Pfizer: Bad Quarter, Good Year, Better Outlook



Shares of Pfizer (NYSE:PFE) climbed as much as 2.4 percent in early trading on Tuesday after the biopharmaceutical company reported mixed fourth-quarter and full-year results. Fourth-quarter reported revenues contracted 2 percent on the year to $13.56 billion, falling below the mean analyst estimate of $16.27 billion, but adjusted earnings increased 22 percent on the year to 56 cents per share, beating the mean analyst estimate of 52 cents per share. Adjusted income increased 9 percent to $3.69 billion.

It’s important to note that adjusted fourth-quarter earnings “were significantly unfavorably impacted by the non-recurrence of income from discontinued operations attributable to the company’s Animal Health and Nutrition businesses, including the gain on the sale of the Nutrition business, in the year-ago quarter,” per the company. Reported (unadjusted) fourth-quarter net income fell 59 percent on the year to $2.57 billion, while earnings fell 54 percent to 39 cents per share.

“The just-completed year was highlighted by solid financial performance and shareholder-friendly capital allocation, a strengthening of our innovative core as well as the formation of our new commercial structure designed to enable each business to have a sharper focus on its distinct market opportunities and challenges,” said Pfizer chairman and CEO Ian Read. “We enter 2014 with confidence in the competitive positioning of our commercial businesses, the prospects for our recently launched products and the strength of our research pipeline.”

Whether Read’s optimism is well founded remains to be seen. Pfizer stock took a plunge — falling from about 5.1 percent from $31.27 to $29.66 — in the days before the earnings report following news that its lung cancer drug, dacomitinib, failed to meet its objectives in phase 3 trials. Dacomitinib is an investigational compound that has not been approved by regulatory bodies in any country. The drug has so far failed the two out of three different studies involved in the phase 3 trials (the third trial is underway).

Despite headwinds, full-year results were fairly strong. Reported revenues contracted 6 percent to $51.58 billion, above the mean analyst estimate of $49.72 billion. Adjusted income contracted 3 percent to $15.29 billion while adjusted earnings increased 6 percent to $2.22 per share, beating the mean analyst estimate of $2.14 per share. Unadjusted net income increased 51 percent for the full year to $22 billion, while earnings increased 64 percent to $3.19 per share.

“Regarding our financial performance, we achieved or exceeded all elements of our 2013 financial guidance despite an operating environment that remains challenging,” said CFO Frank D’Amelio in a company press release. “We completed two important strategic initiatives in 2013: the separation of our Animal Health business through the disposition of Zoetis, and the formation of the new commercial structure that was successfully implemented at the start of 2014.”

D’Amelio also highlighted Pfizer’s $16.3 billion share repurchases in 2013, which reduced outstanding shares of common stock by approximately 13 percent.

Looking ahead, Pfizer is expecting to report adjusted 2014 revenues in a range between $49.2 billion and $51.2 billion, a range that contains the current mean analyst expectation of $49.74 billion. Adjusted earnings are expected in a range between $2.20 and $2.30 per share, a range that also contains the current mean analyst expectation of $2.28 per share.

“Our guidance for adjusted revenues reflects the anticipated negative impact of approximately $3.0 billion due to recent and expected product losses of exclusivity, as well as the expiration and near-term termination of certain collaboration agreements that continue to significantly negatively impact alliance revenue, partially offset by anticipated revenue growth from certain other products,” said D’Amelio. Earnings expectations are moderated by plans for $5 billion in share repurchases.

Pfizer has lagged some of its major competitors on the stock chart over the past year. Pfizer stock is up about 11 percent on the year compared to a 22.4 percent gain for Merck (NYSE:MRK) and a 16.6 percent gain for Novartis AG (NYSE:NVS). Where Pfizer took a hit because of unfavorable phase 3 developments, shares of Merck recently hit a 52-week high after Morgan Stanley analyst David Risinger raised his rating on the company from from underweight to overweight in part because of favorable prospects for a new cancer drug. Merck is filing for approval for its new drug, currently known as MK-3475, a year earlier than anticipated. The drug is geared toward boosting the immune system to fight cancer.

Speaking to Market Watch, Risinger pointed out that Merck;s management “is taking the right steps — cost cuts [research and development], changes and considering strategic action — to boost [the] company’s outlook,” steps that every pharmaceutical company is taking right now as they deal with a changing health care landscape and patent expiration on flagship drugs.

For its part, Pfizer is looking forward to a busy year. “In the near term, we expect to report top-line results for the Phase 2 study for palbociclib in patients with post-menopausal, ER-positive, advanced breast cancer and for the CAPiTA study for Prevnar 13 in adults age 65 and older,” Pfizer’s CEO said in the earnings release. “In the near term, we expect to report top-line results for the Phase 2 study for palbociclib in patients with post-menopausal, ER-positive, advanced breast cancer and for the CAPiTA study for Prevnar 13 in adults age 65 and older.”