New York-based drugmaker and Dow-30 component Pfizer (PFE – Free Pfizer Stock Report) reported second-quarter GAAP earnings of $0.89 a share, versus $0.65 in the comparable period of 2018. The year-over-year improvement was fueled primarily by reduced production costs (-12%) and lower taxes, which helped to offset a modest decline in total revenues. Meantime, adjusted earnings, which exclude one-time gains, losses, and other nonrecurring items, and are more closely followed by Wall Street, came in at $0.80 a share, versus $0.77 in Q2, 2018. The adjusted figure beat consensus expectations of $0.75 a share despite a roughly $150 million miss on the top line. Separately, management lowered its full-year 2019 guidance to reflect the anticipated August 1st formation of its consumer healthcare joint venture with GlaxoSmithKline and the near-term completion of its Array BioPharma acquisition. It also announced a notable deal to spin off its generic Upjohn unit with Mylan (more below). Shares of PFE were trading a few percentage points lower on the release.
In the June period, worldwide revenues dipped 2% year over year, to $13.26 billion. The tally fell below the $13.40 billion that analysts had projected on average and ended the company's streak of seven-consecutive quarters of top-line growth. The decline stemmed mostly from weakness in Pfizer's Upjohn (-11%) and Consumer Healthcare (-3%) segments, mitigating a decent showing in its cornerstone Biopharma division (+2%). The last mentioned, which currently accounts for 72% of total revenues, was led by strong gains in rheumatoid arthritis treatment XELJANZ (+32%), top oncology asset IBRANCE (+23%), and blood thinner medication ELIQUIS (+22%). Going forward, management will be leaning heavily on these three franchises to offset generic pressures in other areas of the business. The company lost U.S. exclusivity on blockbuster nerve medication LYRICA in June (-4%), which is likely to be a significant drag in the back half of the year.
The second-quarter earnings release was largely overshadowed by the announcement that the company would be spinning off its Upjohn generics business and combining it with Mylan. The move reflects a broader strategy shift, as Pfizer looks to increase its focus on more expensive and higher-margin innovative pharmaceuticals, such as top-selling cancer drug IBRANCE. Under the terms of the agreement, which is being structured as an all-stock, Reverse Morris Trust transaction, each Mylan share would be converted into one share of the new entity. Upon closing (anticipated in mid-2020), Pfizer shareholders would own 57% of the venture and Mylan shareholders would own 43%.
All told, we continue to view Pfizer as a solid core holding in the large pharmaceutical space. The company maintains strong finances, high-grade fundamentals, and an impressive track record of returning value to shareholders. The equity scores well across all of our proprietary risk metrics and also boasts an attractive dividend yield, making it a nice fit in conservative, income-oriented portfolios.
About The Company: Pfizer is a major producer of pharmaceuticals. The company is engaged in discovering, developing, and manufacturing of healthcare products. Important product names include LYRICA (nerve and muscle pain); PREVNAR (vaccine); ENBREL (arthritis, psoriasis, and more); IBRANCE(advanced breast cancer) and CELEBREX (osteoarthritis, rheumatoid arthritis). The company acquired injectable drugmaker Hospira in 2015 and medical devices producer Medivation in 2016.
– Michael Ratty
