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Pfizer (PFE) Q4 Earnings Beat, 2019 View Tepid, Stock Dips

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Pfizer, Inc. (PFE - Free Report) reported fourth-quarter 2018 adjusted earnings per share of 64 cents, which beat the Zacks Consensus Estimate by a penny. Earnings rose 3% year over year.

The pharma heavyweight recorded revenues of $14.0 billion, which beat the Zacks Consensus Estimate of $13.77. Revenues rose 2% from the year-ago quarter on a reported basis. Currency fluctuation hurt sales by 3% in the quarter due to a stronger dollar and weakening of certain emerging markets currencies and euro. On an operational basis, excluding the impact of currency, revenues rose 5% year over year. Higher sales in the IH segment were partially offset by lower sales in the EH segment.

International revenues rose 4% (up 10% an operational basis) to $7.51 billion. U.S. revenues declined 1% to $6.47 billion.

Revenues from the Consumer Healthcare segment, which Pfizer agreed to merge with Glaxo’s (GSK - Free Report) Consumer Health Unit last month to form a new joint venture, rose 5% year over year to $974 million. Global Oncology revenues increased 30% to $1.91 billion. Global Vaccine revenues rose 3% to $1.62 billion. Internal Medicine rose 10% to $2.66 billion. The Inflammation & Immunology franchise rose 7% to $1.13 billion. However, the portfolio of Rare Disease declined 3% to $561 million.

Segment Discussion

Pfizer’s reporting segments are Pfizer Innovative Health (IH) and Pfizer Essential Health (EH).

Pfizer IH sales grew 8% on a reported basis (up 10% an operational basis) from the year-ago period to $8.85 billion as higher sales of Eliquis and Xeljanz globally, Ibrance in international markets and Xtandi in the United States offset lower sales of Enbrel, Xalkori and Prevnar U.S.

All growth rates mentioned below are on an operational basis.

Ibrance revenues rose 62% year over year to $1.13 billion as higher international sales offset a decline in the United States. Ibrance sales declined 4% in the United States in the fourth quarter due to increased rebates and rising competition in the CDK inhibitor category.

Xeljanz sales rose 27% to $553 million. Eliquis alliance revenues and direct sales rose 31% to $910 million. Chantix sales rose 10% to $296 million in the quarter. Lyrica sales rose 9% to $1.22 billion.

Xtandi recorded alliance revenues of $189 million in the quarter, up 12% year over year. Pfizer markets Xtandi in partnership with Japan’s Astellas Pharma.

Global Prevnar 13/Prevenar 13 revenues rose 1% to $1.51 billion. Prevenar 13 revenues rose 5% in international markets. Prevnar 13 revenues declined 2% in the United States.

Enbrel revenues declined 11% to $524 million in key European markets due to continued biosimilar competition. Pfizer has exclusive rights to Amgen, Inc.’s (AMGN - Free Report) blockbuster rheumatoid arthritis(RA) drug, Enbrel, outside the United States and Canada.

Pfizer’s EH segment sales declined 7% (3% on an operational basis) to $5.12 billion.

EH revenues were hurt by the loss of exclusivity (LOE) and associated generic competition for products, primarily Pristiq and Viagra in the United States and Lyrica in Europe, and lower revenues from sterile injectables portfolio due to increased competitive pressure and continued legacy Hospira product shortages in the United States. Also, lower sales of legacy Established Products in developed markets driven by industry-wide pricing challenges hurt EH segment sales.

However, in the EH business, biosimilars and emerging markets did well in the quarter. Biosimilars revenues rose 31% operationally while emerging markets revenues grew 10% operationally.

Pfizer markets Inflectra, a biosimilar version of Johnson & Johnson (JNJ - Free Report) and Merck’s blockbuster RA drug, Remicade. While Inflectra recorded sales of $70 million in the United States and $173 million globally, other biosimilars brought in sales of $38 million (up 31%).

Adjusted selling, informational and administrative (SI&A) expenses declined 6% (operationally) in the quarter to $3.97 billion. Adjusted R&D expenses rose 6% to $2.44 billion.

2018 Results

Full-year 2018 sales rose 2% to $53.65 billion, beating the Zacks Consensus Estimate of $53.42 billion. Revenues were within the guided range of $53.0 billion to $53.7.

Adjusted earnings for 2018 were $3.00 per share, in line with the Zacks Consensus Estimate and up 13% year over year. Earnings were within the guided range of $2.98-$3.02 per share.

2019 Guidance

Pfizer issued its earnings as well as sales guidance for 2019.

Revenues are expected in the range of $52.0 billion to $54.0 billion. The Zacks Consensus Estimate is pegged at $53.8 billion.

Adjusted earnings per share are expected in the range of $2.82-$2.92, lower than the Zacks Consensus Estimate of $2.99. At the mid-point, revenues and adjusted EPS are expected to be flat from 2018 levels. Currency headwinds are expected to hurt 2019 sales and earnings by $900 million and 6 cents per share in 2019.

Research and development expense is expected in the range of $7.8–$8.3 billion while SI&A spending is projected in the range of $13.5 –$14.5 billion. Adjusted tax rate is expected to be approximately 16% in 2019.

In 2019, Pfizer expects to buy back shares worth approximately $9 billion.

Tanezumab Shows Promise in Second Late-Stage Study

Pfizer and partner Lilly announced top-line data from the second phase III study evaluating tanezumab (2.5 mg or 5 mg) for the treatment of osteoarthritis (OA) pain.

Top-line data from the study showed that treatment with tanezumab 5 mg led to statistically significant improvement in pain, physical function and the patients’ overall assessment of their OA – the three primary endpoints – compared to placebo at 24 weeks. The 2.5 mg dose demonstrated a statistically significant improvement in pain and physical function. However for the third primary endpoint, overall assessment of their OA, a statistical difference was not observed.

Tanezumab is also being evaluated for chronic low back pain (CLBP) and cancer pain (due to bone metastases).

Our Take

Pfizer beat estimates for fourth-quarter earnings as well as sales. However, shares of Pfizer fell around 2% in pre-market trading as the 2019 forecast disappointed investors. Pfizer’s shares have risen 4.6% in the past year against a decline of 4.8% for the industry.

 

 

In 2019, Pfizer expects continued strong growth of key product franchises, including Ibrance, Eliquis, Xeljanz and Xtandi However, LOEs are expected to hurt 2019 sales by $2.6 billion including the expected LOE of key drug Lyrica in the United States in June 2019. Also currency headwinds are expected to significantly pull down 2019 revenues.

To offset the threat of generic competition, Pfizer is strengthening its pipeline as well as oncology portfolio. Pfizer gained FDA approval for four innovative medicines in 2018, which can boost its oncology sales in 2019. Pfizer boasts a strong pipeline and looks well positioned to deliver several potential new breakthrough innovative medicines in the next five years, which can drive long-term growth. Bavencio, though currently approved for two small indications, is being considered a key long-term growth driver for Pfizer if it can gain label expansion approvals.

 

Pfizer Inc. Price, Consensus and EPS Surprise

 

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

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

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