Cardio Drugs Can Weigh On Pfizer’s Results

Pfizer (NYSE:PFE) will release its Q1 2013 earnings on April 30. While the patent expiry of blockbuster drug Lipitor will continue to put pressure on the revenue growth, FDA approval of Eliquis and the expanded use of Prevnar and Lyrica will act as supporting pillars. Overall we believe that Q1 results may not be strong. Apart from Lipitor’s sales decline, expansion in emerging markets is leading to pricing pressure. However, we expect Pfizer to continue to perform well in animal and consumer healthcare businesses, which saw 8% and 17% operational growth respectively, in the last quarter. Consumer healthcare sales will increase primarily due to the acquisition of Alacer Corporation in February 2012.

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Patent Expiry Of Lipitor, Caduet And Benefix Will Continue To Weigh On Results

Pfizer’s pharmaceutical division is likely to see the negative impact of patent expiry of Lipitor, a blockbuster cardiovascular drug. Last quarter, the decline in the Pfizer’s cardiovascular drug sales intensified despite a major recall of Ranbaxy’s generic version of Lipitor. The patent expiry of Lipitor in Europe during Q2 2012, also abetted the decline as the drug’s worldwide revenues slumped 70%. ^[1]

Lipitor was the world’s largest selling drug at one point. It lost its patent protection in November 2011, and Pfizer’s cardiovascular division has been suffering ever since. From about $10 billion in 2011, Lipitor’s sales declined to about $4 billion in 2012, as generics penetrated the market. Another drug, Caduet, a pill combining Pfizer’s Lipitor and Norvasc for the prevention of cardiovascular events, also lost exclusivity in the U.S. in November 2011, and in other markets in 2012. Benefix also lost patent protection in 2011. Both these drugs generated more than $1 billion in sales in 2011.

The expiry of these patents will have a substantial effect on overall revenues for Pfizer’s cardiovascular division in the near term. In addition to this, the margins will reduce as cheap generic versions flood the market resulting in lower pricing power.

FDA Approvals For Certain Drugs Will Help

At the end of 2012, Pfizer received a major boost as its blockbuster potential blood thinner drug Eliquis received coveted U.S. FDA nod for patients with atrial fibrillation. The much anticipated approval adds to recent positive developments around the drug and opens up large U.S. market that has evaded it before. The drug has also secured Japan’s approval for expanding its use to non-valvular atrial fibrillation or NVAF (irregular heart beat) patients. Eliquis had already received European Medicines Agency’s (EMA) approval for similar indication a month before its approval in Japan. (Read Pfizer Update: Europe Approves Eliquis For Atrial Fibrillation). We expect Eliquis to garner as much as $3 billion in peak sales. However, the drug will not be able to achieve its full sales potential without its extension to treatment for VTE and acute coronary syndrome (related to the blockage of coronary arteries), which affects millions of patients worldwide each year.

Prevenar 13 (known as Prevnar 13 in the U.S.), a vaccine to prevent pneumococcal diseases such as pneumonia and meningitis, has also received much needed European Medicines Agency (EMA) nod for expanding its use to children and adolescents aged 6 to 17 years. European approval will open up a big market for the vaccine, and aid Pfizer’s Q1 2013 growth. With no significant competition in the market, the Prevenar franchise has the potential to make up for the company’s revenue losses due to expiration of several patents that we mentioned before. We expect the franchise’s sales to increase from $4.1 billion in 2012 to $7 billion, by the end of our forecast period.

In addition to this, we expect healthy sales from certain other primary care drugs such as Celebrex and Lyrica, driven by expanded use and entry into new markets.

Broad Guidance For 2013 – As Provided By Pfizer

For the year 2013, Pfizer expects its revenues to be in range of $56.2-58.2 billion. ^[1] Last year, the company earned close to $59 billion in revenues and the slight expected decline can be attributed to loss of patents and expiration of certain co-promotion agreement.  In November 2012, the company completed the sale of its nutritional business to Nestle for $11.85 billion, and the revenue guidance incorporates the absence of this unit.

Our price estimate for Pfizer stands at $32, implying a premium of about 5% to the market price.

1. Pfizer’s Q4 2012 Earnings Transcript [↩] [↩]