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Pfizer (PFE) Q3 Earnings Top, Sales Miss, View Narrowed

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Pfizer, Inc. (PFE - Free Report) reported third-quarter 2020 adjusted earnings per share of 72 cents, which beat the Zacks Consensus Estimate of 70 cents. Earnings however declined 3% year over year due to lower revenues and higher R&D costs.

Revenues came in at $12.13 billion, which marginally missed the Zacks Consensus Estimate of $12.23 billion. Sales declined 4% from the year-ago quarter, both on a reported and operational basis, hurt by business disruption and reduced doctor visits in the United States and lower demand for certain products in China amid the coronavirus pandemic. Third-quarter revenues included a net negative impact of approximately $500 million, or 4%, due to COVID-19.

Pfizer had expected new prescription trends for certain key medicines and vaccination rates to improve in the third quarter from the second-quarter levels. However, the pace of improvement was slower than management expectations.

International revenues declined 6% to $6.42 billion. On an operational basis, international sales declined 5% in the quarter. U.S. revenues declined 2% to $5.72 billion.

Adjusted selling, informational and administrative (SI&A) expenses declined 10% (operationally) in the quarter to $2.87 billion due to decreased sales and marketing activities due to the COVID-19. Adjusted R&D expenses rose 21% to $2.35 billion due to costs related to development of COVID-19 vaccine.

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 to create a generic pharmaceutical company called Viatris. The transaction is expected to close in the fourth quarter of 2020.

Pfizer Biopharma sales grew 3% on a reported basis (up 4% an operational basis) from the year-ago period to $10.2 billion. Higher sales of brands like Eliquis, Ibrance, Inlyta and Xeljanz and significant contribution from new drug 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, Enbrel internationally and lower demand for certain anti-infective products in China offset the increase.

Within the Biopharma group, Oncology revenues increased 18% (on an operational basis) to $2.76 billion. Vaccine revenues however declined 4% to $1.72 billion. Internal Medicine declined 1% to $2.09 billion. The Inflammation & Immunology franchise declined 3% to $1.17 billion. The portfolio of Rare Disease rose 26% to $752 million. Hospital sub-segment’s sales declined 5% to $1.73 billion. The Hospital segment comprises Pfizer’s global portfolio of sterile injectable and anti-infective medicines.

Pfizer’s Upjohn group’s sales declined 18%, both on a reported and operational basis to $1.92 billion mainly due to U.S. loss of exclusivity of Lyrica and lower revenues for Lipitor and Norvasc in China

Performance of Key Drugs

Ibrance revenues rose 6% year over year to $1.36 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 41% driven by growth in the United States and some international markets driven by recent FDA approvals for the combination use of Inlyta in first-line treatment of advanced renal cell carcinoma patients

Global Prevnar 13/Prevenar 13 revenues declined 3% to $1.53 billion. Prevnar 13 revenues declined 14% in the United States due to unfavorable timing of government purchases and the negative impact of the revised Advisory Committee on Immunization Practices (ACIP) recommendations. However, U.S. sales improved from second-quarter levels due to pick-up in vaccination rates, which were delayed amid COVID-19-related mobility restrictions & limitations. Prevenar 13 revenues rose 14% in international markets.

Enbrel revenues declined 21% to $321 million in key European markets, Japan and Brazil due to continued biosimilar competition. Pfizer has exclusive rights to Amgen’s (AMGN - Free Report) blockbuster RA drug, Enbrel, outside the United States and Canada.

Alliance revenues from Bristol-Myers (BMY - Free Report) for Eliquis and direct sales rose 9% to $1.11 billion. Xalkori sales declined 5% to $122 million. Xeljanz sales rose 10% to $654 million. Xtandi recorded alliance revenues of $266 million in the quarter, up 18% year over year. Sutent sales declined 8% to $202 million. Chantix sales declined 19% to $223 million in the quarter.

Importantly, new rare disease drug Vyndaqel/Vyndamax recorded sales of $351 million in the quarter compared with $277 million in the previous quarter driven by growing demand.

Braftovi and Mektovi, which Pfizer acquired following its acquisition of Array BioPharma in 2019, recorded sales of $42 million and $34 million, respectively in the third quarter of 2020.

Total biosimilar revenues were $424 million, up 80% year over year as the company launched new oncology biosimilars (Trazimera, Zirabev and Ruxience) this year. Sterile injectables global revenues declined 3% operationally to $1.19 billion due to lower sales in China.

In the Upjohn segment, sales of key drug Lyrica declined 33% to $352 million due to multi-source generic erosion. Viagra sales rose 3% to $121 million despite generic competition.

Tightens 2020 Guidance

Pfizer slightly lowered the upper end of the 2020 financial guidance for the present Pfizer while maintaining the guidance for the “New Pfizer”. Pfizer’s Biopharma unit will become the “New Pfizer” following the expected separation of Upjohn. The guidance assumes no revenue contributions from a potential COVID-19 vaccine.

Revenue guidance range was lowered from a range of $48.6 billion to $50.6 billion to $48.8 billion to $49.5 billion. Adjusted earnings per share guidance was tightened from a range of $2.85-$2.95 to $2.88-$2.93.

Research and development expense guidance for present Pfizer was increased from a range of $8.6 - $9.0 billion to $8.8 - $9.1 billion. SI&A spending guidance was tightened from a range of $11.5-$12.5 billion to $11.5-12.0 billion. 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. Adjusted EPS guidance for the “New Pfizer” is in the range of $2.28-$2.38.

Progress on Coronavirus Vaccine

Pfizer and its Germany-based partner BioNTech selected BNT162b2, out of four mRNA-based coronavirus vaccine candidates, for late-stage development as it demonstrated better results in early-stage studies. They began global phase III development in July. Along with the earnings release, the company said that the phase II/III study has now enrolled more than 42,000 participants, with nearly 36,000 having received their second vaccination, as of Oct 26. The company however did not mention when it plans to reveal phase III data,

BioNTech and Pfizer expect to file regulatory applications for BNT162b2 in the United States in November. If the vaccine is approved, Pfizer/BioNTech plan 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.

In early October, Pfizer and BioNTech began rolling submission of BNT162b2 to the European Medicines Agency (EMA). The EMA accepted rolling review on the candidate based on available preclinical and clinical data.

Our Take

Pfizer beat estimates for earnings while missing the same for sales. It slightly lowered its financial outlook for the year. Shares were down slightly in pre-market trading. This year so far, Pfizer’s stock has declined 3.2% compared with a decrease of 3.1% for the industry

 

 

The COVID-19 pandemic has hurt Pfizer’s sales by approximately 2% this year so far. Though the impact of the pandemic has been less than originally anticipated, management believes the pace of recovery has also been slower than expected.

Despite the ongoing impact of COVID-19, we believe the Consumer Healthcare joint venture with Glaxo and the pending merger of Upjohn unit with Mylan 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 continue to drive sales. 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-eps-surprise-chart | Pfizer Inc. Quote

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