Forget Pfizer's (NYSE:PFE) third-quarter earnings announcement. The real story lies in what the company's top executives said afterward.
The big pharma company reported its third-quarter results on Tuesday. As has been the case for Pfizer for a while now, the company's bottom-line performance looked better than its top line. But quarterly results only tell what has already happened. It's more important for investors to get a feel for what might happen in the future. And that's why you don't want to miss out on these five things Pfizer's management said during the company's quarterly conference call with analysts. (Quotes courtesy of S&P Global Market Intelligence.)
1. Competition doesn't bother us much -- with one exception
Pfizer's strongest performers during the third quarter were cancer drug Ibrance and anticoagulant Eliquis. Both drugs face competition, but the company isn't worried too much at this point.
Ian Read, Pfizer's chairman and CEO, noted that there are a couple of other approved CDK4/6 inhibitors now on the market. He didn't refer to them by name, but the allusion was to Novartis' Kisqali and Eli Lilly's Verzenio. Read said that Pfizer remained "confident in [Ibrance's] continued growth potential and leadership," despite the competition. Albert Bourla, head of Pfizer's innovative health segment, stated that the presence of new CDK4/6 inhibitors, along with publication of more data, is "enhancing the confidence of physicians" in the class of drugs.
When asked how Johnson & Johnson's (NYSE:JNJ) positive data from its Compass study with Xarelto could affect sales for Eliquis, Bourla responded that any impact will be "limited." He added that the company feels "very confident on the growth projections that we have right now with Eliquis."
Competition with J&J on another front, however, is a sore spot for Pfizer. Read maintained that J&J's "exclusionary contracting of Remicade" presents a barrier for Pfizer's biosimilar, Inflectra. Pfizer is suing J&J for alleged violation of antitrust laws.
2. Current weak spots will get better
Two areas within Pfizer's essential health business caused problems for the company in the third quarter -- legacy drugs with loss of exclusivity (LOE) and sterile injectable pharmaceuticals. Although the LOE drugs will continue to experience sales declines, Ian Read said the negative impact to Pfizer will decrease in future years.
The weakness in Pfizer's sterile injectable pharmaceuticals business stemmed largely from product shortages in the U.S. Read said that the company expects to "make substantial progress in 2018" in alleviating these shortages.
3. Don't rule out any option for consumer healthcare
Pfizer recently announced that it was considering selling or spinning off its consumer healthcare business. Read said in the quarterly conference call that the company anticipates "broad interest from potential acquirers." Is that a hint that Pfizer is leaning toward selling the unit? Not necessarily.
Read also stated that Pfizer could decide to keep the business after completing its strategic review. Pfizer CFO Frank D'Amelio said that the company has a baseline number in mind for what it thinks the consumer healthcare business is worth. He added that Pfizer would make its decision based on the best way to maximize shareholder value, noting that the company chose to spin off Zoetis rather than sell because the offers received weren't as financially attractive as a spin-off.
4. We're not afraid of making another huge acquisition
Both Read and D'Amelio stated that Pfizer is "agnostic to size" when it comes to making another acquisition. Read said that the company would continue to look at potential acquisitions even if there is no tax reform in the U.S.
When asked if Pfizer would make a large acquisition to beef up its immuno-oncology (I-O) portfolio, Read didn't answer the question directly. However, he did say that he would wait to see what happens with some key clinical studies evaluating Bavencio in combination with other drugs before determining what direction to take. Pfizer has partnered with German drugmaker Merck KGaA on Bavencio. Read said that the company remains committed to its relationship with Merck KGaA.
5. Dividends are still at the top of our capital allocation priorities
Many investors are attracted to Pfizer because of its dividend -- and for good reason: Its yield of 3.64% is one of the best around. D'Amelio said that Pfizer's capital allocation priorities won't change, regardless of what happens with U.S. tax reform. He then ticked off those priorities, naming dividends as first on the list. Pfizer's other capital allocation priorities, according to D'Amelio, are share buybacks, investing in the business, and then potential mergers and acquisitions.
These priorities should be reassuring to income-seeking investors who own Pfizer stock. The company's commitment to what is one of the best dividends in healthcare appears to remain strong.