Pfizer Second Quarter Earnings Might Show Some Revival

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We believe Pfizer‘s (NYSE:PFE) Q2 2015 financial results may just show the tipping point for the company’s growth, excluding the impact of currency movements. Pfizer’s profits have been plagued by patent exclusivity losses, currency headwinds and relatively mellow ramp up sales of some of the new drugs. As a result, the company has been investing heavily in collaborations and making acquisitions to secure future growth. As the impact of termination of co-promotion agreements is getting diluted and Eliquis is showing strong uptake, we believe Pfizer’s business may be at the cusp of rebounding. To add to that, the pipeline is improving and the Hospira acquisition could help it establish foothold in biosimilar market, which is on the verge of strong growth.

Our price estimate for Pfizer stands at $35, implying a slight premium to the market price.

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Let’s focus on the bright side. The upcoming quarterly results were likely  driven by the growth in vaccines and cancer drugs, besides the strong adoption of the anti-coagulant drug Eliquis. Vaccines, especially, are becoming a major thrust for Pfizer. The company recently announced its decision to acquire two meningitis vaccines, Nimenrix and Mencevax, from GlaxoSmithKline (GSK) for $130 million. [1] Both vaccines are approved for commercial sales and the move builds upon Pfizer’s last year’s acquisition of NeisVac-C. Pfizer already has strong presence in pneumococcal vaccines with near monopoly in the U.S., and now expects to expand in meningococcal vaccine market, which is expected to hit $3.76 billion globally by 2019.

Eliquis is gaining ground in the U.S., Japan, the U.K., Spain and Germany. The drug could become a multi-billion dollar franchise for Pfizer. In addition, Ibrance has been a successful launch and will strengthen Pfizer’s oncology business. The oncology pipeline seems to be bubbling with activity. Pfizer saw positive development earlier this year when a phase 3 trial for inotuzumab showed higher complete hematologic remission rate in adults who had relapsed or refractory CD22-positive acute lymphoblastic leukemia, in comparison to standard chemotherapy. Additionally, other pipeline drugs including palbociclib and crizotinib have shown good progression. While palbociclib more than doubled the progression-free survival in cancer patients with HR+ HER-2 metastatic breast cancer, crizotinib has been assigned breakthrough therapy designation by the U.S. FDA.

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Pfizer Gets Drug Approval For Hot Flashes, Targets 33 Million Women In The U.S.

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The FDA recently granted approval for Pfizer’s (NYSE:PFE) Duavee, which has been developed by its wholly-owned subsidiary Wyeth in collaboration with Ligand Pharmaceuticals Inc. [1] The drug introduces a novel approach to treating hot flashes in menopausal women, and is also approved for the treatment of postmenopausal osteoporosis (common bone disease due to low estrogen levels). Unlike other drugs in the market, Duavee pairs conjugated estrogen (CE) with an estrogen agonist/antagonist (also known as a selective estrogen receptor modulator). The drug has the advantage of protecting uterus lining against hyperplasia, which increases risk of cancer of uterine lining and can happen with estrogen-only treatments. [1]

Given the reduction in cancer risk, we expect the drug to gain traction. There are approximately 33 million women in the U.S. between the ages of 45-59 (menopausal), and most of them experience hot flashes. [1] The quality of life can get significantly affected if this common condition is left untreated. Pfizer’s existing drug Premarin, which primarily consists of conjugated estrogen, earned over $1 billion in revenues in 2012. We expect Duavee to cannibalize some of Premarin’s sales starting from the first quarter of 2014. Furthermore, given that Pfizer is a well diversified company with several other major drugs, Duavee’s success will lead to only a small incremental value add.

Notes:
  1. Pfizer Enters Into Agreement To Acquire Nimenrix And Mencevax From GlaxoSmithKline, Pfizer Press Release, Jun 22 2015 []