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Pfizer (PFE) Surpasses Q2 Earnings Estimates, Misses Sales

Zacks Equity Research

Pfizer, Inc. PFE reported second-quarter 2017 adjusted earnings per share of 67 cents, which beat the Zacks Consensus Estimate of 65 cents by 3.1%. Earnings also rose 5% year over year.

On the other hand, revenues missed expectations. The pharma heavyweight delivered revenues of $12.90 billion, which fell short of the Zacks Consensus Estimate of $13.02 billion. Again, revenues declined 2% from the year-ago period due to currency headwinds and divestiture of Hospira infusion systems business. In Feb 2017, Pfizer divested its Hospira infusion systems (HIS) business to ICU Medical.

Sales in Detail

Currency movement impacted Pfizer’s second-quarter revenues by 2% ($202 million). Sales growth was flat on an operational basis. Excluding HIS revenues, sales rose 2% on an operational basis.

Lower sales of Enbrel and the Prevnar/Prevenar 13 vaccines franchise and loss of exclusivity for some products  offset strong performance of key products like Ibrance (breast cancer), Xtandi (prostate cancer) and Xeljanz (rheumatoid arthritis).

International revenues declined 3% (flat on an operational basis) to $6.55 billion. Meanwhile, U.S. revenues were flat at $6.34 billion.

Segment Discussion

From the second quarter of 2016, Pfizer reorganized its reporting segments to Pfizer Innovative Health (IH) and Pfizer Essential Health (EH).

Pfizer IH sales grew 8% (up 9% operationally) from the year-ago period to $7.67 billion.

Pfizer IH revenues were driven by persistently strong momentum of Ibrance and Eliquis globally and growth of Lyrica and Xeljanz primarily in the U.S.

While Ibrance revenues rose 66% to $853 million in the quarter, Xeljanz rose 55% to $336 million. Lyrica sales rose 5% to $1.10 billion. Eliquis alliance revenues and direct sales rose 50% to $605 million.

Revenues from the blockbuster prostate cancer drug Xtandi, added to Pfizer’s portfolio following the Sep 2016 Medivation acquisition, also propelled U.S. revenues. Xtandi recorded alliance revenues of $141 million in the quarter compared with $131 million in the first quarter.

This was partially offset by continued decline in revenues from Prevnar 13 in U.S. and lower revenues of Enbrel and Viagra.

Enbrel revenues declined 20% to $617 million in key European markets due to biosimilar competition. Pfizer has exclusive rights to Amgen, Inc.’s AMGN blockbuster rheumatoid arthritis(RA) drug, Enbrel, outside the U.S. and Canada. Viagra sales declined 15% to $255 million due to lower sales in the U.S. and international markets due on reduced demand.

Global Prevnar 13/Prevenar 13 revenues declined 8% to $1.15 billion. Prevnar 13 revenues tanked 16% in the U.S. due to “high initial capture rate” of the eligible adult patient population following its successful 2014 launch. This resulted in a smaller remaining “catch up” opportunity in the second quarter compared with the year-ago quarter. Unfavorable timing of government purchases for the pediatric indication also hurt U.S. sales.

Eucrisa (crisaborole) topical ointment for the treatment of atopic dermatitis (eczema), which was bought as part of the Jun 2016 Anacor acquisition, was launched in the U.S. in first quarter of 2017. The ointment recorded sales of $9 million in the second quarter.

While Consumer Healthcare revenues rose 1% to $846 million, Global Oncology revenues surged 44% to $1.59 billion driven by Ibrance. Global Vaccine revenues declined 7% to $1.27 billion. While Internal Medicine rose 10% to $2.41 billion, the Inflammation & Immunology franchise declined 1% to $992 million. Additionally, the portfolio of Rare Disease declined 8% to $562 million.

Pfizer EH segment sales recorded a decline of 14% (down 12% operationally) to $5.23 billion. Excluding HIS revenues, EH sales declined 7%.

EH revenues were hurt by the loss of exclusivity and associated generic competition for products like Pristiq (generic versions launched in the U.S. in Mar 2017), Vfend, Zyvox, Celebrex, Lyrica; lower revenues from legacy Hospira products and divesture of HIS. However, in the EH business, biosimilars did well in the quarter.

Pfizer launched Inflectra, a biosimilar version of Johnson & Johnson JNJ and Merck & Co., Inc.’s MRK blockbuster RA drug Remicade, in November last year. While Inflectra recorded sales of $23 million in the U.S. and $94 million globally, all other biosimilars brought in sales of $27 million (down 18%) from outside the U.S. markets.

Adjusted selling, informational and administrative (SI&A) expenses were flat (operationally) in the quarter at $3.39 billion. Adjusted R&D expenses rose 2% to $1.77 billion.

2017 Guidance Updated

While Pfizer raised the lower end of its adjusted earnings guidance, it retained the revenue expectations for the year. Revenues are expected in the range of $52 billion to $54 billion.

Adjusted earnings per share are expected in the range of $2.54 - $2.60 compared with $2.50–$2.60 expected previously. Higher than previously anticipated royalty income from certain products and lower interest cost led to the increase in the lower end of the profit outlook.

At the mid-point, revenues are expected to be slightly above 2016 level, while adjusted EPS is expected to increase 7% (previously 6%).

Research and development expenses are still expected in the range of $7.5–$8.0 billion, while SI&A spending is projected in the range of $13.7–$14.7 billion.

Key Drugs Approvals

Importantly, key pipeline candidate Bavencio/avelumab received accelerated FDA approval for metastatic Merkel cell carcinoma (MCC) in Mar 2017 and for advanced bladder cancer in May. The candidate is being studied for different types of cancers including several combination therapies with other immuno-oncology agents.

Another pipeline candidate, Besponsa (inotuzumab ozogamicin) was approved in the EU in June as a monotherapy for relapsed or refractory CD22-positive B-cell precursor acute lymphoblastic leukemia (ALL). The candidate is under review in the U.S. with a FDA decision expected later this month.

Our Take

Pfizer’s second-quarter results were mixed as it beat earnings estimates but missed the same on sales. Shares declined slightly in pre-market trading as the company continues to struggle with its sales performance. Pfizer’s shares are up 2.1% so far this year, comparing unfavorably with an increase of 10.7% for the industry.

Pfizer continues to face headwinds in the form of genericization of key drugs, lost alliance revenues, pricing pressure and rising competition, which are hurting the top line. Products like Viagra, Lyrica and Chantix will lose exclusivity in a couple of years. Nonetheless, we believe that new products like Ibrance, contribution from acquisitions, cost-cutting efforts and share buybacks should help the company achieve its guidance. Pfizer also boasts a strong pipeline and expects approximately 25 to 30 drug approvals over the next five years, including around 15 products that have blockbuster potential. Bavencio is being considered a key long-term growth driver for Pfizer.

Pfizer carries 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. Quote

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