Company overview - Pfizer Inc. (Pfizer) is a research-based global biopharmaceutical company. The Company is engaged in the discovery, development and manufacture of healthcare products. Its global portfolio includes medicines and vaccines, as well as consumer healthcare products. The Company manages its commercial operations through two business segments: Pfizer Innovative Health (IH) and Pfizer Essential Health (EH). IH focuses on developing and commercializing medicines and vaccines, as well as products for consumer healthcare. IH therapeutic areas include internal medicine, vaccines, oncology, inflammation and immunology, rare diseases and consumer healthcare. EH includes legacy brands, branded generics, generic sterile injectable products, biosimilars and infusion systems. EH also includes a research and development (R&D) organization, as well as its contract manufacturing business. Its brands include Prevnar 13, Xeljanz, Eliquis, Lipitor, Celebrex, Pristiq and Viagra.


PFE Details

Impacted by adverse forex movement: Second-quarter 2017 revenues totalled $12.9 billion, a decline of $251 million, or 2% compared to the prior-year quarter, reflecting a slight operational decline of $48 million and the unfavourable impact of foreign exchange of $202 million. Excluding the revenues for HIS in both periods and the unfavourable impact of foreign exchange, revenues increased by $248 million, or 2%. Further, excluding the net impact of acquisitions and divestitures completed in 2016 and the first six months of 2017 were flat operationally compared to second-quarter 2016. During the first six months of 2017, Pfizer returned $8.9 billion directly to shareholders, through a combination of $3.9 billion of dividend payments, composed of $0.32 per share of common stock in each of the first and second quarters of 2017; and a $5.0 billion accelerated share repurchase agreement executed in February 2017 and completed in May 2017, which resulted in a reduction of approximately 150 million shares of Pfizer’s outstanding common stock. As of August 1, 2017, Pfizer’s remaining share repurchase authorization was approximately $6.4 billion.


Income Statement summary; (Source: Company reports)
 
Innovative Health division: IH revenues increased 9% operationally in second-quarter 2017, driven by continued growth from key brands including Ibrance and Eliquis globally, the addition of Xtandi revenues in the U.S. resulting from the September 2016 acquisition of Medivation, as well as Xeljanz and Lyrica, both primarily in the U.S. Global Ibrance revenues increased 67% operationally while global operational revenue growth for Eliquis and Xeljanz was 52% and 56%, respectively. Second-quarter 2017 operational growth was negatively impacted by lower revenues for Enbrel in most developed Europe markets, primarily due to continued biosimilar competition. Global Prevnar 13/Prevenar 13 revenues declined 7% operationally in second-quarter 2017. In the U.S., Prevnar 13 revenues decreased 16%, primarily due to the unfavourable timing of government purchases for the paediatric indication and the continued decline in revenues for the Adult indication due to a smaller remaining “catch up” opportunity compared to the prior-year quarter.

Essential Health: During Q2FY17, EH (Essential Health) revenues declined 12% operationally, of which 5% operationally was due to the February 2017 divestiture of HIS. EH revenues were also negatively impacted by a 27% operational decline from Peri-LOE Products, including declines in Pristiq in the U.S., which lost marketing exclusivity in the U.S. in March 2017, as well as Vfend and Lyrica, both in developed Europe, and a 3% operational decline from Legacy Established Products (LEP). However, these declines were partially offset by 60% operational growth from Biosimilars, primarily driven by Inflectra in certain developed Europe markets and in the U.S. Developed markets revenues declined 18% operationally, of which 5% operationally was due to the February 2017 divestiture of HIS. EH developed markets revenues were also negatively impacted by a 40% operational decline from Peri-LOE Products and a 9% operational decline from the LEP portfolio, partially offset by 63% operational growth from Biosimilars. However, revenues in emerging markets grew 5% operationally, primarily driven by 7% operational growth from the LEP portfolio and 10% operational growth from the SIP portfolio. Excluding HIS from both periods, EH revenues in emerging markets grew 6% operationally.
 

Pfizer Essential Health pipeline; (Source: Company reports)
 

Recent Product Developments:

Bavencio (avelumab): In July 2017, Merck KGaA, Darmstadt, Germany (Merck KGaA) and Pfizer announced that the Committee for Medicinal Products for Human Use (CHMP) of the European Medicines Agency (EMA) recommended the approval of avelumab as a monotherapy for the treatment of adult patients with metastatic Merkel cell carcinoma (mMCC), a rare and aggressive skin cancer. The European Commission (EC) will now review the CHMP’s recommendation, with a decision expected in the third quarter of 2017. Bavencio was previously granted accelerated approval from the U.S. Food and Drug Administration (FDA) for the treatment of adults and paediatric patients 12 years and older with mMCC based on tumor response and duration of response. Further, continued FDA approval for this indication may be contingent upon verification and description of clinical benefit in confirmatory trials.


Avelumab Registrational Program; (Source: Company reports)

Besponsa (inotuzumab ozogamicin): Recently, Pfizer announced that the EC approved Besponsa as monotherapy for the treatment of adults with relapsed or refractory CD22-positive B-cell precursor acute lymphoblastic leukemia (ALL). This indication includes treatment of adults with Philadelphia chromosome positive (Ph+) as well as Philadelphia chromosome negative (Ph-) relapsed or refractory B-cell precursor ALL. With this approval, Besponsa became the first and only antibody drug conjugate (ADC) available for patients with this type of leukemia in the European Union (EU). In the U.S., Besponsa received Breakthrough Therapy designation from the FDA in October 2015 for ALL. A Biologics License Application (BLA) for Besponsa for the treatment of adult patients with relapsed or refractory B-cell precursor ALL was accepted for filing and granted Priority Review by the FDA in February 2017.


Pfizer Oncology pipeline; (Source: Company reports)

Retacrit (proposed epoetin alpha biosimilar): The company has received a Complete Response Letter (CRL) from the FDA regarding the Company’s BLA for its proposed epoetin alfa biosimilar. This CRL relates to matters noted in a Warning Letter issued in February 2017 following a routine FDA inspection of Pfizer’s manufacturing facility in McPherson, Kansas in 2016. This facility was listed as the potential manufacturing site in the BLA for the proposed epoetin alfa biosimilar. The issues noted in the Warning Letter do not relate specifically to the manufacture of epoetin alfa. No additional clinical data was requested in the CRL.


Potential for up to 15 Blockbuster Approvals over next 5 Years; (Source: Company reports)

Xtandi (enzalutamide): Astellas Pharma Inc. (Astellas) and Pfizer announced the amendment of the protocol for the registrational PROSPER trial, a multi-national, randomized, double-blind, placebo-controlled study evaluating the efficacy and safety of Xtandi in patients with non-metastatic castration-resistant prostate cancer (CRPC). The primary endpoint of the PROSPER trial remains the same as metastasis-free survival. The main purpose of the amendment is to revise the plan for the analyses of the primary and several secondary endpoints, which allows for a reduction in the target sample size to approximately 1,440 from 1,560 patients. The companies now anticipate PROSPER top-line results will be disclosed later this year. Previously the expected primary completion date for PROSPER was June 2019. Xtandi is currently approved by the FDA for the treatment of patients with metastatic CRPC.


Breakthrough Medicines to Patients; (Source: Company reports)

Pipeline Developments: Product pipeline includes Pfizer’s research and a list of compounds in development with targeted indication and phase of development, as well as mechanism of action for some candidates in Phase 1 and all candidates from Phase 2 through registration.

Talazoparib (MDV3800): Pfizer announced Phase 2 data showing that its investigational, dual-mechanism poly ADP ribose polymerase (PARP) inhibitor, talazoparib, demonstrated anti-tumor activity in patients with germline (inherited) BRCA1/2-positive (gBRCA+) advanced breast cancer. Results from the Phase 2 ABRAZO trial were presented during an oral session at the 53rd Annual Meeting of the American Society of Clinical Oncology (ASCO). ABRAZO is an open-label Phase 2, two-stage, single arm, parallel cohort study that investigated the clinical efficacy and safety of single-agent talazoparib in 83 evaluable, heavily pretreated gBRCA+ advanced breast cancer patients. The primary endpoint was objective response rate (ORR) by independent radiology review. Cohort 1 consisted of 49 patients who previously responded to platinum-based chemotherapy and subsequently developed disease progression. A 21% ORR (95% CI: 10-35) was observed in this group of patients. Cohort 2 consisted of 35 patients who developed disease progression following at least three lines of non-platinum-based therapy. This group of patients had a 37% ORR (95% CI: 22-55). Talazoparib is also being assessed in the open-label Phase 3 randomized, parallel, two-arm EMBRACA trial. EMBRACA is evaluating talazoparib vs. protocol-specific physician’s choice of chemotherapy in patients with advanced and/or metastatic gBRCA+ breast cancer who have received zero to three prior chemotherapy regimens for advanced disease. The EMBRACA trial has completed enrolment and top-line results are expected by January 2018.


Talazoparib - An Investigational PARP Inhibitor; (Source: Company reports)

2017 Financial guidance: The midpoint of the guidance range for Adjusted diluted EPS was increased by $0.02 to an updated range of $2.54 to $2.60, reflecting a $300 million increase to the guidance for Adjusted Other (Income)/Deductions due to lower-than-forecasted net interest expense as well as higher-than-forecasted royalty income from certain products and dividend income from ViiV Healthcare Ltd. (ViiV). Additionally, the updated financial guidance absorbs $75 million of Adjusted research and development expenses(2) that were recorded in second-quarter 2017 resulting from our May 2017 agreement with Sangamo Therapeutics, Inc. (Sangamo) to develop and commercialize gene therapy programs for Hemophilia A. The midpoint of our new guidance range for adjusted diluted EPS represents 7% growth compared with last year. Pfizer has a strong pipeline with a steady flow of scientific innovation coming from all of key therapeutic areas. Over the next five years, the company expects the potential for approximately 25 to 30 approvals of which up to 15 have the potential to be blockbusters, and the company believe half of these potential blockbusters could receive approval by 2020.


2017 Financial Guidance; (Source: Company reports)

Stock performance: The shares of Pfizer have declined 10.7% in the last one year, while it is up 38% in the last five years. Importantly, the company has a robust product pipeline with stable dividend. Given the on-going investments in Oncology portfolio, and cost control measures, we give a “Buy” recommendation on the stock at the current market price of $32.92


PFE Daily chart; (Source: Thomson Reuters)
 

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