Pfizer misses 3Q views but gets nod for Prevnar from China; Mao would scowl, but not Xi

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More than a year after pulling its vaccines out of one of the world’s most challenging but lucrative drug markets, Pfizer has moved back into China with a thumbs up for top-selling Prevenar 13.

@Pfizer has moved back into #China with a thumbs up for top-selling Prevenar 13 Click To Tweet

With that green light in hand for its pneumococcal disease blocker, a key contributor to Pfizer’s overall business, the company is working on a launch timeline, according to FiercePharma.

Pfizer didn’t indicate what level of sales the new market could bring, but even a small boost could help the injection, sold in the US as Prevnar 13. After boasting double-digit growth for some time, the shot has struggled in recent quarters; 3Q sales fell 3% to $1.54 billion. In September, analysts with EvaluatePharma predicted Prevnar 13 would slip 1% yearly through 2022.

The new approval in China covers Prevenar 13 in children aged six weeks to 15 months. Approximately 30,000 children in that age range die in China from pneumococcal diseases each year.

The Chinese government nod is a turnabout for Pfizer in that vaccines market, which the drug giant decided to abandon last year. Pfizer moved to pull its vaccines from the country after the import license for Prevenar 13’s predecessor wasn’t renewed. That decision affected 200 employees in vaccine sales, according to reports at the time.

“We applaud the efforts of CFDA and other relevant Chinese government agencies to bring new medicines and vaccines to the Chinese healthcare system,” Wu Xiaobin, president of Pfizer China, said in a statement.

Reuters reported that the firm aims to make the vaccine available in China within the earliest possible timeframe, but there was no set date.

Now Pfizer will be staffing back up for the new launch. A Pfizer spokesperson didn’t specify staffing numbers, but said the company looks “forward to building a strong vaccines business in China, and we aim to attract the most qualified talent.”

Prevenar 13’s approval in China could serve as a much-needed boost for a franchise that has struggled in recent quarters after posting enormous growth last year. The vaccine brought $6.24 billion to Pfizer’s top line in 2015.

In 2014, a key CDC committee in the US recommended the vaccine for adults over 65, creating an opportunity for a $2 billion sales boost. But because of a “high initial capture rate,” Pfizer now says the franchise is suffering from an “expected decline.”

Separately, Pfizer’s third-quarter profit plunged 38% as higher spending and a boatload of acquisition-related charges more than offset higher sales, sending its shares down.

The mediocre results missed Wall Street’s expectations. Pfizer lowered the top end of its 2016 profit forecast and said it was scrapping development of a closely watched experimental cholesterol drug, partly due to reduced sales expectations, according to US News.

Coming after Pfizer Inc.’s Sept. 26 announcement that it won’t split into two companies to accelerate growth–a move some investors and analysts had hoped would boost Pfizer’s lagging stock–Tuesday’s earnings news disappointed investors.

“Some investors feel the company has careened from strategy to strategy over the past few years,” said Erik Gordon, a professor and pharmaceuticals analyst at University of Michigan’s Ross School of Business.

He said examples included failed attempts at two mega-acquisitions–first of Britain’s AstraZeneca Plc in 2014 and this year of Ireland’s Allergan Plc–meant to slash Pfizer’s taxes, plus deals including this year’s purchase of cancer drugmaker Medivation and then abandoning its long-expected split into two companies.

Pfizer “has built shareholder value more on its wheeling and dealing” than on developing new medicines, Gordon added.

Pfizer said it discontinued bococizumab due to unimpressive results of late-stage testing and limited commercial prospects, an ominous sign as payers squeeze pharmaceutical companies amid public outrage over soaring drug prices.

Bococizumab is part of a new class of cholesterol medicines, PCSK-9 inhibitors, costing about $14,000 per year. Insurers are aggressively limiting patient access in favor of cheap generic cholesterol pills such as Pfizer’s former blockbuster Lipitor.

Sanford Bernstein analyst Dr. Tim Anderson wrote to investors that expectations for bococizumab were for sales of around $650 million by 2020, short of the $1 billion-a-year threshold for a blockbuster.

But he noted scrapping the drug “was unexpected, and unusual given the late-stage of development of the product. It further narrows (Pfizer’s) already-thin pipeline.”

Pfizer posted net income of $1.32 billion, or 21 cents per share, down from $2.13 billion, or 34 cents per share, a year ago. Excluding $2.4 billion worth of charges for acquisitions and restructuring, adjusted earnings came to 61 cents per share, a penny less than analysts expected.

Revenue, which was augmented by last year’s $15 billion acquisition of drugmaker Hospira, totaled $13.05 billion, up 8%. Analysts were expecting $13.06 billion.

CEO Ian Read said in a statement that Pfizer anticipates the essential health business “will be able to transition to a modest revenue growth business” due to its strength in emerging markets such as China, Hospira’s products and the biosimlar drugs–near-copies of expensive biologic drugs “manufactured” in cells–Pfizer is developing.

The first, a near-copy of blockbuster immune disorder drug Remicade, called Inflectra, will launch later this month.

Meanwhile, Pfizer said it expects full-year earnings of $2.38 to $2.43 per share, down from its prior forecast of $2.38 to $2.48. It forecast revenue of $52 billion to $53 billion, fine-tuned from its prior forecast of $51 billion to $53 billion. Shares closed Wednesday (November 2, 2016) down 5% so far this week to $30.32.

Steve’s Take: Starting with Pfizer’s 3Q results, the company’s performance shows that it’s finally overcoming the multiyear burden on sales caused by the patent expiration of Lipitor back in 2011. Pfizer’s quarterly sales of $13 billion were up 8% year over year and that translated into non-GAAP EPS of $0.61 in the quarter, up 1.7% from last year.

The company’s results benefited from recent acquisitions, but I agree with Motley Fool’s Todd Campbell that most encouraging is that sales growth also reflects improving “organic” demand.

I don’t know precisely how Mr. Campbell would define the term, but I think of it as the growth in a company’s sales that did not occur because of an acquisition of another company. Expressed another way, organic growth is the internal growth or the growth from its existing businesses–not from the businesses it acquired during the period.

If you remove the negative impact of currency and acquisitions, Pfizer sales grew 3% versus a year ago in the third quarter, and Ibrance is a big reason for that growth. Ibrance won FDA approval to treat postmenopausal women with advanced breast cancer last year and the FDA expanded Ibrance’s label to include its use in premenopausal women with a specific genetic makeup this past February.

The expanded label is lifting Ibrance’s prescription volume and as a result, Ibrance’s third quarter sales more than doubled to $550 million from $230 million a year ago. Thanks to that third quarter performance, Ibrance’s sales through the first nine months of 2016 total $1.5 billion, up from $408 million in the first nine months of 2015.

Pfizer’s organic growth is also benefiting from rising use of Xeljanz. The FDA approved an extended release version of the rheumatoid arthritis drug earlier this year, and 3Q sales of the once-daily pill jumped 87% over the past year to $235 million. Year to date, Xeljanz revenue was $649 million, up 85% from 2015.

Another bright spot is Eliquis, an anticoagulant co-developed with Bristol-Myers Squibb that’s quickly displacing the use of warfarin, with all its side effects. Warfarin has been the default choice in the $10 billion market for anticoagulants for decades; however, that’s changing as factor Xa-inhibiting drugs like Eliquis win market share. Factor Xa drugs require less testing and have fewer dietary restrictions than warfarin, advantages that are resonating with doctors and patients.

A 92% increase in Eliquis global revenue largely contributed to a 22% increase in Pfizer’s $417 million in alliance revenue last quarter. (Alliance revenue is based upon a percentage of a co-promotion partner’s gross margin.) International alliance revenue jumped 66% year over year to $164 million in the quarter, and Pfizer’s alliance revenue through the first nine months of this year totaled $1.1 billion, up 35% from last year, thanks to Eliquis.

Moving forward, Pfizer expects full-year revenue of at least $52 billion, up from prior expectations of at least $51 billion. Management also forecasts that rising sales will result in EPS eclipsing $2.38 this year, up smartly from $2.20 in 2015.

Some think that Pfizer’s return to top- and bottom-line growth makes its stock an intriguing buy again, especially given that its dividend yield is an impressive 3.76%. With government spending bound to increase in the next 24-36 months to address the shortcomings of the Affordable Care Act, I think a lot of gems buried in the rubble this year are there for the taking.

Now, about China’s FDA and Prevnar.

China? Approving an American pharmaceutical product for widespread use among its citizenry, especially its children? Aren’t we those evil American capitalists, hell bent on undermining China’s break-neck race toward the #1 economy in the world and chipping away at its millennia-old culture. Mao would be appalled.

Don’t be confounded about how Mao Zedong’s rule, despite being so full of violence, trauma and human suffering, could still be widely celebrated with the 40th anniversary of his death in September. (Join the rest of us.)

Taxi-drivers still hang icons of Mao on their rear-view mirrors, according to The Economist. When the paper recently asked why, one driver replied that it was because he had the guts to go to war with the Americans (during the Korean War of 1950-53.)

Indeed Mao had mostly contempt for America. His son, Mao Anying, was killed in 1950 by an American air strike. In fact, he frequently called America, “The evil system of colonialism and imperialism.”

But times have changed. Today, China’s Communist rulers still have to put up with Mao. His zeal for perpetual revolution and popular attacks on the party are an abhorrence to President Xi Jinping.

Steve's Take: @Pfizer move back into #China is about them showcasing their stability and justice Click To Tweet

Today’s Communist Party with its roots in terror, illegality and revolution, has to present itself as the epitome of stability and justice. And that’s what Prevnar’s approval–it’s acceptance from an American drug manufacturer into the vast Chinese population– reflects.