New York-based drugmaker and Dow-30 component Pfizer (PFE – Free Pfizer Stock Report) reported third-quarter earnings of $0.69 a share, versus $0.47 in the comparable period of 2017. The year-over-year improvement was driven by a slight bump in revenues, reduced production costs, and continued benefits from tax reform, partially offset by higher expenses tied to research and development. Meantime, adjusted earnings, which exclude one-time gains, charges, and other nonrecurring items, and are more closely followed by Wall Street, came in at $0.78 versus $0.67 in Q3, 2017. The adjusted figure beat consensus expectations of $0.75 a share, with much of the upside coming from cost control and lower taxes. However, revenues missed the mark due to softness in several key areas and currency-related pressures (more below), prompting management to scale back its full-year guidance. Shares of PFE were trading a few points lower on the release.
In the September period, worldwide revenues advanced 1% year over year, to $13.30 billion, representing the fifth-consecutive quarter of top-line growth. Despite the continuation of the streak, results fell short of Wall Street's $13.53 billion target due in part to misses in cancer drug Ibrance and rheumatoid arthritis treatment Xeljanz. Management indicated that revenues were also negatively impacted by the stronger dollar and weakness in its Hospira Sterile Injectables business, the latter of which stemmed from product shortages in the U.S. As a result, it lowered its full-year forecast from $53.0 billion-$55.0 billion, to $53.0 billion-$53.7 billion. The company also updated its 2018 adjusted earnings guidance range from $2.95-$3.05 a share, to $2.98-$3.02.
In addition to the above-mentioned drags, Pfizer is expected to face some pressure at the top end of its portfolio over the next several quarters. The Prevnar vaccine franchise, which accounts for roughly 13% of total revenue, performed well in the September period (+10%) due to higher government purchases for the pediatric indication. However, a still saturated adult market is likely to result in some sales deceleration going forward. Meanwhile, nerve pain medication Lyrica, which accounts for 9% of total revenue, is set to lose a major U.S. patent in December. While management is hopeful that a recent filing will extend exclusivity for the pediatric indication (FDA decision slated for late December), generic competition is likely to take a significant chunk out of the Lyrica franchise in 2019.
On a positive note, momentum in several newer products should help to pick up the slack. Although Ibranceand Xeljanz underperformed a bit in the third quarter, they still posted year-over-year revenue gains of 17% and 24%, respectively. In our view, continued development of these two assets, along with blood thinner medication Eliquis (Q3 revenue +35%), should provide substantial support to the top line over the balance of 2018 and into 2019. Longer term, Pfizer's pipeline is well stocked with late-stage assets across several therapeutic areas. On the Q3 conference call, management indicated that it sees opportunity for 25-30 approvals through 2022, of which roughly half have blockbuster potential.
All told, we continue to view Pfizer as a solid core holding in the large pharma group. The company has strong finances, high-grade fundamentals, and an impressive track record. An above-average dividend yield and expectations for continued stock repurchases should enhance shareholder value.
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
