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Source: Pfizer.

Pharmaceutical behemoth Pfizer (NYSE:PFE) delivered its third-quarter earnings report late last month and all things considered it was pretty much in-line with Wall Street's expectations.

What we've witnessed from Pfizer in recent quarters is an increased emphasis on emerging market growth and the potential for acquisitions as it grapples with ongoing patent losses and tougher competition for its key pharmaceutical products. In response, Pfizer's been repurchasing its shares in an effort to boost its EPS and improve shareholder value.

In the third quarter Pfizer delivered $12.36 billion in revenue, a 2% decline from the prior-year period, while its adjusted profit sank by a mere 2% to $0.57 per share. However, these figures only scratch the surface and don't really tell investors a whole lot about how the underlying business is performing. In order to extract this information we have to be willing to dig into Pfizer's conference call and highlight what Pfizer's management team had to say.

Courtesy of S&P Capital IQ, here are the five things Pfizer's management wants you to know about where the company is headed.

Keep your eye on Eliquis

"Since launch, based on the most recent date Eliquis' share has increased from 0% to 44%, while our main competitor's shares declined from the high of 70s to slightly above ours." – Ian Read, Chairman and CEO

Although a number of newer compounds are performing well in Pfizer's pipeline, including oncology products Xalkori and Inlyta which delivered year-over-year sales growth of 55% and 23%, respectively, it's blood-thinning drug Eliquis that investors should be watching the closest. 

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Source: Bristol-Myers Squibb.

Eliquis is a next-generation anti-clotting drug developed by Pfizer and Bristol-Myers Squibb (NYSE:BMY), and it's long been my personal assertion that if Eliquis can significantly expand its approved indications it could be a $5 billion per year drug. Based on data provided by CEO Ian Read (and Read was a treasure trove of important conference call information this time around), Eliquis' market share has grown from 0% to 44% in less than two years. I believe Eliquis' superior safety and efficacy over prior standard of care Warfarin should net this drug top market share status for many years to come.

The patent cliff is still a big problem

"Looking ahead, the period of high LOE impact will continue through 2016 making it difficult to generate revenue or growth on a net basis. We expect the size of the impact to be substantially reduced starting in 2017." – Ian Read

Despite a recent report from IMS Health showing that the patent cliff for U.S. pharmaceutical companies is winding down, Pfizer's personal patent cliff is very much going to remain an issue through 2016. Read's comments solidify the expectation that top-line growth will be nonexistent for the next two years as the company instead continues its focuses on internal pipeline development, cost-cutting in order to boost margins, and share repurchases in an effort to boost its EPS.

I applaud Pfizer's efforts in the shareholder reward department, but I'd also encourage investors to look past Pfizer's smoke-and-mirrors show to see that its top- and bottom-line figures are still years away from showing genuine operating improvement.

If you can't beat them, join them!

"Those studies [biosimilars] are progressing well and we anticipate bringing this portfolio to the market in the 2017-2018 timeframe." – John Young, President of Established Pharmaceuticals

In response to a question from Marc Goodman at UBS, President of Established Products John Young reminds investors that Pfizer is willing to pull out all of the stops to grow its top-line once again – and that means turning to the thing that ravaged its innovative product pipeline: biosimilar compounds.

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Source: Pfizer.

Young's comments note that Pfizer already has three biosimilar compounds in phase 3 studies for inflammation drug Rituxan, cancer drug Herceptin, and inflammation drug Remicade. Not to mention, a biosimilar for Avastin recently completed its phase 1 studies and should move to phase 3 trials shortly. Combined, there are billions of dollars worth of sales preparing to be exposed to biosimilar competition within the coming years, and Pfizer looks ready to capitalize on that trend to help offset its own exclusivity losses.

Tax inversions aren't what they used to be

"The fact that treasury has left open their ability to make further changes without notice is of concern. For Pfizer enhanced financial flexibility from redomiciling is certainly still one potential source of creating value. As we've said previously we will look at any business development opportunities based on strategic-fit including operational, portfolio and financial synergies." – Ian Read

Images

Source: Flickr user PTMoney.

We've known for quite some time that Pfizer's been on the acquisition hunt. The company tried, unsuccessfully, to nab AstraZeneca (NYSE:AZN) in the U.K. in order to benefit from a relocation of its headquarters to the more corporate tax-friendly U.K. AstraZeneca managed to reject Pfizer's advances on three separate occasions.

Moving forward, according to Ian Read, a tax inversion purchase may now be off the table. Read notes that Congress' rule changes toward inversions make them less attractive than they once were. While Pfizer would love to have easier access to overseas cash, it also doesn't make sense to pay a hefty premium if it won't recognize hundreds of millions in annual tax savings now in an overseas market. In other words, consider an AstraZeneca purchase now a long shot, but do consider that domestic acquisitions are still very much on the table.

A big split could be brewing

"In 2015 we will maintain a significant effort toward setting up the groundwork required to operationalize a potential split. It's important to underscore that at this point in time we have not yet made a decision." – Ian Read

Lastly, it's possible Pfizer may attempt to unlock shareholder value next year by splitting up its company into an innovative segment and an established/value segment.

The general rule with splitting up a company is if it makes the revenue and profit stream appear more transparent, or gives investors the ability to choose between innovative or established assets, it's a good move. Having run with separate Global Innovative Pharmaceuticals and Global Established Pharmaceuticals portfolios for around a year now I have to admit it's made understanding Pfizer's expansive portfolio easier.

Read was quick to point out that this doesn't guarantee a split will occur, but does imply that Pfizer is seriously considering making the move sooner than later.

Sean Williams has no material interest in any companies mentioned in this article. You can follow him on CAPS under the screen name TMFUltraLong, track every pick he makes under the screen name TrackUltraLong, and check him out on Twitter, where he goes by the handle @TMFUltraLong.

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