Pfizer stumbles to 4Q profit after rough year for Prevnar; what happened to industry leadership role?

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Pfizer Inc.’s (New York City) key pneumococcal vaccine, Prevnar, whose sales soared through 2015, stumbled in fourth-quarter results (pdf) released last week. The blockbuster inoculation fell significantly short of Street estimates and dragged on the company’s entire vaccines business.

The Prevnar family turned in total sales of $1.41 billion in the fourth quarter, down 25% from $1.86 billion during the same period in 2015, according to FiercePharma. The sales haul missed Wall Street consensus estimates by more than $200 million, a shortfall Barclays analysts thought “could be due to a significant inventory build prior to the start of the quarter,” according to a note.

@Pfizer posted 4th quarter profit to cap a difficult 2016 despite drop in #Prevnar sales Click To Tweet

Nonetheless, Pfizer posted a profit for the fourth quarter to cap a difficult 2016, but it predicted slightly better results for this year. The drugmaker earned less than analysts had expected, but revenue came in higher than projected.

The maker of Viagra and pain treatment Lyrica reported net income of $775 million, or 13 cents per share, versus a loss of $172 million a year ago, as it reduced spending on administration, sales, marketing and lawsuits. Excluding one-time items, profit was 47 cents per share, 3 cents below analysts’ estimates. Quarterly revenue totaled $13.63 billion, just above the $13.55 billion Wall Street had expected.

Beyond Prevnar, Pfizer has worked to diversify its vaccines business through internal efforts and M&A. The company made three vaccine buys in the 11 months between July 2014 and June 2015, and it’s testing vaccines against S. aureus and C. diff. It has unveiled a cancer vaccines platform, and it’s also working on a maternal vaccination program against group B streptococcus infection.

Pfizer noted that for the current year, it expects sales in the range of $52 billion to $54 billion, missing analysts’ estimates of approximately $54.5 billion. Meanwhile, earnings per share are predicted to be between $2.50 and $2.60, versus forecasts of $2.59.

CFO Frank D’Amelio explained “our 2017 financial guidance at the midpoint of our ranges implies revenues slightly above 2016 and a 6% increase to adjusted diluted [earnings per share] compared to 2016 results.”

Company shares closed the week up 2% at $32.09.

Steves Take:

In a statement accompanying its fourth-quarter results, the NYC pharma colossus explained that vaccine Prevnar had been a victim of its own success. The shot enjoyed a “high initial capture rate of the eligible population” after the US Centers for Disease Control and Prevention recommended routine use in adults 65 and older in 2014, notes FiercePharma. With enormous initial success–propelling the company’s vaccines sales to huge gains in 2015–less “catch-up opportunity” remained in 2016.

Now, as the key brand is expected to slow in the coming years, EvaluatePharma recently estimated that the company’s vaccines group would post an average sales increase of just 2% per year through 2022. Prevnar might gain new life in the US from a new indication in adults aged 18 to 49, granted by the FDA last year. That approval put Prevnar on tap for US adults 18 and older.

On the other hand, I don’t know about you, but 2% growth per year for the next 5 years (okay, at least it’s a positive number) just doesn’t excite me. The facts are that Pfizer reported another year in which it didn’t quite earn its dividend. The stock trades at slightly over 30 times earnings as if it were about to rebound with sterling growth.

Yet, instead it just may be “a lumbering giant making enervated decisions not designed to spur rapid organic growth,” says DoctoRx at SeekingAlpha. Reminds him (or her) of IBM.

Pfizer hasn’t actually hit the pavement yet, but perhaps is just tilting backwards a bit after falling from dizzying heights about a decade ago. Not quite a “has been,” yet but seemingly on that glide path.

DoctoRx points out that Pfizer has become so feeble, of 21 drugs or groupings of drugs it lists on its 42-page 4Q earnings report (that it displays with its growth group of “Innovative Health” drugs), nine showed year-over-year dips in revenues last year.

Don’t look for Pfizer to be on the receiving end of a friendly or hostile merger approach anytime soon. That’s nearly impossible to imagine, although nothing’s absolutely impossible in this new, and profoundly uncertain, operating environment.

There are an awful lot of likenesses to IBM as that tech colossus began to lose its grip. But now there’s IBM-Watson and the gigantic capital commitment to its success, especially in health care. A bold déjà vu move with serious capital at risk.

Last year I had hoped that Pfizer had turned a corner and was regaining enough operational vim and vigor to make it a good income stock with at least minimal appreciation potential.

From whence is the dynamism going to gel, then revert to explosive sales? To its credit, Pfizer did do the second-biggest biotech deal of 2016–a $14 billion take-out Medivation. That came after the US Treasury Department snuffed the biggest merger (a mere $160-billion deal) in pharma history with Allergan PLC. After all that, you might think Pfizer would be through with M&A for a while.

Unlikely, says Bloomberg’s Max Nisen. With a weak late-stage pipeline and outsized dependence on mature drugs, Pfizer has more buying to do if it wants its pharmaceutical sales to grow.

Pfizer’s R&D spending exceeds that of just about everyone in the industry, ranking behind only Roche Holding AG on a trailing three-year basis, according to Bloomberg Intelligence. Despite that, Pfizer has struggled to produce new blockbusters.

Analysts project its near-term pipeline assets, many of which are late to market, will add a total of $1.5 billion in sales in 2020. Even with 2016’s M&A additions Eucrisa and Xtandi, expected to add $2.2 billion over the same period, the company has too much riding on breast-cancer drug Ibrance and declining older drugs to feel comfortable.

Pfizer’s pharma growth ostensibly is pegged to Ibrance and acquisitions. But if it’s going to make up for the expected revenue shortfall from generic competition, it’ll need more; much more.

It won’t be easy to find a target. Pfizer prefers deals with quick top-line impact, and lots of other firms have similar aims. Now that Johnson & Johnson has taken Actelion off the table, there are only eight US or European biopharma companies with market caps below $40 billion and trailing 12-month revenue above $1 billion. Not all of them are attractive acquisition targets, and any of them will be expensive.

Pfizer might even consider a whopper of a deal for Bristol-Myers that launches it into the blistering-hot world of immune-oncology, or one with Biogen that leads it into brain-focused drugs. Those troubled firms have lost around $40 billion and $50 billion, respectively, from their peak market caps, SeekingAlpha points out.

I started following Pfizer in 1991 when I launched, and would love to see the company turn back the clock such that its name again stands for unparalleled excellence and, oh yes, leadership. Right now, I have joined those who view it as a stock to watch as it tries to evolve successfully into this whimsical, wacky pharmaceutical environment that presently looms under our latest US administration.

Steve's Take: Given @Pfizer's aggressiveness, I would not be surprised by a titanic acquisition Click To Tweet

Given Pfizer’s hallowed moniker and time-tested aggressiveness, I wouldn’t be surprised to see some titanic transaction involving a whole lot of money. That might include “really big” targets like Amgen, Novo Nordisk, Gilead, Celgene and Regeneron, to name just a handful. I’m thinking there’s still a fire burning in the old pharma colossus, and leadership is where its head, heart and wallet still reside.


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