Patent Expiries Hit Pfizer’s Results But New Drugs, Emerging Markets Hold Promise

Pfizer (NYSE:PFE) recently released its Q1 2013 earnings. While the company saw strong sales in its oncology and consumer healthcare divisions, the impact of patent expiry of blockbuster drug Lipitor and certain other drugs continued to put pressure on its revenue growth. Pfizer’s first quarter revenues declined by 9% primarily due to the weak performance of its specialty care, primary care and established products divisions. ^[1] It’s clear that the company’s cardiovascular drugs aren’t doing well in the market due to patent expiry and pricing pressure as a result of large number of competing products.

To remedy this, the company needs to focus more on specialty care and oncology, as well as continue its expansion in emerging markets. In oncology, Pfizer launched Bosulif in Europe and saw better performance from Xalkori and Inlyta. ^[2]

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Why Did The Revenues Decline?

Pfizer’s overall revenues fell primarily due to a 21% decline in its primary care segment, a 12% decline in specialty care and a 16% decline in established products segment.

The primary care segment includes drugs for therapeutic and disease areas such as Alzheimer’s disease, cardiovascular (excluding pulmonary arterial hypertension), erectile dysfunction, genitourinary, major depressive disorder, pain, respiratory and smoking cessation. ^[1] The specialty care segment includes drugs for therapeutic and disease areas such as anti-infectives, endocrine disorders, hemophilia, inflammation, ophthalmology, pulmonary arterial hypertension, specialty neuroscience and vaccines. The established products segment includes drugs that have lost patent protection or marketing exclusivity.

The decline in the primary care segment can be attributed to the shift in reporting of Lipitor’s sales in developed Europe & Australia to ‘established products’ segment and the loss of exclusivity for Aricept and Spiriva. Primary care revenues declined due to timing of Prevnar 13 purchases and the shift in reporting of Geodon and Revatio to ‘established products’ segment. In essence, a lot of big drugs have lost their patent in several markets, and that’s hurting Pfizer.

Patent Expiry Of Cardiovascular Drugs Is The Biggest Problem

Pfizer’s pharmaceutical division continued to see the negative impact of patent expiry of Lipitor, a blockbuster cardiovascular drug. 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 of these drugs generated more than $1 billion in sales in 2011. The expiry of these patents is having a substantial effect on overall revenues for Pfizer’s cardiovascular division in the near term. In addition to this, margins are under pressure as cheap generic versions flood the market resulting in lower pricing power.

What Are Some Of The Promising Drugs For Pfizer?

At the end of 2012, Pfizer received a major boost as its blockbuster potential blood thinner drug Eliquis received the 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.

Emerging Markets Expansion

The company continued to expand in emerging markets and reported an operational growth of 6%, which was slightly offset by the adverse currency impact. The company expects second quarter to be even stronger and full year sales in emerging markets will grow at high single digit rate. ^[2] During the first quarter, the sales volume grew by 10% in the BRIC-MT markets, primarily driven by strong growth in China. However, the average pricing declined by 1%. ^[2] Although the average pricing may suffer as Pfizer expands more in these countries, it will help it offset some of the revenue decline triggered by multiple patent expiries. In addition to this, establishing strong marketing and distribution channels in emerging markets will go a long way.

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

1. Pfizer’s SEC Filings [↩] [↩]
2. Pfizer’s Q1 2013 Earnings Transcript [↩] [↩] [↩]