Pfizer's suffering from generics, but 'innovation for growth'—not big M&A—is still the mantra

Pfizer’s M&A strategy is always a topic of interest, but that interest has ramped up with the company’s recent CEO switch. So far, though, new chief Albert Bourla is sticking with the company line when it comes to deal-making—even in the face of a 2019 revenue forecast that's essentially flat.

As Bourla laid out on Tuesday’s fourth-quarter earnings conference call, “business development is not a strategy—it is a way to execute our strategy.” And that strategy is one he’s calling “innovation for growth,” which involves growing the company’s top line through the introduction of breakthrough drugs.

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That's not going to goose sales upward this year, what with Lyrica generics taking their toll, but two factors make Pfizer confident this is the right path forward: a nice long run without another patent cliff that should extend to the middle of next decade, and a portfolio of candidate drugs that Bourla called Pfizer’s “greatest pipeline ever.”

And “when we have that hand to play, we need to maximize the chances of achieving the potential of those new launches. This means that execution is extremely important,” and a big transaction requiring thousands of people to work toward integration could “derail us,” Bourla said.

While Pfizer has been repeating the “small deals only” mantra for three straight quarters now, the questions aren’t likely to go away any time soon. After all, it wasn’t long ago that the company was going after products that could chip in to the top line “now or soon,” as CFO Frank D'Amelio put it at 2017’s J.P. Morgan Healthcare Conference.

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But that was a different time, Bourla insists, and the company needed to add revenue streams to enhance a growth profile “that was actually very bad.” But in 2019, Pfizer has a slew of new products to grow, as well as a series of new opportunities for its more established drugs.

Take Xeljanz, for one, biopharma president Angela Hwang said on the call. It’s got new indications in psoriatic arthritis and ulcerative colitis, and one-third of the therapy’s fourth-quarter volume growth came from those new indications. In ulcerative colitis, Xeljanz has also already surpassed Johnson & Johnson’s Simponi when it comes to new patient share.

Xtandi is another drug where new nods could come up big for Pfizer, Hwang said. In non-metastatic castration-resistant prostate cancer, where it rolled out last summer, “we’ve seen very positive trends,” she said. Xtandi’s market share is quadruple that of J&J competitor Erleada, a follow-up to Zytiga, though sales may not reflect it yet, with new patients “coming in every day.” She also called Xtandi’s opportunity in hormone-sensitive patients “the one we’re really excited about,” thanks to a longer duration of therapy.

Ibrance, too, is poised to make a splash in the adjuvant breast cancer market down the line, with two key studies ongoing that have the potential to double the number of eligible patients on the CDK 4/6 inhibitor. And for now, the blockbuster is clinging to more than 90% of the total class volume, despite competition from Novartis’ Kisqali and Eli Lilly’s Verzenio.

Those drugs all helped the company tie consensus revenue estimates with $14 billion in sales and edge the profit forecast by one cent with earnings per share of 64 cents. For this year, though, Pfizer’s earnings guidance sits below what Wall Street expected: The company projects earnings to share to fall between $2.82 and $2.92.

“Excluding the impact of currency fluctuations and 2018 gains on equity investments, the top and bottom line in 2019 are expected to be roughly flat,” Credit Suisse analyst Vamil Divan wrote to clients, predicting the guidance would “lead to some further pressure on Pfizer shares today.”