Pfizer Earnings Preview: Cost-Cutting To Offset Patent Losses

by Trefis Team
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While the impact of patent expiry of some major drugs including Lipitor and Viagra will continue to pressure Pfizer’s (NYSE:PFE) growth, its Q4 2013 results will also see some support from cost-cutting measures that it has undertaken in recent months. The company will release its fourth quarter and full year financial results on Tuesday, January 28. In terms of therapeutic areas, we expect cancer drugs to do well, as the pressure on cardiovascular sales continues. Geographically speaking, emerging markets will be in focus due to the expected volume growth driven by sales of Prevenar. The mid-point of full year guidance suggests that Pfizer may earn revenues of close to $51.3 billion for the full year 2013, down roughly 13% from 2012. Let’s take a closer look at what to expect from the upcoming earnings.

Our price estimate for Pfizer stands at $33.30, implying a premium of about 5%-10% to the market price.

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Cancer Drugs Will Do Well As Patent Issues Continue To Pressure The Revenue Growth

Pfizer’s pharmaceutical division will continue to face growth pressure due to patent expiry of Lipitor, a blockbuster cardiovascular drug. In addition, Caduet, a pill combining Pfizer’s Lipitor and Norvasc for the prevention of cardiovascular events, and Benefix are also facing competition from generics, both in the U.S. and international markets. Going forward, Pfizer’s cardiovascular division can get some support from Eliquis (Apixaban), which is a drug used in blood thinning and clot prevention that also can restrict blood circulation to the organs. However, to realize its full expected potential of $3 billion in peak sales, the FDA approval needs to encompass the drug’s use in the treatment for VTE and acute coronary syndrome (related to the blockage of coronary arteries), which affects millions of patients worldwide each year.

The essence is that the company’s cardiovascular division is in trouble and the real fix lies in developing and marketing drugs catering to growing therapeutic areas of oncology, immunology and infectious diseases. Continuing the recent trend, we expect oncology (cancer treatment) drugs to show rapid growth in Q4 2013. Pfizer’s global oncology sales increased 25% in the first nine months of 2013. 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.

Cost-Cutting Measures Will Help

Pfizer is moving towards efficient resource allocation that will help it infuse more cash into Research & Development, and drive its long term growth. Its restructuring of business will help it address different sets of customers and streamline its 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. To reign in costs and protect margins amid declining sales, the company recently closed it manufacturing operations in Puerto Rico and laid off employees in Ireland.

Our price estimate for Pfizer stands at $33.27, implying a premium of about 5%-10% to the market price.

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