Pfizer Delivers Another Solid Quarter Of Organic Growth

Image source: Pfizer, Inc.

Pfizer Inc.'s (PFE -0.12%) third-quarter performance shows that the company's finally overcoming the multiyear drag 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 what I find most encouraging is that sales growth reflects improving organic demand, too.

New drugs are paying off

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 boosting 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.

Ibrance's sales may have more upside, too. Ibrance's abroad sales are only now beginning to ramp up. International revenue was $37 million last quarter, up from $2 million in 2015, and a key committee recommended European approval of Ibrance for the treatment of women with hormone receptor-positive, human epidermal growth factor receptor 2-negative locally advanced or metastatic breast cancer in September. If the European Commission follows its committee's advice, then European sales could offer tailwinds next year.

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 sales of the once-daily pill jumped 87% over the past year to $235 million in Q3. 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 side-affect laden warfarin.

Warfarin has been the go-to 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% operational increase in Eliquis global revenue largely contributed to a 22% increase in Pfizer's $417 million in alliance revenue last quarter. 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.

Chantix, a smoking cessation drug, is also generating significantly higher sales for the company this year. Earlier this year, Pfizer submitted a supplemental New Drug Application to the FDA requesting the removal of a black box warning on Chantix label regarding Chantix's neuropsychiatric safety. Investors are still awaiting an FDA official decision on the matter, but an FDA committee recommended removing the black box warning in September, and the study results supporting the removal seem to be boosting doctors confidence in the drug. Chantix sales grew 24% year over year to $198 million in Q3 and they're up 29% to $631 million year to date.

Looking ahead

Pfizer's organic growth is complemented by a flurry of merger and acquisition activity that's landed Pfizer the specialty injectable and biosimilars company Hospira and the oncology company Medivation. The combination of accelerating organic growth and upside from its acquisitions has the company's management increasingly optimistic about its financials this year. Exiting Q3, they expect 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 nicely from $2.20 in 2015.

Overall, I 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 a healthy 3.76%.