Digesting Pfizer's Fourth Quarter Results

Generic competition is taking a toll on Pfizer, but it may not be as bad as it looks

Jan 28, 2014 at 6:30PM

Shares of big pharma company Pfizer (NYSE:PFE) closed the day up more than 2.5% after reporting its fourth quarter results. The company beat consensus EPS and revenue estimates, but it continues to battle the effects of the patent cliff. In 2011, the company lost exclusivity for its blockbuster cholesterol-fighter Lipitor, knocking sales down 17% in 2012. Pfizer has impressively held on to sales of what used to be the best-selling drug in the world, with Lipitor bringing in $611 million last quarter.

Pfizer is also wrestling with lower sales for its top selling Viagra, a drug that lost exclusivity in key overseas markets last year, and lower revenue tied to its partnership with Amgen on the blockbuster drug Enbrel.

Diving into the numbers
The pharmaceutical giant earned roughly $2.5 billion last quarter, or $0.39 per share. That's a big drop from the $6.3 billion, or $0.85 per share it earned a year ago.

However, the slide isn't as scary as it seems. Last year's profit was pumped up by the sale of its nutritional business, a one-time event that shouldn't really be taken into account if investors want to make apples-to-apples comparisons. Adjusted earnings were a friendlier $0.56 per share, which is above the adjusted $0.46 reported last year.

And although few will cheer a 2% dip in revenue to $13.56 billion, sales weren't a disaster. If you toss aside the impact of converting overseas sales back to the dollar, sales would actually have grown 1%. For the full year, sales slackened 4% after adjusting for currency.

PFE Revenue (TTM) Chart

PFE Revenue (TTM) data by YCharts

Pfizer's best-performing drug last quarter remained Lyrica. Sales of Lyrica were up 11% from last year in Q4 thanks in part to a mid 2012 label expansion to include neuropathic pain in spinal cord patients. The company's pneumonia vaccine Prevnar grew sales 3% to $1.1 billion. Enbrel, which Pfizer sells overseas and is marketed by Amgen in America, rounded out Pfizer's billion-a-quarter club.

Pfizer will need overseas sales of Enbrel, which gained 5% year-over-year in the quarter, to remain solid given its collaboration with Amgen on North American sales ended in October. As a result of the deal ending, Amgen will only pay Pfizer a small royalty on U.S. sales for the next three years, rather than a share in the drug's U.S. profit.

Tripping on its way to recovery
It's troubling to learn Pfizer's late stage lung cancer drug dacomitinib failed in two recently reported trials. No drug developer wants to invest that much time and money only to stumble a few feet from the goal line. Unfortunately, that's what happened with dacomitinib when it failed to outperform Tarceva in one of its phase 3 trials and couldn't demonstrate an improvement in overall survival in the other.

However, Pfizer is far from out of options. The company's pipeline may be a bit thinner, but it still has a number of important drugs in the works. One of those is it's breast cancer drug palbociclib. Pfizer will likely report top line Phase 2 data for palbociclib ahead of ASCO, which is held in June. The company also plans to provide phase 2b data for its PCSK9 cholesterol drug RN316 this spring.  PCSK9 drugs are a hot area for development, with Amgen advancing AMG-145 and Sanofi and Regeneron working on alirocumab.

Additional upcoming data includes phase 3 readouts for its autoimmune drug Xeljanz for psoriasis. Pfizer is also teamed up with Merck (NYSE:MRK) on ertugliflozin, an SGLT2 inhibitor for the treatment of type 2 diabetes.Merck will pay 60% of the costs and get 60% of the profits if the drug is ever commercialized.  The deal appears a good one for both companies given Pfizer gets a partner to share the expense and Merck gets some insulation for its top selling DPP-4 diabetes drug, Januvia.

Eventually, those drugs in the pipeline may complement sales growth for Pfizer's recently approved drugs, which include cancer treatments Xalkori and Inlyta. Revenue from those two drugs roughly doubled in the quarter from a year ago to nearly $200 million.  Another new drug, Xeljanz, which was approved in late 2012 for rheumatoid arthritis and competes with Merck's $2 billion a year Remicade, contributed $46 million in sales last quarter.

Those successes are offsetting some of Viagra's headwinds as sales overseas slump. Viagra revenue fell 14% last quarter as generics began competing with it in key European markets. Sales will likely fall further as generics gain a greater foothold. Viagra's overseas sales still total $265 million in Q4, down 29%, suggesting plenty of downside risk remains.

Fool-worthy final thoughts
Big challenges mean big changes and that's meant unloading non-core assets such as Pfizer's nutrition business and its animal health business. Pfizer is also spending 6% less on R&D in 2013 than it did in 2012.

For 2014, Pfizer is guiding for $2.20 to $2.30 in earnings per share. That's thanks to buying back nearly $5 billion worth of stock in the fourth quarter and a whopping $16 billion worth of stock during 2013. Overall, Pfizer's moves cut the number of shares outstanding by 13% last year. Those buybacks will do a lot of heavy lifting when it comes to converting sales into profit this year given revenue is expected fall to $49.2 to $51.2 billion from $51.5 in 2013, but I'd much prefer to see profit come from launching new drugs than buybacks.

This stock pick is worth watching in 2014
There's a huge difference between a good stock and a stock that can make you rich. The Motley Fool's chief investment officer has selected his No. 1 stock for 2014, and it's one of those stocks that could make you rich. You can find out which stock it is in the special free report "The Motley Fool's Top Stock for 2014." Just click here to access the report and find out the name of this under-the-radar company.

Todd Campbell has no position in any stocks mentioned. Todd owns E.B. Capital Markets, LLC. E.B. Capital's clients may or may not have positions in the companies mentioned. Todd also owns Gundalow Advisor's, LLC. Gundalow's clients do not have positions in the companies mentioned.  The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

1 Key Step to Get Rich

Our mission at The Motley Fool is to help the world invest better. Whether that’s helping people overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we can help.

Feb 1, 2016 at 4:54PM

To be perfectly clear, this is not a get-rich action that my Foolish colleagues and I came up with. But we wouldn't argue with the approach.

A 2015 Business Insider article titled, "11 websites to bookmark if you want to get rich" rated The Motley Fool as the #1 place online to get smarter about investing.

"The Motley Fool aims to build a strong investment community, which it does by providing a variety of resources: the website, books, a newspaper column, a radio [show], and [newsletters]," wrote (the clearly insightful and talented) money reporter Kathleen Elkins. "This site has something for every type of investor, from basic lessons for beginners to investing commentary on mutual funds, stock sectors, and value for the more advanced."

Our mission at The Motley Fool is to help the world invest better, so it's nice to receive that kind of recognition. It lets us know we're doing our job.

Whether that's helping the entirely uninitiated overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we want to provide our readers with a boost to the next step on their journey to financial independence.

Articles and beyond

As Business Insider wrote, there are a number of resources available from the Fool for investors of all levels and styles.

In addition to the dozens of free articles we publish every day on our website, I want to highlight two must-see spots in your tour of fool.com.

For the beginning investor

Investing can seem like a Big Deal to those who have yet to buy their first stock. Many investment professionals try to infuse the conversation with jargon in order to deter individual investors from tackling it on their own (and to justify their often sky-high fees).

But the individual investor can beat the market. The real secret to investing is that it doesn't take tons of money, endless hours, or super-secret formulas that only experts possess.

That's why we created a best-selling guide that walks investors-to-be through everything they need to know to get started. And because we're so dedicated to our mission, we've made that available for free.

If you're just starting out (or want to help out someone who is), go to www.fool.com/beginners, drop in your email address, and you'll be able to instantly access the quick-read guide ... for free.

For the listener

Whether it's on the stationary exercise bike or during my daily commute, I spend a lot of time going nowhere. But I've found a way to make that time benefit me.

The Motley Fool offers five podcasts that I refer to as "binge-worthy financial information."

Motley Fool Money features a team of our analysts discussing the week's top business and investing stories, interviews, and an inside look at the stocks on our radar. It's also featured on several dozen radio stations across the country.

The hosts of Motley Fool Answers challenge the conventional wisdom on life's biggest financial issues to reveal what you really need to know to make smart money moves.

David Gardner, co-founder of The Motley Fool, is among the most respected and trusted sources on investing. And he's the host of Rule Breaker Investing, in which he shares his insights into today's most innovative and disruptive companies ... and how to profit from them.

Market Foolery is our daily look at stocks in the news, as well as the top business and investing stories.

And Industry Focus offers a deeper dive into a specific industry and the stories making headlines. Healthcare, technology, energy, consumer goods, and other industries take turns in the spotlight.

They're all informative, entertaining, and eminently listenable ... and I don't say that simply because the hosts all sit within a Nerf-gun shot of my desk. Rule Breaker Investing and Answers contain timeless advice, so you might want to go back to the beginning with those. The other three take their cues from the market, so you'll want to listen to the most recent first. All are available at www.fool.com/podcasts.

But wait, there's more

The book and the podcasts – both free ... both awesome – also come with an ongoing benefit. If you download the book, or if you enter your email address in the magical box at the podcasts page, you'll get ongoing market coverage sent straight to your inbox.

Investor Insights is valuable and enjoyable coverage of everything from macroeconomic events to investing strategies to our analyst's travels around the world to find the next big thing. Also free.

Get the book. Listen to a podcast. Sign up for Investor Insights. I'm not saying that any of those things will make you rich ... but Business Insider seems to think so.

Compare Brokers