Pfizer Posts Slightly Weak Quarter, but Guidance Solid

Pfizer PFE reported fourth-quarter results that were slightly below our expectations, partly due to higher-than-expected marketing expenditures, but we don’t expect any major changes to our fair value estimate based on the results. In the quarter, sales from new drugs mitigated the generic pressures facing the firm, leading to a 1% operational sales decline (excluding the shift of consumer products to a joint venture). This ability to offset generic pressures with new drugs helps reinforce Pfizer’s wide moat.

With the decision to divest its older drug platform (Upjohn) to Mylan, the remaining part of Pfizer should be positioned for stronger growth. Its 2020 guidance for the remaining innovative biopharma group is 8%, which is slightly higher than our projections but looks achievable. We expect strong growth from cardiovascular drug Eliquis and rare heart disease drug Vyndaqel, along with cancer drugs Ibrance, Braftovi, and Mektovi, to help achieve the guidance. We believe some of the heavy marketing expense in the quarter was supportive of these new drugs.

Looking ahead, Pfizer’s pipeline looks poised to deliver strong data in 2020. We expect positive data on Pfizer’s new pneumococcal vaccine that offers broader coverage relative to Pfizer’s Prevnar 13 and Merck’s competitive vaccine. Also, data readouts for Ibrance (early-stage breast cancer) and abrocitinib (atopic dermatitis) hold strong potential.

The divestment of the older drug platform removes the typical sales drag that Pfizer faces each year. The pressures on sales growth this quarter included generic competition for neurology drug Lyrica. With the shift of these drugs to Mylan expected in mid-2020, Pfizer’s new drug platform will not need to offset major patent losses in the near term. Further, while the combined platform of Mylan and Pfizer’s older drugs will face pressures to grow, the profit margin on Pfizer’s older drugs is very strong, enabling robust cash flows.

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