Pfizer, Inc. PFE is one of the biggest drugmakers in the world, boasting a diversified drug portfolio and a strong pipeline.
However, the current year has been tough for the company. After rallying 20.5% in 2018, the stock has declined 16.8% this year so far, reflecting a much steeper fall than the 0.8% decrease for the industry.
Pfizer has a Zacks Rank #4 (Sell). Its earnings estimates have moved 2.1% south for 2019 and 12.1% for 2020 over the past 60 days.
Pfizer lost exclusivity of its key drug Lyrica in the United Statesin July. This loss of exclusivity (LOE) of Lyrica and some other drugs is Pfizer’s main cause for concern in 2019. LOEs are expected to hurt current-year sales by $2.6 billion.
In July, along with the earnings, Pfizer lowered its previously issued sales and earnings guidance for 2019 to reflect the formation of the Consumer Healthcare joint venture with Glaxo GSK and the Array BioPharma acquisition.
Pfizer merged its Consumer Healthcare unit with Glaxo’s to establish a joint venture (JV). While the former owns 32% stake in the JV, the latter holds the remaining 68%. In July, Pfizer bought Array BioPharma for $48 per share in cash for a total enterprise value of approximately $11.4 billion in a bid to strengthen its cancer portfolio.
Other than this business development activity, an incremental negative impact of foreign exchange and unfavorable product developments in case of Prevnar (vaccine) and Xeljanz (autoimmune diseases) led to the guidance cut.
In July, Xeljanz’s prescribing information in the United States was updated by the FDA to include two additional boxed warnings as well as changes to the indication and dosing for ulcerative colitis indication following review of a post-marketing study. Pfizer stated on the second-quarter call that the label update may affect prescribing and sales in the future quarters.
Meanwhile, due to some unfavorable revisions in Advisory Committee on Immunization Practices’ (ACIP) pneumococcal vaccination guidelines for Prevnar 13 in adults across the United States, Pfizer expects some decline in demand for Prevnar, which can weaken sales in the future quarters.
Meanwhile, Pfizer’s sterile injectables portfolio is seeing lower revenues since the last few quarters due to persistent legacy Hospira product shortages in the United States. The company is facing supply scarcity for sterile injectable products, mainly due to capacity constraints and technical issues.
Importantly, in July, Pfizer announced a definitive agreement stating that it will spin off its Upjohn unit and combine it with the generic drugmaker Mylan MYL in a Reverse Morris Trust transaction to create a generic pharmaceutical company. Upjohn is Pfizer’s global, off-patent branded and generic established medicines business. This news did not go down well with investors and consequently, the stock declined post announcement. This downside is probably because the drugs divested were key cash flow generators for Pfizer and funded its R&D efforts. The divestiture of Upjohn will significantly lower Pfizer’s cash resources.
However, not everything is going wrong at Pfizer as it has its share of strengths. Pfizer gained an FDA approval for four new cancer medicines last year, which can boost its oncology sales in future years. Meanwhile, biosimilar versions of Roche’s cancer drugs Herceptin (Trazimera), Avastin (Zirabev) and Rituxan (Ruxience) were approved by the FDA in 2019, which can contribute to sales, once launched.
The company also flaunts a strong pipeline and looks well-positioned to deliver several new breakthrough innovative medicines with potential in the next five years. These medicines show promise to drive long-term growth. Pfizer expects approximately 25-30 drug approvals through 2022 including the nod for 15 products with blockbuster prospects. The recent acquisitions and licensing deals strengthened its product portfolio.
Strikingly, the Consumer Healthcare joint venture with Glaxo, the Array acquisition and the pending merger of Upjohn unit with Mylan, if successful, will make Pfizer a smaller entity with a diversified portfolio of innovative drugs and vaccines. The smaller Pfizer should see better revenue growth as the Lyrica LOE cliff will go away. Meanwhile, the company anticipates consistent solid growth of its key brands like Ibrance and Eliquis and biosimilars to aid sales in the second half.
Although it might not be a great idea for short-term investors to buy Pfizer’s stock, it can nonetheless prove to be a good investment option for long-term buyers.
A better-ranked large-cap pharma stock is Novartis NVS, carrying a Zacks Rank #2 (Buy). Novartis’ earnings estimates for 2019 have been revised 1.8% upward while that for 2020 raised 0.7% over the past 30 days. Novartis stock has returned 4.4% so far in 2019. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
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