Pfizer Earnings Preview: Vaccines & Oncology Will Shine, But The Company Needs More

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Pfizer (NYSE:PFE) will report its Q4 2014 earnings on January 27th. We expect the results to reflect the continued pressure on the company’s topline growth, which comes from the loss of patents and the termination of co-promotion agreements, partially offset by the growth in vaccines and oncology drugs. The company has been looking at new avenues for growth and its vaccines business and oncology pipeline hold some promise. But given its mammoth size, we believe that the next phase of growth may come from a major acquisition. Last year, Pfizer made an attempt to acquire AstraZeneca but the deal  eventually fell through. Overall, we believe that even though the upcoming earnings may show Pfizer’s financial discipline, investors will still be asking bigger questions related to growth.

Our price estimate for Pfizer stands at $35, implying a premium of about 10% to the market.

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See our complete analysis for Pfizer

Vaccines And Oncology Segments Will Continue To Show Strength

Pfizer’s revenues related to oncology drugs jumped 16% globally in the third quarter of 2014. For the first nine months of 2014, the growth rate stood slightly below this figure but seems to be accelerating, or at least sustaining, sequentially. [1] Among all the therapeutic areas that Pfizer deals with, oncology is showing the best promise in terms of incremental revenues. It must be noted that the growth in vaccine sales raced past that of oncology drugs only in the third quarter. Pfizer derives some hope from these two segments, considering the revenue decline it has seen in the last few years. The company had pinned its hopes on some recent drug launches, but the market adoption has been rather slow.

Prevnar 13 vaccine is likely to sustain its rapid growth in the U.S. The vaccine’s sales jumped 26% domestically in Q3 2014 due to timing of purchases from the U.S. government. The international growth remained in double digits as well (excluding the impact of currency movement) due to higher number of shipments for GAVI (Global Alliance for Vaccines and Immunization). Prevnar 13 has a dominant position in the U.S. and is expanding in Europe as well. We have no reason to think that the growth will not be good in the fourth quarter.

Eliquis And Xeljanz Will Help

Additionally, recently launched products such as Eliquis and Xeljanz will continue to help offset some of the decline. Eliquis will help Pfizer grow its cardiovascular segment sales due to the drug’s continued adoption among healthcare specialists and the approval for conditions beyond atrial fibrillation. In late July, the European Commission approved the drug for the treatment of Deep Vein Thrombosis (DVT) and Pulmonary Embolism (PE), as well as for the prevention of recurrence of these conditions. Eliquis is essentially a blood thinner and considering the decline in Lipitor’s sales, becomes a critical product for Pfizer as far as revival of cardiovascular drug business is concerned. We estimate that this segment constitutes roughly 10%-15% to Pfizer’s value.

Overall Revenue Growth Pressure Will Persist

Pfizer will continued to face the impact of termination of co-promotion agreements of certain important drugs such as Enbrel. The drug is used for the treatment of plaque psoriasis, rheumatoid arthritis and psoriatic arthritis. Pfizer and Amgen had co-marketed this product in North America (U.S. and Canada) until a year ago. Apart from this, the company will also be impacted by the termination of the Spiriva collaboration in some geographies, along with the patent expiry and the resulting competition for Detrol LA in the U.S. Pfizer’s other legacy products are also facing competitive pressure which is evident from a 7% decline in the revenues from ‘global established products’ segment in Q3 2014. The figure for the first nine months of 2014 stood at 8%. These products still form a big portion (roughly half) of Pfizer’s pharmaceutical revenues which implies that, even if the percentage decline is small, other growing and yet relatively small product categories will have to accelerate their growth in order to make up for the revenue shortfall.

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Notes:
  1. Pfizer’s SEC Filings []