Pfizer Inc.'s (PFE -1.10%) first-quarter 2018 earnings results this week included bright spots, such as ongoing growth in oncology and biosimilars, and disappointments, including sliding sales for top-selling drugs that have lost patent protection. Can Pfizer over deliver for investors this year, or will the headwinds facing the company be too strong for it to overcome?
Its best-sellers will continue growing
Pfizer's revenue has been falling since it lost patent protection on its megablockbuster cholesterol drug Lipitor in 2011, but rising demand for its fast-growing drugs Ibrance, Eliquis, and Xeljanz could begin changing that in 2018.
Ibrance, a breast cancer treatment, has only been on the market since 2015, yet it exited the first quarter with an annualized sales run rate of about $3.7 billion. The drug, which can be used as a first-line or later therapy, is used in 56% of first-line hormone receptive positive/HER2 negative metastatic breast cancer patients, up from 52% in Q4 2017, and its market share across all treatment lines is 53%.
Ibrance's international revenue increased by a remarkable 191% to $207 million last quarter, and because Ibrance only launched in Japan in December, there's good reason to think the drug's international sales will continue to climb higher throughout 2018.
Eliquis is a factor Xa inhibitor that's displacing the widespread use of Warfarin as an anticoagulant. While other factor Xa drugs are also on the market, Eliquis accounts for 52% of factor Xa sales, and that's about 10% higher than its closest competitor, Xarelto. Last quarter, Eliquis sales were $765 million, up 35% year over year, and because Warfarin's market share is still in the double-digit percentages, Eliquis should boost Pfizer's sales throughout this year, too.
A much smaller drug in terms of sales, Pfizer's autoimmune disease drug Xeljanz also offers tailwinds in 2018. Its sales have taken off since 2016, when the FDA approved an extended-release version for rheumatoid arthritis. In the first quarter, Xeljanz produced $326 million in sales for Pfizer, up 30% from one year ago, and while that was a deceleration from the fourth quarter's 47% growth, its sales could finish the year stronger if the FDA follows the advice of its advisory committee and approves it for moderate to severe ulcerative colitis, a $5 billion global market.
Patent headwinds remain, but they're manageable
Patent losses are always a problem for large biopharma companies, and Pfizer's no exception. It's facing off against Enbrel biosimilars in Europe, and its erectile dysfunction drug, Viagra, has been challenged by competitors in the U.S. since December.
In the first quarter, Viagra's sales fell 45% to $187 million, and because of competition in Europe, Enbrel's revenue dropped 14% to $506 million.
Pfizer expects its sales will slip $2 billion this year because of generics; however, thanks to growing revenue from its other drugs, it still expects full-year sales of between $53.5 billion to $55.5 billion, up slightly from 2017. If it delivers on that outlook, then it should also be able to hit its target of growing earnings per share to at least $2.90 in 2018 from $2.65 in 2017.
What could help Pfizer over-deliver
In addition to the upcoming decision on Xeljanz, the FDA is also considering Pfizer's lung cancer drugs, lorlatinib, and dacomitinib. There's a big unmet need for new lung cancer treatments, and the lung cancer treatment market is worth billions of dollars per year. If these drugs are approved, they could add hundreds of millions to Pfizer's sales pretty quickly. The decision on lorlatinib is expected in August, and the decision on dacomitinib is expected in September.
The company could also benefit from a larger-than-expected contribution from its biosimilars. Despite price cuts by brand-name manufacturers to maintain market share, Pfizer's biosimilars revenue increased 66% year over year to $173 million last quarter. The vast majority of that growth came from Inflectra, a biosimilar to the multibillion-dollar autoimmune disease drug Remicade. Inflectra's sales were $145 million in the first quarter, up 86% from one year ago, yet despite the rapid growth, Inflectra has only captured 6% of the U.S. Remicade market. Clearly, there's a lot of market share left for it to capture.
Furthermore, the FDA will decide whether to expand the use of Pfizer's prostate cancer drug, Xtandi, to patients with non-metastatic castration-resistant prostate cancer in July. If Xtandi gets a go-ahead, it could catapult its sales higher from its first-quarter total of $159 million.
Is Pfizer's stock a buy?
Pfizer still has some work to do to convince investors that it can consistently grow again, but I think there's enough opportunity here to justify adding it to portfolios. Ibrance, Eliquis, and Xeljanz should more than offset any declining revenue due to generic drugs, and if the FDA cooperates, new drug launches could help the company beat its full-year outlook.
Investors' optimism could also be encouraged if Pfizer deploys some of its massive cash stockpile on an acquisition, or if Pfizer continues its recent track record of boosting buybacks and dividends. In the first quarter, it returned more than $8 billion to shareholders, and at current prices, its shares already yield nearly 3.7%.
Overall, management thinks there's a chance for between 25 to 30 approvals by 2022, including 15 approvals that could eclipse the billion-dollar blockbuster threshold, so it seems to me there are more reasons to buy Pfizer in 2018 than to sell it.