Pharmaceutical giants Pfizer (PFE +0.36%) and Merck (MRK +0.91%) released their quarterly earnings this week, rounding off the picture of health care stocks set by fellow giant Johnson & Johnson (JNJ 1.18%).
Pfizer third-quarter earnings beat estimates after the company underwent serious cost-cutting and restructuring, reporting $2.59 billion, or $0.58 per share, compared with the Zacks Consensus Estimate of $0.56 per share.
Like much of big pharma, patent expirations plagued the company. Its blockbuster cholesterol-fighting agent, Lipitor -- formerly the world's top-selling drug -- lost its patent in late 2011. Whole sales were down 29% from one year ago, but the drug still beat expectations by $55 million for earnings of $533 million. Viagra, Pfizer's perhaps more infamous drug, battled generics in Europe less successfully with a 11% decrease in sales this quarter; it is still under patent in the U.S. Generic drugs for Effexor, Zoloft, and Detrol also continued to dig away at sales.
However, Pfizer's patent-protected drugs enjoyed increases in sales. Lyrica, the company's now biggest product, gained 11% to $1.14 billion, and Celebrex grew 13%.
As for current sales, Pfizer's cancer drugs skyrocketed 24% this quarter to $407 million in revenue, and the oncology unit is certainly one of Pfizer's strongest. Part of this surge can be attributed to several new cancer agents. New lung cancer drug Xalkori reported a 92% increase in revenue, and kidney cancer drug Inlyta had a 186% increase in revenue.
Pfizer's pipeline is also quite impressive, with several trial results expected in the next few months and 76 treatments formally in the pipeline. Notable phase 3 agents include breast cancer therapy palbociclid, cholesterol agent bococizumab, diabetes drug ertugliflozin, and pain therapy tanezumab.
Prevnar, Pfizer's pneumonia vaccine, was approved in Europe for adults and expects further study results early next year. Eliquis, an anti-thombotic currently approved for stroke prevention in patients with atrial fibrillation, has yet to see sales take off, but is seeking FDA approval for use in deep vein thrombosis. Menopause therapy Duavee was approved by the FDA and will hit markets in early 2014.
Products aside, internal restructuring cost the company a pretty penny. The $572 million in special charges resulted in an overall drop in net income from the second quarter by 19%. Coupled with a decline in its primary care unit and an unfavorable currency exchange, the company lowered its forecast adjusted revenues and earnings per share, from $50.8-$52.8 billion to $50.8-$51.8 billion and from $3.07-3.22 per share to $3.05-$3.15.
Merck's quarterly earnings report had a much less rosy outlook. Also riddled with expiring patents, Merck reported a 4% decline in sales and a net income of $2.7 billion, down $200 million from last year's values. However, its $0.92 earnings per share beat analyst estimates by $0.04 per share.
Merck's asthma treatment Singulair experienced a 53% decline in sales likely due to generic competition since its patent expiration last year. Its patented arsenal still includes human papillomavirus vaccine Gardasil, with 15% gains -- which continues to expand in use as it gains public acceptance -- and rheumatological therapy Remicade, with 17% gains. Troubling, though, was that its top-selling drug, Januvia, experienced a 5% decrease in sales.
Merck's pipeline is also weaker than Pfizer's, and its strongest agent is perhaps cancer treatment MK3475, a PD-1 agent in direct competition with agents also in development by Bristol-Myers Squibb and Roche. The company is also undergoing major restructuring, with a wave of 8,500 layoffs currently in the works.
Fellow Dow pharmaceutical Johnson & Johnson reported strong results earlier this month with a 3.1% overall rise in revenue, increase in net income, and 10% increase in global drug sales.
Bottom Line
Patent expirations are a common problem with all of these drug giants, and each company has worked to identify a saving grace. Pfizer enjoys a very strong oncology unit, a filled pipeline of late-stage potential blockbusters, and strong sales of its patent-protected agents. It also has implemented a new structure of three units: proprietary pharmaceuticals, consumer products, and generic drugs.
Comparatively, Merck has a much weaker pipeline and struggles to keep sales of its patent-protected drugs up enough to mitigate the patent expirations it has experienced.
Meanwhile, Johnson & Johnson remains a stable, strong force but takes a very different view of structure. While Pfizer is segmenting and possibly positioning for spin-offs from its separate units, J&J's vision includes a much more unified corporate structure. How that will affect earnings is unclear, although notably Pfizer has spent a considerable amount of money in its restructuring – hopefully it will pay off.
More friends than foes, these companies have several partnerships and positive earnings reports from one could help boost health care as a whole. Products-wise, Pfizer and Merck are collaborating on ertugliflozin; Eli Lilly and Pfizer are working together on tanezumab; and Eliquis was a joint venture between Pfizer and Bristol-Myers Squibb.
