Pfizer’s Revenue Hit by Strong Dollar, Lower Prevnar Sales

Revenue declined 3% to $13.6 billion, reflecting an operational decline of $191 million

Drug behemoth Pfizer Inc. (NYSE: PFE) announced its Q4 FY16 and full-year FY16 financial results on January 31st, 2017.

The New York-based company discovers, develops, and manufactures healthcare products. The Company’s portfolio includes medicines, vaccines, medical devices, and consumer healthcare products. The Company 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. Hospira Inc., which Pfizer acquired in September 2015, operates as its subsidiary. Read more about Pfizer’s financial results below.

Q4 FY16 financial highlights

During Q4 FY16, Pfizer’s revenue declined 3% to $13.6 billion compared to the prior year’s same quarter, reflecting an operational decline of $191 million, or 1%, and the unfavorable impact of foreign exchange of $228 million, or 2%. Excluding the Q4 FY16 contribution from legacy Medivation operations and foreign exchange, revenues declined by $330 million, or 2%. During Q4 FY16, there were four fewer selling days in the US and three fewer selling days in international markets compared to Q4 FY15; this hurt revenues by approximately $750 million during the reporting quarter.

Revenue was also hit by lower demand for its flagship vaccine Prevnar, higher expenses, and a stronger dollar. Global Prevnar sales fell 23% to $1.42 billion during Q4 FY16. The company attributed the persistent fall in Prevnar sales growth to a successful capture of the eligible adult population following the product’s 2014 launch, and an unfavorable impact from the timing of government purchases for Prevnar’s pediatric indication.

Pfizer launched Inflectra, a biosimilar version of Johnson & Johnson’s (NYSE: JNJ) blockbuster drug Remicade, in the US in late November 2016. Inflectra is the first and only biosimilar monoclonal antibody therapy and the second biosimilar to be approved in the US. Pfizer’s recently approved and much anticipated eczema treatment Eucrisa, which it acquired through its $5.2 billion purchase of Anacor Pharmaceuticals, is expected to be launched in February 2017. The company has estimated potential annual peak sales of about $2 billion for the drug.

Despite lower revenues and higher costs, Pfizer swung to profits of $775 million, or $0.13 per diluted share, versus a loss of $172 million, or $(0.03) per diluted share, in the year-ago comparable period.

FY16 financial highlights

During FY16, Pfizer’s revenues grew 8% to $52.8 billion, reflecting 11% operational growth, partially offset by the unfavorable impact of foreign exchange of $1.5 billion, or 3%. Full-year FY16 revenues for Pfizer standalone (excluding legacy Hospira and legacy Medivation) was at $48.1 billion, reflecting 5% operational growth from certain key products, partially offset by product losses of exclusivity and co-promotion expirations that negatively impacted revenues by $1.8 billion operationally. Net income rose 4% to $7.21 billion, or $1.17 per diluted share, versus $6.96 billion, or $1.11 per diluted share, in the prior year.

Segmental highlights

Pfizer’s Innovative Health Q4 FY16 revenues grew 1% to $7.72 billion, and were up 2% operationally, driven by continued growth from key brands including Ibrance, primarily in the US, Eliquis globally, the addition of Xtandi revenues in the US resulting from the acquisition of Medivation in September 2016, as well as Xeljanz and Lyrica, both primarily in the US. Global Ibrance revenue more than doubled operationally while global operational revenue growth for Xeljanz and Eliquis was 62% and 50%, respectively.

Global Prevnar/Prevenar 13 revenues fell 23% operationally. In the US, Prevnar 13 revenues plunged 33% due to the continued decline in revenues for the Adult indication following a high initial capture rate of the eligible population following its successful fourth-quarter 2014 launch, which resulted in a smaller remaining “catch up” opportunity compared to the prior-year same quarter, as well as the unfavorable impact from the timing of government purchases for the pediatric indication. Operational growth was also negatively impacted by lower revenues for Enbrel in most developed Europe markets, primarily due to continued biosimilar competition, as well as the loss of Rebif alliance revenues resulting from the year-end 2015 expiry of the collaboration agreement to co-promote Rebif in the US.

Pfizer’s Essential Health Q4 FY16 revenues fell 8% to $5.90 billion and fell 16% operationally, due to a 20% operational decline from Peri-LOE Products and a 3% operational decline from Legacy Established Products (LEP), partially offset by 3% operational growth from the Sterile Injectable Pharmaceuticals (SIP) portfolio and a 48% operational growth from Biosimilars. EH revenues excluding the performance of Hospira Infusion Systems (HIS), which Pfizer expects to divest in February 2017, declined 5% operationally.

Revenues from legacy Hospira products declined 1% operationally. Excluding the performance of HIS, revenues from legacy Hospira products increased 2% operationally. Revenues from EH-standalone products (excluding legacy Hospira) declined 7% operationally.

Developed markets revenues declined 9% operationally, negatively impacted by a 28% operational decline from Peri-LOE Products and a 7% operational decline from the LEP portfolio, partially offset by 51% operational growth from Biosimilars. Revenues in emerging markets grew 4% operationally, primarily driven by 3% operational growth from the LEP portfolio and 9% operational growth from the SIP portfolio.

Other highlights

Hiving off consumer healthcare: Pfizer announced that it is evaluating a potential sale or spin-off of its consumer health division that could value the unit at about $14 billion. The potential sale makes sense for Pfizer given the complexity of its businesses and the company’s plan to emerge as a leaner and more focused organization. Pfizer’s consumer health business, which includes lip balm Chapstick, painkiller Advil, multivitamin Centrum, and calcium supplement Caltrate, operates under the Innovative Health segment. The consumer business had annual sales of about $3.5 billion.

If Pfizer decides to sell its Consumer Health business, it would not be the first big pharmaceutical company to do so, mainly because consumer OTC drugs have lower margins than prescription drugs. Moreover, they have little or nothing to do with insurance companies and government payment programs, which set them apart as two slightly different business models.

Pfizer to shut down two UK facilities: On November 09th, 2016, Pfizer announced that it will be closing two of its three facilities in the UK over the next four years, slashing 370 jobs. One site is in London at Park Royal, which is expected to close by May 2017. It currently employs 100 people, who are expected to lose their jobs. The Park Royal facility fills dosed vials with liquid medications. Another side is its global cold chain packaging and distribution site in Havant, in Portsmouth. This facility will be shut down by 2020, and will cut 270 jobs. The operations at Havant will be consolidated with Pfizer’s Puurs, Belgium location.

Pfizer to lay off hundreds of workers at Rocky Mount: Pfizer has been facing headwinds in the form of patent expiry for its best-selling drugs and the associated generic competition from biosimilars. Hence, Pfizer announced on October 03rd, 2016, that it is laying off about 400 workers at its manufacturing plant in Rocky Mount, North Carolina, which it acquired from Hospira in 2015. The layoffs, to be implemented in H2 FY16, come in the wake of recent changes in market demand for certain products as well as the associated reduction in manufacturing volume and staffing levels at Rocky Mount.

On the other hand, Pfizer’s previously announced investments in a new state-of-the-art sterile injectable manufacturing facility and new quality laboratory at the same site will continue as planned. The Rocky Mount site remains an important facility in Pfizer’s sterile injectable supply network, employing about 2,000 people at the complex.

Share repurchases: During 2016, Pfizer returned $12.3 billion directly to shareholders through dividends and share repurchases.

Guidance for full year FY17

Pfizer’s 2017 financial guidance forecasts revenues slightly above 2016 and a 6% increase to adjusted diluted EPS compared to 2016 results. The company expects to achieve this despite absorbing revenue headwinds totaling $4.5 billion, comprised of $2.4 billion resulting from anticipated generic competition, $1.2 billion due to the pending disposition of HIS and $0.9 billion due to adverse changes in foreign exchange rates since 2016. Excluding the negative impacts of the pending disposition of HIS and foreign exchange, revenue and adjusted diluted EPS guidance ranges reflect 4% and 10% operational growth, respectively.

Stock Performance

Pfizer’s stock finished the day at $32.08, slipping 0.47%, at the close on Tuesday, February 07th, 2017, having vacillated between an intraday high of $32.35 and a low of $31.94 during the session. The stock’s trading volume was at 23,281,653 for the day. The Company’s market cap was at $192.49 billion as of Tuesday’s close.

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