Pfizer Revenues Suffer Due To Patent Losses And Currency Headwinds

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Pfizer (NYSE:PFE) reported its 2014 fourth quarter results recently. The company’s sales revenue declined 3% for the quarter and 4% for the full year. [1] This was not surprising considering the lack of growth catalysts and a large number of drugs now exposed to generic competition. The termination of certain co-promotion agreements and unfavorable exchange rates due to a stronger U.S. dollar further weighed on the company’s results.

These negative factors overshadowed the impressive growth in Pfizer’s oncology and vaccine segments, which are relatively smaller in size and hence their incremental revenue contribution is still not sufficient to offset the decline in legacy product sales.

Pfizer’s current year guidance indicates that the company expects operating conditions to remain challenging in the short to medium term. It expects full-year sales revenue to be between $44.5 billion and $46.5 billion, which is 6-10% below the $49.6 billion it earned last year. [1]

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See our complete analysis for Pfizer

Termination Of Co-Promotion Agreements And Product Loss Of Exclusivity Continue Weigh On Revenue

Pfizer continued to face the impact of termination of co-promotion agreements of certain important drugs such as Enbrel. Pfizer and Amgen had co-marketed this product in North America (U.S. and Canada) until a year ago. Apart from this, the company’s revenues also suffered due to the ongoing termination of the Spiriva collaboration in some geographies, along with the loss of exclusivity 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 11% decline in revenues from the ‘Global Established Products’ segment in Q4 2014. These revenues declined by 9% for the full year. [1]

These established products still make up roughly half of Pfizer’s total pharmaceutical revenues, which means that even a small decline in percentage terms, dents the company’s overall revenue growth significantly. Therefore, other growing but relatively smaller product categories will have to grow at a much faster pace in order to make up for the revenue shortfall. In this regard, Pfizer had pinned its hopes on some of the recent drug launches, but their adoption rates have been rather slow. For example, the company’s kidney cancer treatment drug Inlyta and lung cancer treatment drug Xalkori have seen weak sales growth over the last few years. The kind of pricing and negotiating power that Pfizer enjoyed over the last decade could soon fade if the situation doesn’t improve significantly. Except for oncology and the Prevnar/Prevnar 13 franchise, Pfizer’s revenues, in our view, are likely to fall across all sub-segments including cardiovascular, immunology, metabolism and musculoskeletal.

Vaccines And Oncology Sales The Silver Lining

Pfizer’s revenues related to oncology drugs jumped 10% globally in Q4 2014 and the segment’s revenue growth stood at roughly 13% for the whole year. As far as vaccines are concerned, Prevnar 13 saw a strong growth of 19% for the full year, primarily driven by the timing of purchases from the U.S. government and positive recommendations from the U.S. Centers for Disease Control. Pfizer’s international sales growth remained in double digits (excluding the impact of currency movements) for 2014 due to higher number of shipments for GAVI (Global Alliance for Vaccines and Immunization) and Prevenar’s inclusion in additional national immunization programs in certain emerging markets. Prevnar 13 has a dominant position in the U.S. and is expanding in Europe as well.

In addition, some of the recently launched products such as Eliquis and Xeljanz helped offset some decline in revenues. Eliquis is essentially a blood thinner and has seen continued adoption among healthcare specialists. Given the decline in Lipitor’s sales, Eliquis is expected to play a critical role in reviving Pfizer’s cardiovascular drug business. This segment contributes roughly 10%-15% to Pfizer’s total value, by our estimates.

Looking Ahead

Pfizer expects that much of the decline in revenue for 2015 will be due to the effect of recent and expected product losses of exclusivity. This effect is expected to reduce the company’s revenue by $3.5 billion this year. [1] Its revenues will also be adversely impacted by the strengthening U.S. dollar. More than 60% of Pfizer’s total revenues come from international markets. The company reported unfavorable impact of foreign currency exchange rate movements of $912 million for the year 2014 and expects to lose around $2.8 billion in revenues this year. Competitors such as Johnson & Johnson and Bristol-Myers Squibb have also been hurt by unfavorable exchange rates.

Pfizer also indicated that it remains open to pursuing a large deal or splitting itself as it struggles to increase revenues in the wake of losing patent protection on blockbuster medicines such as Celebrex and Lipitor exclusively. [2] The company was earlier thwarted in its efforts to acquire AstraZeneca. The company mentioned that it remains committed to creating shareholder value and plans to return around $13 billion to shareholders through dividends and share repurchases in 2015. It has previously returned more than $64 billion in dividends and share repurchases between 2011 and 2014. [3]

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Notes:
  1. Pfizer’s SEC Filings [] [] [] []
  2. Pfizer’s (PFE) CEO Ian Read on Q4 2014 Results – Earnings Call Transcript, Jan 27 2015, Seeking Alpha []
  3. Fourth Quarter 2014 Earnings Teleconference, Pfizer Investor Relations []