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Pfizer (PFE) Lags Q4 Earnings & Sales Estimates, Stock Down

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Pfizer, Inc. PFE reported fourth-quarter 2019 adjusted earnings per share of 55 cents, which missed the Zacks Consensus Estimate of 57 cents. Earnings declined 13% year over year due to lower revenues and higher costs.

The pharma heavyweight recorded revenues of $12.69 billion, which also missed the Zacks Consensus Estimate of $12.70 billion. Revenues declined 9% from the year-ago quarter on a reported basis. On an operational basis, excluding the 1% negative impact of currency, revenues declined 8% year over year as higher sales of some key brands in Pfizer’s Biopharmaceuticals group was offset by revenue decline in the Upjohn segment. The segment was hurt mainly by the loss of Lyrica exclusivity in July 2019 in the United States.

Importantly, excluding the spin-off of the Consumer Healthcare (CHC) unit, fourth-quarter revenues declined 1% operationally. We remind investors that in August last year Pfizer merged its CHC unit with Glaxo’s GSK Consumer unit to form a new joint venture (JV). Pfizer owns a stake of 32% in the JV and Glaxo owns the remaining 68%. In the fourth quarter, Pfizer did not record any revenues from the Consumer Healthcare unit. Instead, it recorded its share of profits generated by the Consumer Healthcare JV.

International revenues declined 4% to $7.2 billion. On an operational basis, international sales declined 2% in the quarter. U.S. revenues declined 15% to $5.49 billion.

Adjusted selling, informational and administrative (SI&A) expenses rose 4% (operationally) in the quarter to $4.07 billion. Adjusted R&D expenses rose 4% to $2.53 billion.

Segment Discussion

Pfizer reports under two business units — Pfizer Biopharmaceuticals Group and Upjohn.

In July 2019, Pfizer announced a definitive agreement to spin off its Upjohn unit and combine it with generic drugmaker Mylan MYL in a Reverse Morris Trust transaction for the creation of a generic pharmaceutical company called Viatris. The transaction is expected to close by mid-2020.

Pfizer Biopharma sales grew 7% on a reported basis (up 9% an operational basis) from the year-ago period to $10.53 billion. Higher sales of brands like Eliquis, Ibrance, Inlyta and Xeljanz and higher biosimilars revenues drove this segment’s sales growth. Weaker sales of Prevnar 13/Prevenar 13 in the United States and Enbrel internationally offset the increase.

Within the Biopharma group, Oncology revenues increased 26% (on an operational basis) to $2.47 billion. Vaccine revenues rose 7% to $1.71 billion. Internal Medicine rose 2% to $2.37 billion. The Inflammation & Immunology franchise declined 2% to $1.25 billion. The portfolio of Rare Disease rose 25% to $686 million. The newly added Hospital sub-segment’s sales rose 3% to $2.06 billion. The Hospital segment comprises Pfizer’s global portfolio of sterile injectable and anti-infective medicines.

Pfizer’s Upjohn group’s sales declined 32%, both on a reported and operational basis to $2.16 billion mainly due to U.S. loss of exclusivity of Lyrica.

Performance of Key Drugs

Ibrance revenues rose 15% year over year to $1.28 billion on continued strong uptake in international markets and consistent growth in the United States. However, Ibrance revenues fell short of the Zacks Consensus Estimate of $1.36 billion.

Xeljanz sales rose 11% to $607 million driven mainly by growth in international markets.

Inlyta revenues increased 72% to $161 million, driven mainly by 249% growth in the United States. U.S. sales gained from increased uptake resulting from recent FDA approvals for the combination of Inlyta plus Pfizer’s Bavencio and Inlyta plus Merck’s (MRK - Free Report) PD-L1 inhibitor Keytruda in first-line treatment of advanced renal cell carcinoma patients.

Global Prevnar 13/Prevenar 13 revenues rose 6% to $1.58 billion. Prevnar 13 revenues declined 7% in the United States. Prevenar 13 revenues rose 18% in international markets.

Enbrel revenues declined 18% to $414 million in key European markets due to continued biosimilar competition. Pfizer has exclusive rights to Amgen’s (AMGN) blockbuster RA drug, Enbrel, outside the United States and Canada.

Eliquis alliance revenues and direct sales rose 22% to $1.1 billion. Xalkori sales rose 39% to $145 million. Xtandi recorded alliance revenues of $244 million in the quarter, up 29% year over year. Sutent sales declined 10% to $231 million. Chantix sales declined 4% to $282 million in the quarter.

Total biosimilar revenues were $279 million, up 35% year over year.

In the Upjohn segment, sales of key drug Lyrica declined 68% to $433 million due to multi-source generic erosion. Viagra sales declined 5% to $119 million due to generic competition.

2019 Results

Full-year 2019 sales declined 4% to $51.75 billion, missing the Zacks Consensus Estimate of $51.81 billion. However, sales were within the guided range of $51.2 billion to $52.2 billion

Adjusted earnings for 2019 of $2.95 per share were below the Zacks Consensus Estimate of $2.96. Earnings however rose 1% year over year. Earnings were within the guided range of $2.94-$3.00.

2020 Guidance

The company issued its financial guidance for 2020 for the present Pfizer as well as for the “New Pfizer”, after the Upjohn divesture. 

Revenues are expected in the range of $48.5 billion to $50.5 billion, the midpoint of which indicates a decline from 2019 levels due to lost revenue contribution from CHC unit.

Adjusted earnings per share are expected in the range of $2.82-$2.92. The respective Zacks Consensus Estimate for sales and earnings is pegged at $45.82 billion and $2.62 per share. The above guidance includes full-year contribution from Upjohn.

The “New Pfizer” is expected to record revenues in the range of $40.7 billion to $42.3 billion, the midpoint of which indicates 8% volume-driven operational growth compared to 2019 Biopharma revenues. Adjusted EPS guidance for the “New Pfizer” is in the range of $2.25-$2.35.

Research and development expense for present Pfizer is expected in the range of $8.1- $8.5 billion while SI&A spending is projected in the range of $12.0–$13.0 billion.  Adjusted tax rate is expected to be approximately 15% in 2020.

Our Take

Pfizer’s fourth-quarter 2019 performance was weak as it missed estimates for both earnings and sales. Pfizer’s shares declined around 2% in pre-market trading. Pfizer’s shares have declined 1.6% in the past year against an increase of 16.1% for the industry.

 

 

Nonetheless, we believe the Consumer Healthcare joint venture with Glaxo, the Array acquisition (July 2019) and the pending merger of Upjohn unit with Mylan, if successful, 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 LOE cliff goes away. Pfizer expects strong growth of key brands like Ibrance, Xeljanz 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.

However, Lyrica generic erosion, currency headwinds and pricing pressure will remain near-term top-line headwinds.

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

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