Pfizer Doing Well, But Some Challenges Are On The Horizon

by Trefis Team
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Pfizer (NYSE:PFE) missed consensus estimates when it reported its Q4 2016 earnings. Some of it can be attributed to below par performance from the Prevnar vaccine and greater than expected competition from generics for drugs that have gone off-patent. Nevertheless, overall, the company had a decent year and revived its revenue growth. This momentum is likely to spill into 2017, but there are some challenges on the horizon. While some drugs are doing well, the portfolio, in general, has matured and Pfizer needs to continue to be aggressive with its growth strategy if it wants to sustain the momentum. We believe that the company will continue to explore M&A opportunities and focus on the development and marketing of biosimilars. Pfizer’s management is optimistic about the new government’s promise of tax reforms and believes it could open up some interesting M&A options domestically. The next year is likely to be more mild in terms of Pfizer’s revenue growth but biosimilar uptake could surprise us.

Our price estimate of $36 for Pfizer stands at a premium of around 15% to the market. We are currently reviewing our price estimate in the light of recent earnings and will have an update ready soon.

Here are some of the key takeaways from Pfizer’s Q4 2016 earnings.

First, Ibrance hasn’t disappointed and continues to grow rapidly. The drug tripled its sales in the fourth quarter of 2016 compared to the same period a year ago, and grew 17% sequentially. This is a good sign because Pfizer needs new drugs that can offset the pressure on its maturing and off-patent product portfolio. We estimate peak sales for Ibrance to be around $4 billion. It also received EU approval in December and this is likely to accelerate its growth in the coming quarters, especially in the second half of 2017.

Second, Eliquis hasn’t disappointed either. The market was expecting this drug to perform well. Eliquis continued its uptake among cardiologists and registered 88% growth for the year. It has become the top prescribed anti-coagulant among cardiologists in 12 markets globally, and is catching up with market leader Xarelto in the U.S.

Third, we were surprised to see a slightly disappointing performance from Pfizer’s flagship vaccine Prevnar. This can be attributed to nearly 33% decline in its sales in the U.S., which resulted from fewer adult vaccinations compared to Q4 2015. In 2017 as well, Pfizer expects Prevnar’s global revenue to remain flat or decline slightly, which suggests that the vaccine’s sales may have peaked. This could be a challenge for Pfizer as pneumococcal vaccine Prevnar accounts for nearly $10 billion in annual revenue.

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