Ibrance, Eliquis And Biosimilars Remain The Key Driver For Pfizer’s Future Earnings Growth

Pfizer (NYSE:PFE) recently posted its Q3 results, which were in line with our estimates. The company’s overall sales grew 2% while adjusted earnings per share grew 16%. As expected, the company saw higher sales for Ibrance, Eliquis, and Xeljanz, which aided the overall earnings growth. The company narrowed its adjusted earnings guidance to be in the range of $2.98 and $3.02 for the full year, and we forecast the figure to be in the middle of this range. Looking forward, we continue to believe that the company’s Oncology portfolio will continue to drive the earnings growth in the near term, along with Eliquis and its biosimilars. We have created an interactive dashboard ~ What Will Drive Pfizer’s Near Term Growth ~ on the company’s expected performance in 2018 and 2019. You can adjust the revenue and margin drivers to see the impact on the company’s overall earnings, and price estimate.

Expect Oncology To Drive Near Term Earnings Growth

We expect the company’s Oncology segment to see strong growth in 2018 and 2019, primarily led by a ramp up in Ibrance sales. Ibrance is used for the treatment of breast cancer, which is the most prevalent cancer type in women. The drug sales were around $3 billion in the nine month period ending September 2018, reflecting a growth of 24% (y-o-y). Ibrance is the leader in CDK 4/6 (cyclin-dependent kinase) inhibitor class in the U.S., with 90% share in terms of new prescription volume. However, the ramp up in sales is likely to come from the drug’s expansion in the international markets, especially Europe and Japan. Pfizer has a robust late stage pharmaceuticals pipeline with new Oncology drugs, which should aid the future sales growth. The company’s new drug – Dacomitinib – was recently approved by the U.S. FDA for the first-line treatment of patients with EGFR-Mutated MNSCLC (Epidermal Growth Factor Receptor – Mutated Metastatic Non-Small Cell Lung Cancer). With more approvals expected in the coming years, Pfizer’s Oncology sales will likely continue to grow in high single digits over the next few years.

Musculoskeletal May See Modest Decline While Legacy Pharma, Consumer, Biosimilar & Other Segment Could Grow In Mid-High Single Digits

Among other segments, we forecast Musculoskeletal segment revenues to decline in low single digits, as an expected double digit growth in Xeljanz will likely be offset by a decline in Enbrel and other drugs. Xeljanz has been doing well of late, and saw sales jump over 30% in the nine months period ending September 2018. Xeljanz’s approval for Ulcerative Colitis earlier this year will bode well for the future sales growth. However, we forecast modest decline in the overall segment revenue growth. This can be attributed to the decline in Enbrel, which is facing stiff competition from biosimilars.

Most of the other pharmaceutical segments will likely see a decline in the near term, due to loss of patent exclusivity for key drugs. However, we forecast mid-high single digit growth in the Legacy Pharma, Consumer, Biosimilar & Other segment. This can primarily be attributed to Xtandi and Eliquis alliance revenues. Eliquis has seen strong growth in the recent quarters, led by market share gains. In fact, the drug has overtook Warfarin to become the leader in the oral anticoagulants (OAC) market (total prescriptions) in the U.S. We expect this trend to continue in the near term. Xtandi was approved by the U.S. FDA for prostate cancer in Q3 this year, and it was also recently approved by the European Commission. This should aid the overall sales growth in the near term. 

Apart from alliance revenues, the segment will also benefit from its biosimilars, especially Inflectra, which generated sales of over $450 million in the nine month period ending September 2018. Inflectra is a biosimilar for Johnson & Johnson’s blockbuster drug Remicade. Apart from Inflectra, the company recently launched Nivestim, a biosimilar to Neupogen, and the company has four biosimilars in its late stage pipeline, all of which are for blockbuster drugs. We believe that the growth opportunity for Pfizer from its biosimilars pipeline is huge,  with potential sales of over $10 billion. 

Overall, Pfizer’s near term growth can largely be linked to the ramp up in sales of Ibrance and Eliquis. We forecast the EPS for full year 2018 to be around $3.00, which is in the middle of the company’s guided range. Our price estimate of $53 for Pfizer is at a premium of over 20% to the current market price.

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