Pharma major’s net income fell 23% owing to generic competition and patent expirations
Drug behemoth Pfizer Inc. (NYSE: PFE) announced its Q2 FY16 financial results on August 2nd, 2016. The New York-based company discovers, develops, and manufactures healthcare products. The Company’s portfolio includes medicines, vaccines, and medical devices, as well as consumer healthcare products. Pfizer carries out its contract manufacturing and bulk pharmaceutical chemical sales operations through Pfizer CentreOne, part of the Essential Health segment.
Pfizer has two operating segments: Innovative Health (IH) and Essential Health (EH). Innovative Health consists of two segments: the Global Innovative Pharmaceutical segment (GIP) and the Global Vaccines, Oncology, and Consumer Healthcare segment (VOC). Essential Health consists of the Global Established Pharmaceutical segment (GEP). Its research focuses on six areas: immunology and inflammation, cardiovascular and metabolic diseases, oncology, vaccines, neuroscience and pain, and rare diseases. In addition, Pfizer has collaboration and/or co-promotion agreements for biopharmaceutical products, including Enbrel (in the U.S. and Canada), Spiriva, and Rebif. Hospira Inc., which Pfizer acquired in September 2015, operates as its subsidiary. Read more about Pfizer’s financial results below.
Q2 FY16 financial highlights
Pfizer reported better-than-expected Q2 FY16 revenues, which grew 11% Y-o-Y to $13.1 billion. Revenue growth reflects operational growth of 13%, or $1.6 billion, partially offset by a 3%, or $302 million, negative foreign exchange impact. Excluding the contribution of legacy Hospira operations of $1.1 billion and foreign exchange, Pfizer’s standalone revenues increased 4%, or $458 million, on an operational basis.
Sales of Pfizer’s generic medicines jumped 16% to $6.04 billion in Q2 FY16, helped by Pfizer’s $16 billion purchase of Hospira. In contrast, sales of Pfizer’s patent-protected drugs grew only 7% to $7.11 billion during the reporting quarter. Higher sales of Lyrica helped offset lower sales of Prevnar vaccine. The company’s new breast cancer treatment, Ibrance, generated sales of $514 million, up from $140 million in the year-ago quarter. Sales from older drugs declined with many patent expirations and growing generic competition for blockbuster drugs like Lipitor and Celebrex.
Developed markets vs. emerging market revenues
Pfizer reported higher revenue from developed markets as compared to emerging markets. Pfizer’s Q2 FY16 revenues in developed markets grew 17% to $1.5 billion on an operational basis, driven by $1.1 billion of revenues from legacy Hospira operations and continued strong performance of key products such as Ibrance, Eliquis, Xeljanz, and Lyrica in the U.S. This growth was partially offset by lower revenues for Prevnar 13 in the U.S., the loss of exclusivity and generic competition for Zyvox and Lyrica in certain key markets, as well as the expiry of the collaboration agreement to co-promote Rebif in the U.S. in December 2015.
On the other hand, Pfizer’s Q2 FY16 revenues from emerging markets grew at a modest 4% to $116 million on an operational basis, reflecting $78 million from legacy Hospira operations and stellar performance of certain Essential Health products primarily in China. These contributions were partially offset by lower revenues for Prevenar 13.
Despite higher revenues, Pfizer’s Q2 FY16 net income fell 23% to $2.02 billion, or $0.33 per share, from $2.63 billion, or $0.42 per share, hurt by higher R&D costs, restructuring charges, and acquisition costs. Excluding special items, Pfizer earned $0.64 per share in Q2 FY16, up from $0.56 in the year-ago period.
Pfizer’s Innovative Health Q2 FY16 revenues grew 9% operationally, primarily due to continued strong momentum from Ibrance in the U.S., strong operational growth from Eliquis globally as well as Lyrica and Xeljanz, both in the U.S. This growth was partially offset by a decline in revenues for Prevnar 13 for adults in the U.S. Moreover, IH revenues were hit by the expiry of the collaboration agreement to co-promote Rebif in the U.S.
Pfizer’s Essential Health Q2 FY16 revenues grew 19% operationally, primarily due to the inclusion of legacy Hospira operations, which contributed $1.1 billion, partially offset by the loss of exclusivity and associated generic competition for certain Peri-LOE Products, primarily Zyvox in the U.S. and key markets as well as Lyrica in some Europe markets. EH revenues in emerging markets increased 8% operationally, driven by the inclusion of legacy Hospira operations and operational growth from the EH Standalone Sterile Injectable Pharmaceuticals portfolio.
In late June 2016, Pfizer invested $350 million in China, the world’s second-largest drugs market, to build a plant for making biotechnology drugs in the eastern Hangzhou region. The China biotech center is Pfizer’s first such center in Asia, and is expected to be completed by 2018.
Pfizer announced on August 2nd, 2016, that it has reached a $486 million settlement of a litigation accusing it of concealing safety risks associated with its Celebrex and Bextra pain-relieving drugs. The settlement ends the 11 years of trials against the drugmaker and several officials, including former Chief Executive Henry McKinnell.
Acquisitions and Partnerships
After Pfizer called off plans for a $160-billion merger with Irish drugmaker, Allergan Inc. (NYSE: AGN), the Company announced on May 16th, 2016, that it will buy California-based Anacor Pharmaceuticals Inc. (NASDAQ: ANAC) for $5.2 billion. Pfizer’s acquisition of Anacor will give it access to a non-steroidal topical gel, crisaborole (clinically called atopic dermatitis), which is currently under FDA review for the treatment of eczema. Pfizer anticipates that crisaborole could reach or exceed sales of $2 billion once approved.
On July 20th, 2016, Pfizer announced that it has entered into a partnership with NovaMedica of Russia to establish a manufacturing facility in the Kaluga region. As part of the deal, Pfizer will transfer the licenses of up to 30 molecules, worth about $60 million, in its drug portfolio to be developed under the said agreement. Pfizer aims to begin the construction of the manufacturing facility in 2016, while production is anticipated to begin by 2020.
Pfizer has identified gene therapies as a new focus area for the treatment of rare diseases. As part of these plans, the drugmaker announced on August 1st, 2016, that it would acquire privately held gene therapy developer Bamboo Therapeutics Inc. in a deal worth up to $645 million. Through the acquisition, Pfizer will gain access to Bamboo’s experimental gene therapies for rare diseases such as Duchenne Muscular Dystrophy, giant axonal neuropathy, Friedreich ataxia, and Canavan disease. Bamboo’s drugs are still in the preclinical or early stages of development. This is the second deal for Pfizer in the area of gene therapies, after it signed a collaboration and license agreement with Emeryville, California-based 4D Molecular Therapeutics to develop targeted gene vectors for cardiac disease in early 2016.
In July 2016, Pfizer and Western Oncolytics entered into a development collaboration, license and option agreement to work on Western Oncolytics’ novel oncolytic vaccinia virus, WO-12. Pfizer and Western Oncolytics will collaborate on preclinical and clinical development of WO-12 through Phase 1 trials. After the completion of Phase 1 trials, Pfizer has an exclusive option to acquire WO-12.
Product and pipeline updates
Chantix/Champix (varenicline): The European Summary of Product Characteristics and Package Leaflet for Champix updated to include safety and efficacy data in May 2016.
Ibrance (palbociclib): In June 2016, Pfizer presented final results from the Phase 3 PALOMA-2 trial for Ibrance at the American Society of Clinical Oncology 2016 Annual Meeting. This data will support additional planned global regulatory submissions and a request for conversion of the accelerated approval for Ibrance in the U.S.
Prevnar 13 (Pneumococcal 13-valent Conjugate Vaccine [Diphtheria CRM197 Protein]): Pfizer received FDA approval for an expanded age indication for Prevnar 13 to include adults 18 through 49 years of age in July 2016.
Sutent (sunitinib malate): Pfizer announced in July 2016 positive top-line results in a Phase 3 study from the S-TRAC (Sunitinib Trial in Adjuvant Renal Cancer) trial.
Trumenba (Meningococcal Group B vaccine): The European Medicines Agency accepted the Marketing Authorization Application for Trumenba for review in May 2016.
Share buyback and dividend
Pfizer returned $8.7 billion to shareholders through dividends and share repurchases in H1 FY16, including the completion of a $5 billion accelerated share repurchase agreement in June 2016. Pfizer’s remaining share-purchase authorization was approximately $11.4 billion as of August 2nd, 2016.
Guidance for full year FY16
Pfizer reaffirmed its guidance for full year FY16 earnings of $2.38 to $2.48 per share. Revenues are expected to be in the range of $51 to $53 billion in FY16, while adjusted R&D expenses are predicted at $7.4 to $7.8 billion during the year.
Pfizer’s stock finished the day at $35.29, slipping 3.02%, at the close on Wednesday, August 3rd, 2016, having vacillated between an intraday high of $35.95 and a low of $35.06 during the session. The stock’s trading volume was at 42,564,835 for the day. The Company’s market cap was at $217.03 billion as of Wednesday’s close.