Pfizer (NYSE:PFE) will release its Q2 2013 earnings on July 30. While we expect the pressure on revenue growth to continue due to weakness in the cardiovascular drug segment, growth in emerging markets and the slight sequential rebound in Prevenar’s sales will help. The pharmaceutical giant continues to battle the patent cliff as sales of its blockbuster drug Lipitor have fallen sharply since the loss of its patent exclusivity. Revenues from other cardiovascular drugs have also come down, although the division may find minor support from Eliquis going forward. The overall cardiovascular drugs market is expected to decline despite growth in the Asia-Pacific region.
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In Q1 2013, Pfizer’s overall revenues fell primarily due to a 21% decline in its primary care segment, a 12% decline in specialty care and a 16% decline in established products segment.  The decline in the primary care segment can be attributed to the shift in reporting of Lipitor’s sales in developed Europe & Australia to ‘established products’ segment and the loss of exclusivity for Aricept and Spiriva. Primary care revenues declined due to the timing of Prevnar 13 purchases and the shift in reporting of Geodon and Revatio to ‘established products’ segment. In essence, a lot of big drugs have lost their patents in several markets and that’s hurting Pfizer. The outlook for 2013 doesn’t look too good either as we expect the company’s full year revenues of close to $57.3 billion, implying a decline of about 2.8% over 2012.
Weakness In Cardiovascular Drug Sales Will Continue To Haunt Pfizer
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.
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 of these drugs generated more than $1 billion in sales in 2011. The expiry of these patents is having a substantial effect on overall revenues for Pfizer’s cardiovascular division in the near term. In addition, margins are under pressure as cheap generic versions flood the market, resulting in lower pricing power.
Growth In Sales Of Prevenar 13 Will Help
Prevenar 13 is a vaccine to prevent pneumococcal diseases such as pneumonia and meningitis. The drug’s sales received a minor setback in Q1 2013 due to the timing of purchases, and we expect to see some sequential rebound this quarter.
Prevenar 13 got European approval recently, which opens up a big market for Pfizer, and this will aid its growth in the latter half of 2013 and beyond. With no significant competition, the Prevenar franchise has the potential to make up for the company’s revenue loss due to expiration of several patents. Prevenar is currently Pfizer’s second biggest brand in terms of sales after Lyrica and could well become the biggest brand in the next couple of years. We expect the franchise’s sales to increase from $4.1 billion in 2012 to $7 billion by the end of our forecast period.
The drug was first introduced for infants and young children in 2009 in Europe, and has since been approved in over 120 countries for use in infants and young children, and in over 80 countries for use in adults of ages 50 years and above. Research firm Datamonitor expects the U.S. pneumococcal vaccine market to grow to $2 billion by 2019, which will be almost entirely dominated by Prevenar 13. In addition, it expects the top 5 European markets to account for almost $3.5 billion in pneumococcal vaccine sales by 2019, with Prevenar 13 having a near monopoly. We believe that Pfizer will leverage its monopolistic position and build Prevenar into a very strong franchise over the next few years.
Emerging Markets Expansion
We expect the continued expansion in emerging markets to aid Pfizer’s growth in the second quarter. The company reported operational growth of 6% (excluding currency impact) in Q1, and stated that it expects the second quarter to be even stronger and full year sales in emerging markets to grow at a high single digit rate.
During the first quarter, the company’s sales volume grew by 10% in the BRIC-MT markets primarily driven by strong growth in China. However, the average pricing declined by 1%. Athough the average pricing may suffer as Pfizer expands in these countries, it will help offset some of the revenue decline triggered by multiple patent expiries. In addition, establishing strong marketing and distribution channels in emerging markets will go a long way.
Our price estimate for Pfizer stands at $32, implying a premium of about 5-10% to the market price.
- Pfizer’s SEC Filings [↩]