Pfizer (NYSE:PFE) recently released its Q2 2013 earnings and as expected, its revenues and profits fell due to continued weakness in the cardiovascular drug segment, partially offset by growth in emerging markets and oncology drugs. We previously expected a slight sequential rebound in Prevenar’s sales, but the drug’s performance remained weak due to the variability of CDC’s (Center for Disease Control) purchase patterns and the end of a supplementary dose program in Asia.
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Emerging markets witnessed moderate growth (excluding currency impact) with China leading the way as the country experienced a strong surge in volumes, especially for Lipitor and Prevenar. The company reaffirmed the outlook for 2013, and expects full year revenues in the range of $56.2-58.2 billion. Last year, it earned close to $59 billion in revenues and the slight expected decline is primarily because of a loss of patents and expiration of certain co-promotion agreement.
One of the interesting announcements that Pfizer made during its second quarter earnings release was the decision to reorganize its business into innovative and value segments. This will lead to better focus, more efficient resource allocation and allow Pfizer to potentially invest more in research & development to fuel long-term growth.
Lipitor Sales Decline But Oncology Is Doing Well
Pfizer’s pharmaceutical division continues to suffer due to 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 sales declined to about $4 billion in 2012 as generics penetrated the market. Its worldwide sales further plunged by 55% in the second quarter of 2013.  The drug has lost patent exclusivity in Europe and is facing multi-source generic competition in the U.S. 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.
Going forward, Pfizer’s cardiovascular division can get some support from Eliquis (Apixaban), which is a drug used in blood thinning and helps prevent clotting that can restrict blood circulation to the organs. A few months back, Eliquis received a coveted U.S. FDA nod for patients with atrial fibrillation. The approval has opened a much larger U.S. market to the drug. Eliquis has also secured Japan’s approval for expanding the use to non-valvular atrial fibrillation or NVAF (irregular heart beat) patients, and has already received European Medicines Agency’s (EMA) approval for a similar indication (Read Pfizer Update: Europe Approves Eliquis For Atrial Fibrillation ).
This however is only a halfway for Eliquis, which is expected to garner as much as $3 billion in peak sales. 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.
While the cardiovascular drug business remained weak, oncology (cancer treatment) drugs are showing rapid growth, which appears to be an industry-wide trend. Pfizer’s global oncology sales increased 24% in Q2 2013, with year-to-date sales up 26%.  Oncology and Immunology are growth areas for the pharmaceutical industry, and can help Pfizer command better pricing as primary care areas such as cardiovascular get flooded with generics.
How Business Restructuring Will Help
Pfizer announced that it will restructure its business into two innovative business segments and one value business segment. The first innovative business segment will include products that have patent protection beyond 2015 across several therapeutic areas such immunology, cardiovascular, metabolic, neuroscience, etc. The second innovative business segment will deal with vaccines, oncology and consumer healthcare. In addition to this, the value business segment will include mature drugs that have either lost patent protection or will lose before 2015.
Looking at these categorizations, it becomes clear that Pfizer is moving towards efficient resource allocation that will help it infuse more cash into R&D and drive its long-term growth. Each of these segments have different sets of customers, market potential and required R&D efforts. For instance, the first innovative segment caters to several large disease areas in primary care as well as specialty care, and have their own challenges in terms of capital allocation and go-to-market strategies. On the other hand, the second innovative segment is more specialized and includes smaller businesses with dedicated research facilities and specific customers. It appears that Pfizer can save some costs and realize some synergies with this restructuring.
We are in the process of updating our pricing model for Pfizer in the light of recent earnings, and we will have an update ready soon.