% operational decline, a trend that should continue through the year. Strong growth for cancer drug Ibrance and cardiovascular drug Eliquis should continue based on the drugs’ strong efficacy and potential for further market share gains. While Ibrance is facing new competition from Novartis and Eli Lilly, we believe Pfizer’s first-mover advantage combined with a lack of differentiation from competitors will lead to Pfizer gaining most of the market share. This new product growth is offsetting patent losses and surprising Prevnar 13 weakness in Europe. We had expected robust European growth in Prevnar 13 due to an expanded indication into the adult patient population, but order timing appears to be disrupting sales, and sales in the region should improve through the year.
On the acquisition front, Pfizer looks increasingly likely to make a major acquisition following the resolution of tax reform in the U.S. and government elections in Europe. We believe Bristol is a likely target to give Pfizer an improved position in immuno-oncology as well as full rights to Eliquis.
Additionally, while we believe U.S. tax reform is more likely than not to occur during the Trump administration, we don’t expect a major impact on Pfizer’s tax rate, since the company already enjoys a low tax rate of close to 20%, likely due to strategic geographic placement of intellectual property and geographic earnings stripping.
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