Pfizer’s Medivation boost overshadowed by weak Q3 earnings and PCSK9 bow-out

By Arlene Weintraub Nov 1, 2016 11:10am

Investors knew that Pfizer’s $14 billion acquisition of Medivation and its prostate cancer drug Xtandi would immediately boost the pharma giant’s earnings, but they didn’t know they’d have to balance out that gain with the loss of the company’s experimental cholesterol-lowering med bococizumab and higher-than-expected spending throughout the company.

Until today.

In conjunction with its third-quarter earnings report, Pfizer said it is bowing out of the market for PCSK9-inhibiting cholesterol drugs. Citing bococizumab's diminished effects on cholesterol over time in clinical trials, as well as an unfavorable side-effect profile, Pfizer said it would not even try to compete with the two PCSK9 inhibitors on the market, Amgen’s Repatha and Sanofi and Regeneron’s Praluent. The decision will shave 4 cents per share off its projected earnings range for this year, Pfizer reported.

That might not be seen as such a bad decision, considering that Repatha and Praluent are both struggling to catch on in the market, but Pfizer's high spending is also dragging down earnings. The company reported that its sales grew 8% to $13 billion during the quarter but earnings fell 38% to $1.32 billion (21 cents per share). Take out charges for acquisitions and other one-time events and EPS totaled 61 cents per share, which missed analysts’ estimates by a penny, according to Zacks.

In addition to picking up Medivation in September, Pfizer bought Anacor Pharmaceuticals in June and Hospira last fall. Its R&D and selling and administration expenses in the third quarter both rose 9% year-over-year to $1.9 billion and $3.3 billion, respectively. The company narrowed the range of its full-year earnings forecast toward the low end, to $2.38 to $2.43 per share from $2.38 to $2.48.

During a conference call with analysts, CEO Ian Read insisted that the acquisitions would ultimately prove to be a good strategy. “This has enhanced our near-term growth potential by expanding our footprint in the highest growth therapy areas, including biosimilars [and] oncology,” he said.

There were some bright spots during the third quarter, including better-than-expected sales of some key products. Revenues from pain pill Lyrica jumped 11% to $1 billion, for example, while cancer drug Ibrance more than doubled its sales year-over-year, to $550 million from $230 million. And Pfizer said it’s about to start shipping Inflectra, its biosimilar of Johnson & Johnson’s blockbuster rheumatoid arthritis treatment Remicade.

Still, Inflectra is no sure sell. Last week, during its third-quarter earnings release, J&J said it was preparing for Pfizer’s Remicade rival with a comprehensive “readiness plan” that includes sending out an army of sales reps to remind physicians that its original version of the drug, which brought in $1.8 billion in sales just in the last quarter, has a strong scientific track record and a generous patient-assistance program.

Then there are questions about whether Pfizer’s massive investment in Medivation will pay off in the long run. The company expects the addition to add 5 cents to earnings in the first full year after it closed, thanks to high expectations for Xtandi and for pipeline hopeful talazoparib, a PARP inhibitor it is testing in various cancers. But talazoparib will face competition, most notably from Tesaro, which recently presented impressive data on its PARP inhibitor, niraparib, in women with recurrent ovarian cancer.

As for whether Pfizer’s appetite for M&A will remain strong, Read is unflinching in his willingness to deploy the company’s capital towards strengthening the pipeline. “Our appetite for continued acquisitions or investments in business development remains firm,” he said during the earnings call, “and I don't believe we are limited on the size.”

cardiovascular disease M&A Oncology PCSK9 Pfizer Financials Manufacturing