Questions swirl around Pfizer's I-O efforts, dealmaking future amid Q4 EPS miss

As usual, Pfizer’s hot-shot breast cancer med Ibrance posted strong numbers in the fourth quarter, and this time slow-starting anti-inflammatory product Xeljanz did, too. But that still wasn't enough to bail Pfizer out on the earnings front.

The New York drugmaker fell short of analysts’ expectations, checking in with adjusted diluted earnings per share of 47 cents, compared with the 50 cents they had predicted. SG&A costs of $4.4 billion—nearly $300 million above expectations—were “a key contributor” to the miss, Credit Suisse analyst Vamil Divan wrote to investors Tuesday morning.

But those costs weren't the only problem. Vaccine powerhouse Prevnar, which had been a reliable big seller, was “quite light,” as Divan put it, kicking in just $1.42 billion compared with the $1.66 billion Street expectation. The vaccine faces a continued slowdown in the U.S. as it penetrates the 65-and-older market; right now, it's captured 50%, and Albert Bourla, the group president of Pfizer's innovative products division, acknowledged on Pfizer's conference call that "we are aware that vaccinating the remaining 50% is more challenging that vaccinating the first."

Overall, though, Ibrance and Xeljanz helped keep revenue in line at $13.63 billion for the quarter, with the former’s sales more than doubling year over year to hit $643 million. The cancer-fighter has now been prescribed by about 9,500 U.S. physicians, Bourla said, up from 8,500 in Q3. Xeljanz, for its part, saw its top-line haul swell by 62% to $278 million.

Those contributions also helped Pfizer hit the $52.8 billion revenue mark for the year, near the high end of the company’s $52 billion to $53 billion guidance range. For 2017, Pfizer is upping the ceiling, forecasting revenue between $52 billion and $54 billion, and EPS between $2.50 and $2.60.

Considering Pfizer’s dealmaking track record, it’s likely some new acquisitions will bolster that 2017 revenue figure before the year is out—especially with CEO Ian Read insisting on the call that the company won't put its M&A activities on hold to wait for changes to the U.S. tax code. And some analysts are wondering whether an immuno-oncology buy could be in the cards.

Related: Pfizer wants deals that can pad sales 'now or soon.' And it's not waiting for tax reform

As Bernstein’s Tim Anderson pointed out in a Monday note to clients, without a “backbone” PD-1/PD-L1 therapy to call its own—à la Merck’s Keytruda or Bristol-Myers Squibb’s Opdivo—it’s unclear whether Pfizer can be a leader in the “next wave of therapeutics,” as the company has said it’s aiming to be.

So why doesn’t the pharma giant just snatch up Bristol-Myers—whose shares are floundering on Opdivo setbacks—and call it a day?  After all, Pfizer’s never been one to shy away from megamergers, and CFO Frank D’Amelio said at the J.P. Morgan Healthcare Conference earlier this month that the company wants deals that can pad its top line “now or soon.”

The way Anderson sees it, though, swallowing BMS probably wouldn't make sense “until more clarity is gained on how the battle will shake out between ‘CTLA4 combo’ and ‘chemo combo,’" he wrote. On the one hand, if CTLA4 combos like Bristol-Myers’ Opdivo-plus-Yervoy prevail, Pfizer could wind up shelling out more money. But if chemo combos reign supreme? “Having the value of the target change materially for the worse could make management look bad,” Anderson wrote, adding, “This is a conundrum.”