Pfizer Inc. (PFE) posted second quarter 2013 earnings of 56 cents per share, a couple of cents above the Zacks Consensus Estimate but 5% below the year-ago earnings. Revenues, which fell 7% to $12.9 billion, missed the Zacks Consensus Estimate of $13.1 billion.
Revenue growth was impacted by the loss of exclusivity of certain products and purchasing patterns for Prevnar/Prevenar in some markets.
The Quarter in Detail
While foreign exchange cut second quarter revenues by $392 million or 3%, operational factors impacted revenues negatively by $603 million or 4%.
International revenues declined 9% to $7.9 billion. Meanwhile, U.S. revenues declined 4% to $5.1 billion.
Biopharmaceutical products delivered second quarter revenues of $12.1 billion, down 8%. While the Primary Care, Established Products and Specialty Care units recorded a decline in revenues, Oncology and Consumer Healthcare posted an increase in revenues. Emerging Markets remained flat.
The Primary Care unit recorded a 17% decline in revenues, which came in at $3.3 billion. Factors like the shifting of Lipitor to the Established Products unit, the Dec 2012 termination of the co-promotion agreement for Aricept in Japan and lower share in Spiriva revenues led to the decline. However, Lyrica continued to perform well with sales coming in at $1.1 billion, up 10%.
Specialty Care segment sales declined 3% to $3.4 billion. The segment was impacted by the timing of U.S. government purchases of Prevnar, the conclusion of a supplemental dose program in Asia, and the shift in the reporting of Geodon and Revatio revenues in the U.S. and Xalabrands revenues in developed Europe and Australia.
Established Products revenues declined 11% to $2.4 billion due to the presence of several generic versions of Lipitor and competitive and pricing pressure.
Lipitor was hit hard by the loss of exclusivity in the U.S. Pfizer saw Lipitor revenues fall 71% to $86 million in the U.S. Generic competition increased with the entry of additional players in the market.
The second quarter saw revenues from Emerging Markets remain flat at $2.6 billion. Pfizer expects the second half of the year to be stronger for its emerging markets business, especially in China and expects this segment to deliver mid single-digit operational revenue growth in 2013.
Consumer Healthcare revenues increased 4% to $800 million benefiting from strong growth for Centrum. Oncology sales increased 24% to $399 million with performance being driven by Inlyta ($71 million) and Xalkori ($67 million) in several key markets.
Selling, informational and administrative (SI&A) expenses declined 3% to $3.6 billion during the quarter. R&D expenses fell 3% to $1.5 billion. Pfizer remains committed to its cost-containment efforts and should realize cost savings due to workforce reductions, actions taken with the R&D portfolio, as well as savings from a smaller physical footprint.
Outlook Maintained
Pfizer maintained its outlook for 2013. Pfizer expects earnings of $2.10 – $2.20 per share on total revenues of $50.8 billion – $52.8 billion. Pfizer continues to expect SI&A spend of $14.2 to $15.2 billion and R&D spend of $6.1 to $6.6 billion. The current Zacks Consensus Estimate of $2.16 per share is within the company’s guidance range.
Meanwhile, a new share buyback program for $10 billion was announced. This is in addition to the $3.1 billion remaining under Pfizer’s earlier share buyback program
Just before reporting second quarter 2013 results, Pfizer had announced its intention to separate its commercial operations into three business segments – while two of these will include Innovative business lines, the third will comprise the Value business line. One of the Innovative segments will include products that will have patent protection beyond 2015 while the other will focus on vaccines, oncology and consumer healthcare.
The Value segment will include products generating strong and consistent cash flow. Apart from including products that have lost market exclusivity, mature, patent-protected products that are expected to lose exclusivity through 2015 in most major markets will also be a part of this segment. Moreover, this segment will include biosimilars and collaborations for established products like the company’s partnerships with Mylan (MYL) in Japan, Teuto in Brazil and Hisun in China.
All three segments will reflect the performance of developed as well as emerging markets. Pfizer will start reporting in this format from the first quarter of 2014.
Pfizer currently carries a Zacks Rank #3 (Hold). Pfizer’s second quarter results were mixed with earnings slightly above expectations and revenues continuing to lag expectations. We believe revenues will remain under pressure due to genericization and the expiration of a few co-promotion agreements. However, cost-cutting efforts and share buybacks should help the company achieve its earnings guidance.
At present, Johnsons & Johnson (JNJ) looks well-positioned with a Zacks Rank #2 (Buy). Actelion Ltd. (ALIOF), which is a Zacks Rank #1 (Strong Buy) stock also looks well-positioned.
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