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Pfizer (PFE) Q2 Earnings Top, Sales Hurt by Coronavirus, View Up

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Zacks Equity Research
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Pfizer, Inc. PFE reported second-quarter 2020 adjusted earnings per share of 78 cents, which beat the Zacks Consensus Estimate of 64 cents. Earnings however declined 2% year over year due to lower revenues and higher R&D costs.

The pharma heavyweight recorded revenues of $11.8 billion, which marginally missed the Zacks Consensus Estimate of $11.88 billion. Sales declined 11% from the year-ago quarter on a reported basis. On an operational basis, excluding the 2% negative impact of currency, revenues declined 9% year over year hurt by business disruption and reduced doctor visits amid the coronavirus pandemic. Second-quarter revenues included a net negative impact of approximately $500 million, or 4%, due to COVID-19.

Overall, higher sales of some key brands in Pfizer’s Biopharmaceuticals group were offset by revenue decline in the Upjohn segment and sales lost due to the spin-off of the Consumer Healthcare (CHC) unit.

Importantly, excluding the spin-off of the Consumer Healthcare (CHC) unit, second-quarter revenues declined 3% operationally. We remind investors that in August last year Pfizer merged its CHC unit with Glaxo’s GSK Consumer unit to form a new joint venture (JV). Pfizer owns a stake of 32% in the JV and Glaxo owns the remaining 68%.

International revenues declined 8% to $6.4 billion. On an operational basis, international sales declined 4% in the quarter. U.S. revenues declined 15% to $5.4 billion.

Adjusted selling, informational and administrative (SI&A) expenses declined 12% (operationally) in the quarter to $3.03 billion due to decreased sales and marketing activities due to the COVID-19. Adjusted R&D expenses rose 16% to $2.13 billion due to upfront payments associated with two R&D deals made in the quarter.

Segment Discussion

Pfizer reports under two business units — Pfizer Biopharmaceuticals Group and Upjohn.

Importantly, Pfizer is due to spin off its Upjohn unit and combine it with generic drugmaker Mylan MYL to create a generic pharmaceutical company called Viatris. The transaction is expected to close in the fourth quarter of 2020.

Pfizer Biopharma sales grew 4% on a reported basis (up 6% an operational basis) from the year-ago period to $9.8 billion. Higher sales of brands like Eliquis, Ibrance, Inlyta and Vyndaqel/Vyndamax and higher biosimilars revenues drove this segment’s sales growth. Weaker sales of Prevnar 13/Prevenar 13 in the United States, Chantix in the United States and Enbrel internationally offset the increase.

Within the Biopharma group, Oncology revenues increased 20% (on an operational basis) to $2.65 billion. Vaccine revenues however declined 6% to $1.25 billion. Internal Medicine rose 4% to $2.3 billion. The Inflammation & Immunology franchise declined 3% to $1.15 billion. The portfolio of Rare Disease rose 34% to $681 million. Hospital sub-segment’s sales were flat at $1.8 billion. The Hospital segment comprises Pfizer’s global portfolio of sterile injectable and anti-infective medicines.

Pfizer’s Upjohn group’s sales declined 32% on a reported basis (31% on an operational basis) to $2 billion mainly due to U.S. loss of exclusivity of Lyrica.

Performance of Key Drugs

Ibrance revenues rose 9% year over year to $1.35 billion as consistent CDK class market share growth in the United States offset the impact of pricing pressure in certain European markets.

Inlyta revenues were $195 million in the quarter, up 89% driven mainly by 120% growth in the United States. U.S. sales gained from increased uptake, resulting from recent FDA approvals for the combination of Inlyta plus Bavencio and Inlyta plus Merck’s MRK PD-L1 inhibitor Keytruda in first-line treatment of advanced renal cell carcinoma patients

Global Prevnar 13/Prevenar 13 revenues declined 2% to $1.12 billion. Prevnar 13 revenues declined 22% in the United States due to slowdown in vaccination rates amid COVID-19-related mobility restrictions & limitations. Prevenar 13 revenues rose 18% in international markets.

Enbrel revenues declined 16% to $337 million in key European markets due to continued biosimilar competition.

Eliquis alliance revenues and direct sales rose 19% to $1.27 billion. Xalkori sales rose 7% to $138 million. Xeljanz sales rose 5% to $635 million. Xtandi recorded alliance revenues of $266 million in the quarter, up 32% year over year. Sutent sales declined 13% to $209 million. Chantix sales declined 14% to $235 million in the quarter.

Importantly, new drug Vyndaqel/Vyndamax recorded sales of $277 million in the quarter compared with $231 million in the previous quarter.

Braftovi and Mektovi, which Pfizer acquired following its acquisition of Array BioPharma in 2019, recorded sales of $36 million and $32 million, respectively in the second quarter of 2020.

Total biosimilar revenues were $289 million, up 36% year over year.

In sterile injectables, global revenues increased 4% operationally to $1.24 billion and U.S. revenues increased 14% operationally driven by increasing demand due to the COVID-19 pandemic and as Pfizer’s manufacturing recovery efforts started taking shape.

In the Upjohn segment, sales of key drug Lyrica declined 70% to $349 million due to multi-source generic erosion. Viagra sales declined 15% to $94 million due to generic competition.

2020 Guidance

Pfizer slightly raised its financial guidance for 2020 for the present Pfizer as well as for the “New Pfizer”, after the Upjohn divestiture.

Revenue guidance range was slightly upped from $48.5 billion to $50.5 billion to $48.6 billion to $50.6 billion. Adjusted earnings per share guidance was upped from a range of $2.82-$2.92 to $2.85-$2.95.

Research and development expense guidance for present Pfizer was maintained in the range of $8.6 - $9.0 billion. SI&A spending guidance was maintained in the range of $11.5 - $12.5 billion, primarily. Adjusted tax rate is expected to be approximately 15% in 2020.

The “New Pfizer” is expected to record revenues in the range of $40.8 billion to $42.4 billion (previously $40.7 billion to $42.3 billion). Adjusted EPS guidance for the “New Pfizer” is in the range of $2.28-$2.38, up from the previous expectation of $2.25-$2.35. Pfizer’s Biopharma unit will become the “New Pfizer” following the expected separation of Upjohn.

Progress on Coronavirus Vaccine

Earlier this week, Pfizer and its Germany-based partner, BioNTech began a large, global phase IIb/III safety and efficacy study, which will include up to 30,000 participants on its coronavirus vaccine candidate. Out of four experimental mRNA-based vaccines being evaluated under BioNTech’s BNT162 program to prevent COVID-19, the companies selected nucleoside-modified messenger RNA (modRNA) candidate, BNT162b2 (at a 30 µg dose level in a 2 dose regimen) as the lead candidate for the late-stage study. The selection of the candidate and the dose level was done after careful evaluation of the positive preclinical and clinical data from phase I/II studies conducted in the United States and Germany. Pfizer expects to file regulatory applications for a COVID-19 vaccine candidate by October. If the vaccine is approved this year, Pfizer plans to manufacture up to 100 million doses by the end of this year and potentially more than 1.3 billion doses by the end of 2021.

Last week, Pfizer and BioNTech also announced a deal with the U.K. government to supply 30 million doses of BNT162 to be delivered in 2020 and 2021. Meanwhile, the U.S. government placed an initial order of 100 million doses of BNT162 vaccine for $1.95 billion, if it is successfully developed and gets FDA’s approval or emergency use authorization. The U.S. government also has an option to acquire up to 500 million doses of the vaccine from Pfizer/BioNTech.

Also, earlier this month, the FDA granted fast track designation to two (BNT162b1 and BNT162b) out of the four experimental mRNA-based vaccines

Our Take

Pfizer beat estimates for earnings while missing the same for sales. It slightly raised its financial outlook for the year. Pfizer’s shares rose more than 3% in pre-market trading on stronger-than-expected second-quarter results as well as the initiation of late-stage studies on its coronavirus vaccine candidate. However, this year so far, Pfizer’s stock has declined 4.2% compared with a decrease of 0.1% for the industry

 

 

In the quarter, new prescriptions for some drugs and of vaccination rates for most vaccines slowed in certain markets, including the United States due to reduced patient visits to doctors amid COVID-19-related mobility restrictions & limitations. Its sales and marketing activities were hurt significantly in the United States in the quarter due to widespread restrictions on in-person meetings with doctors. However, some of Pfizer’s medicines —- Prevnar 13/Prevenar 13 in international markets and certain sterile injectable products — saw increased demand due to COVID-19.

Pfizer expects trends of patient visit to doctors, vaccinations and elective surgical procedures to improve from third-quarter onward. Enrollment in clinical studies and new study starts resumed in the quarter after a brief pause in April and are expected to continue through the rest of the year.

Despite the ongoing impact of COVID-19, we believe the Consumer Healthcare joint venture with Glaxo, the Array acquisition (July 2019) and the pending merger of Upjohn unit with Mylan, if successful, will make Pfizer a smaller company with a diversified portfolio of innovative drugs and vaccines. The smaller Pfizer should see better revenue growth as the Lyrica loss of exclusivity cliff goes away. Pfizer expects strong growth of key brands like Ibrance, Inlyta and Eliquis to drive sales in 2020. In addition, new brands such as Vyndaqel/Vyndamax, Braftovi, Mektovi and oncology biosimilars should bring in additional sales.

Pfizer currently has a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Pfizer Inc. Price, Consensus and EPS Surprise

Pfizer Inc. Price, Consensus and EPS Surprise
Pfizer Inc. Price, Consensus and EPS Surprise

Pfizer Inc. price-consensus-eps-surprise-chart | Pfizer Inc. Quote

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