Pfizer Inc. (NYSE: PFE) is BUY. Other growth engines are the vaccines and antivirals Pfizer is developing to combat COVID-19.
Upjohn has well-known brands (Viagra, Cialis, Lyrica); however, its revenue is declining and its key products have lost patent protection and market exclusivity.
Pfizer has pushed back its timeline for the COVID-19 vaccine that it is co-developing with BioNTech. It now expects that by the third week of November it will have sufficient safety data to make a decision on whether to apply for Emergency Use Authorization (EUA) in the U.S., assuming the vaccine shows positive efficacy. However, even assuming a best-case scenario on this timeline, Pfizer’s vaccine would not be broadly available by January 1. This means the vaccine would be restricted to a very limited population. Pfizer’s contract with the U.S.
GAAP net income fell to $2.194 billion or $0.39 per share, down from $7.680 billion or $1.36 a year earlier. The prior-year quarter included a gain of $8.1 billion from the sale of the Consumer Health business to a joint venture with GlaxoSmithKline.
Revenue totaled $12.1 billion (-4% as reported). Excluding the sale of the Consumer Healthcare business in August 2019, revenue declined 1% on a currency-neutral or operational basis.
Since Pfizer plans to spin off the Upjohn business, which includes legacy and off-patent products such Viagra, Lyrica, Lipitor and other generic medicines, segments results are reported separately for Upjohn and the Biopharma business. The latter is the core of the New Pfizer that will remain after the spinoff.
Biopharma revenue increased 4% on an operational basis to $10.2 billion. This was driven by strong sales of Vyndaqel, Eliquis, Ibrance, Inlyta, Xeljanz, Xtandi, and biosimilars.
The Upjohn segment had revenue of $1.9 billion (-18%), reflecting declining U.S. sales of mature drugs such as Lipitor, Lyrica, Celebrex and Viagra. Viagra is still growing in overseas markets.
Pfizer reaffirmed that the separation of Upjohn and its combination with Mylan would be completed in 4Q20.
The Biopharma business includes several promising pipeline programs, which will be crucial in helping Pfizer to achieve its post-spinoff goal of 6% compound annual revenue growth through 2025. Key pipeline developments include:
The FDA has provided a decision date of April 2021. A Phase 3 study demonstrated superior results for abrocitinib in skin clearance, disease extent, and severity, as well as improved itch reduction, versus placebo.
Pfizer plans to begin a Phase 3 study of this therapy before the end of 2020.
Somatrogon, which treats growth hormone deficiency in children, demonstrated positive Phase 3 results. Pfizer plans to file a biologics license application for Somatrogon in 4Q20. In the Phase 3 trial, Somatrogon in a once-weekly dose met its primary endpoint of noninferiority to daily Genotropin for improvement in height velocity at 12 months. Somatrogon also met key secondary endpoints for improvement in six-month height velocity. Genotropin is approved for children and adults.
EARNINGS & GROWTH ANALYSIS
Pfizer has updated its guidance for 2020. For the consolidated New Pfizer/Upjohn, it now expects adjusted EPS of $2.88-$2.93, compared to a prior view of $2.85-$2.93. This revision tightens the range and raises the midpoint by $0.01. It also expects revenue of $48.8-$49.5 billion, compared to a prior range of $48.5-$50.5 billion. It projects a cost of sales of 20.2%-20.7% of revenue, up from 19.5%-20.5%, and adjusted R&D costs of $8.8-$9.1 billion, up from $8.6-$9.0 billion. The higher cost of sales and higher R&D reflect increased COVID-related costs.
Since the spinoff transaction has received antitrust clearance, we expect it to close before the end of 2020, and possibly in November.
Pfizer’s vaccine candidates and antivirals combatting COVID-19 are additional potential revenue drivers.