Wall Street expected Pfizer (NYSE:PFE) to report fourth-quarter revenue of $13.63 billion and earnings of $0.50 per share. The big drugmaker met the revenue expectation but fell short of the consensus earnings estimate, reporting adjusted diluted earnings per share of $0.47.
There was more to the story than the numbers, though. Here are seven things you might have missed in Pfizer's fourth-quarter earnings miss.
1. Fewer selling days
One of the first things Pfizer mentioned in its press release announcing the fourth-quarter results related to the calendar. There were four fewer selling days in the U.S. and three fewer selling days internationally in the fourth quarter of 2016 versus the prior-year period.
The good news is that makes year-over-year comparisons better in reality than they look on paper. Pfizer's revenue dropped 1% operationally. The loss of a few selling days made a difference. The bad news, though, is that Wall Street analysts look at the calendar when determining their quarterly estimates. Fewer selling days doesn't help explain Pfizer's earning miss.
2. Previous success a partial culprit
Success can lead to failure. Pfizer's fourth-quarter results prove the point.
Prevnar 13 got off to a quick start when the pneumococcal conjugate vaccine was first launched in the U.S. in the fourth quarter of 2014. That launch was so successful, in fact, that the potential patient population for the vaccine was significantly lower in the fourth quarter of 2016 than the prior-year period.
Largely due to this smaller opportunity, Prevnar 13 sales fell 24% year over year to $1.4 billion. The drop-off in the U.S. caused most of this decline.
3. There's still a patent cliff
It was only a few years ago that the words "patent cliff" were uttered nearly every time a pharmaceutical stock was discussed. The term referred to a company's revenue "falling off a cliff" due to key drugs going off-patent. You don't hear the phrase much any more, but there still is a patent cliff. Just ask Pfizer.
Sales for the company's peri-LOE products, which include products that have recently lost or are expected to soon lose patent protection, fell 21% in the fourth quarter to $996 million. The two biggest declines in this group came from Lyrica (the version sold by Pfizer's essentials health segment) and antibiotic Zyvox.
In addition, Pfizer's 2017 financial guidance was heavily impacted by a continued patent cliff. The company projected revenue this year of $52 billion to $54 billion. This range reflects an anticipated negative impact of $2.4 billion from lower sales of products due to generic competition.
4. Biosimilars are hurting -- and helping
Another twist on the patent cliff theme is the impact to Pfizer from biosimilars. The company felt the sting of competition from biosimilars in Europe, which caused sales of autoimmune disease drug Enbrel to fall in the fourth quarter.
On the other hand, biosimilars are also helping Pfizer. The company reported a 45% year-over-year increase in revenue from biosimilars in the fourth quarter. That revenue total is still fairly small ($91 million for the quarter and $319 million for full-year 2016), but it's definitely becoming more important to Pfizer.
5. Several bright spots
Despite missing earnings expectations, there were several bright spots from Pfizer's fourth-quarter results. For example, sales for Ibrance totaled $643 million in the fourth quarter, more than double the amount from the prior-year period. The cancer drug generated revenue of over $2.1 billion during the full year in 2016.
Pfizer's No. 2 product, Lyrica (the version sold by its innovative health segment), also continues to show solid momentum. Sales for the nerve and muscle pain drug grew 11% year over year in the fourth quarter and 14% year over year for all of 2016. Lyrica brought in nearly $4.2 billion for Pfizer for the year.
Rheumatoid arthritis drug Xeljanz is also performing very well. Sales for the drug jumped 61% in the fourth quarter compared to the prior-year period. Xeljanz generated revenue of $927 million for full-year 2016, an increase of 77% over the prior year.
6. It could have been worse
Yes, it's an overused expression, but it's also entirely true that Pfizer's fourth-quarter results could have been worse. In particular, two key acquisitions improved the company's performance.
The 2015 acquisition of Hospira combined with last year's buyout of Medivation added over $3 billion in revenue growth for Pfizer in full-year 2016. The impact of these acquisitions should become even more significant in the future, considering the potential opportunities for Hospira's sterile injectable products and Medivation's prostate cancer drug Xtandi.
7. Things should get better
Pfizer projects full-year 2017 adjusted earnings per share of $2.50 to $2.60. That's in the ballpark of what Wall Street expects and reflects year-over-year growth of more than 6% at the midpoint of the range.
There should be several new opportunities for Pfizer in 2017. Recently approved atopic dermatitis drug Eucrisa could be a big winner. Pfizer picked up Eucrisa with its acquisition last year of Anacor. Ibrance could gain another indication in April. Pfizer also hopes to win regulatory approval for avelumab in treating Merkel cell carcinoma and experimental acute myeloid leukemia (AML) drug Mylotarg this year.
The market tends to place more importance on the future than it does the past. That's probably why Pfizer's stock actually went up in early trading on Tuesday in spite of the earnings miss. Investors know that things should get better.