Pfizer (PFE) Rises On Q3 Earnings & Sales Beat, Ups EPS View

Pfizer, Inc. (NYSE:PFE) reported third-quarter 2019 adjusted earnings per share of 75 cents, which beat the Zacks Consensus Estimate of 63 cents. Earnings however declined 2% year over year due to lower revenues and higher taxes, which offset the impact of lower costs in the quarter.

The pharma heavyweight recorded revenues of $12.68 billion, which beat the Zacks Consensus Estimate of $12.15 billion. Revenues declined 5% from the year-ago quarter on a reported basis. On an operational basis, excluding the 2% negative impact of currency, revenues declined 3% year over year as higher sales of some key brands in Pfizer’s Biopharmaceuticals group was offset by decline of revenues 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 unit, third-quarter revenues were flat operationally. We remind investors that on Aug 1, Pfizer merged its Consumer Healthcare unit with Glaxo’s (NYSE: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%.

International revenues declined 2% to $6.83 billion. However, on an operational basis, international sales rose 2% in the quarter. U.S. revenues declined 8% to $5.85 billion.

Adjusted selling, informational and administrative (SI&A) expenses declined 7% (operationally) in the quarter to $3.2 billion. Adjusted R&D expenses declined 2% to $1.94 billion.

Segment Discussion

In 2018, Pfizer’s reporting segments were Pfizer Innovative Health (IH) and Pfizer Essential Health (EH).Beginning the first quarter of 2019, Pfizer started reporting under three new business units — Pfizer Biopharmaceuticals Group (previous IH unit except Consumer Healthcare), Upjohn (previous EH unit) and Consumer Healthcare. In July 2019, Pfizer announced a definitive agreement to spin-off the Upjohn unit and combine it with generic drugmaker Mylan (NASDAQ:MYL) in a Reverse Morris Trust transaction to create a new generic pharmaceutical company.

Pfizer Biopharma sales grew 7% on a reported basis (up 9% an operational basis) from the year-ago period to $10.1 billion. Higher sales of brands like Eliquis, Ibrance, Inlyta and Xeljanz, and a strong emerging markets performance (up 15%) drove this segment’s sales growth. Weaker sales of Prevnar 13/Prevenar 13 and Enbrel internationally offset the increase.

Within the Biopharma group, Oncology revenues increased 30% (on an operational basis) to $2.35 billion. Vaccine revenues declined 1% to $1.81 billion. Internal Medicine rose 3% to $2.21 billion. The Inflammation & Immunology franchise rose 6% to $1.23 billion. The portfolio of Rare Disease rose 16% to $601 million. The newly added Hospital sub-segment’s sales rose 6% to $1.92 billion. The Hospital segment comprises Pfizer’s global portfolio of sterile injectable and anti-infective medicines.

Pfizer’s Upjohn group’s sales declined 28% (down 26% on an operational basis) to $2.2 billion mainly due to U.S. loss of exclusivity of Lyrica in July 2019.

Revenues from the Consumer Healthcare unit declined 55% (54% on an operational basis) to $377 million as a result of the completion of the JV transaction with Glaxo.

Performance of Key Drugs

Ibrance revenues rose 27% year over year to $1.28 billion on continued strong uptake in international markets and consistent growth in the United States.

Xeljanz sales rose 40% to $599 million driven by continued growth in rheumatoid arthritis (RA) revenues and contributions from the drug's 2018 launches for psoriatic arthritis and ulcerative colitis in the United States and only ulcerative colitis indication in certain developed markets.

Inlyta revenues increased 98% to $139 million driven mainly by 240% growth in the United States. U.S. sales gained from FDA approval of Inlyta in combination with Merck’s PD-L1 inhibitor Keytruda for first-line treatment advanced renal cell carcinoma (RCC), the most common type of kidney cancer, in April this year.

Global Prevnar 13/Prevenar 13 revenues declined 3% to $1.60 billion. Prevnar 13 revenues declined 7% in the United States, reflecting decreased government purchases for the pediatric indication and continued decline in revenues for the adult indication. Prevenar 13 revenues rose 7% in international markets.

Enbrel revenues declined 19% to $415 million in key European markets due to continued biosimilar competition. Pfizer has exclusive rights to Amgen’s (NASDAQ:AMGN) blockbuster RA drug, Enbrel, outside the United States and Canada.

Xalkori sales rose 5% to $130 million. Sutent sales declined 7% to $224 million. Eliquis alliance revenues and direct sales rose 20% to $1.03 billion. Chantix sales rose 7% to $276 million in the quarter. Xtandi recorded alliance revenues of $225 million in the quarter, up 25% year over year.

Importantly, new drug Vyndaqel which was launched in May 2019 for the treatment of the transthyretin amyloid cardiomyopathy, recorded sales of $156 million in the quarter.

Total biosimilar revenues were $236 million, up 22% year over year.

In the Upjohn segment, sales of key drug Lyrica declined 57% to $527 million due to generic erosion. Viagra sales declined 11% to $120 million due to generic competition that began in December 2017.

2019 Guidance

Pfizer raised its previously issued 2019 guidance for earnings while tightening its range for revenues.

Revenues are expected in the range of $51.2 billion to $52.2 billion compared with $50.5 billion to $52.5 billion expected previously. Adjusted earnings per share are expected in the range of $2.94-$3.00 versus the previous expectation of $2.76-$2.86.

Research and development expense is expected in the range of $7.7–$8.1 billion versus $7.9–$8.3 billion while SI&A spending is projected in the range of $13.5–$14.0 billion versus $13.0–$14.0 billion expected earlier. Adjusted tax rate is still expected to be approximately 16% in 2019.

Our Take

Pfizer’s third-quarter 2019 performance was better than the second quarter. It beat estimates for both earnings and sales while raising its outlook for earnings and tightening the revenue outlook. Pfizer’s shares were up more than 3% in pre-market trading. Pfizer’s shares have declined 14.6% this year so far compared with an increase of 0.8% for the industry.

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 and Eliquis to continue to drive sales. Pfizer is also strengthening its pipeline and hopes to launch innovative medicines in the next five years, which can drive long-term growth. However, Lyrica generic erosion, currency headwinds, weak sales in the sterile injectables portfolio and pricing pressure are the key near-term top-line headwinds.

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