Pfizer easily beat Wall Street expectations as the biggest U.S. drugmaker’s first-quarter net income jumped 27 per cent due to higher sales, lower taxes and one-time gains. The company raised its 2016 financial forecasts, citing the strong quarter and an improved business outlook, sending shares up more than 3 per cent.
Four weeks after dropping its record $160 billion deal to buy fellow drugmaker Allergan Plc and move its headquarters on paper to Ireland to reduce its taxes, New York-based Pfizer Inc. surprised investors with the better-than-expected results and forecast.
The company had said the Allergan deal, which was blocked by new Treasury Department rules, was needed to help Pfizer compete with European rivals who face lower tax rates. Pfizer now plans to concentrate on operational efficiency, product development, and “shareholder-friendly capital allocation” in the near term, while deciding late this year whether to sell or spin off its established products business, which sells older, mostly off-patent drugs.
Some analysts and investors have pushed Pfizer for years to separate that business to accelerate growth, which the company until now has tried to achieve with acquisitions and more partnerships to develop new medicines.
On Tuesday, Pfizer reported first-quarter net income of $3.02 billion, or 49 cents per share. That was up from $2.38 billion, or 38 cents per share, in 2015’s first quarter, despite higher spending on product manufacturing, marketing and administration. Meanwhile, Pfizer’s tax rate dropped from 24.4 per cent to 3.8 per cent.
Adjusted profit was 67 cents per share, 12 cents better than analysts expected.
“Pfizer needed good news to make up for the disappointing failure of the Allergan merger,” said Erik Gordon, a professor and analyst at University of Michigan’s Ross School of Business, adding, “the quarter may be its best” this year.
The maker of Viagra and pain treatment Lyrica posted revenue of $13.01 billion, up 20 per cent and above the $11.97 billion analysts expected. About 20 per cent of sales came from China and other emerging markets.
Pfizer Chief Financial Officer Frank D’Amelio noted it was the sixth straight quarter with operational revenue growth — impressive because Pfizer continues to endure new generic competition cutting its sales more than double the industry’s average level.
Generic competition reduced sales by $300 million in the quarter and should reduce sales by $2.3 billion in 2016 as cheaper copycat versions of Viagra, Lyrica and antibiotic Zyvox arrive in various countries.
Sales got a lift from more-favourable currency exchange rates, plus $1.2 billion in new revenue from Pfizer’s $15 billion purchase last September of injectable drug maker Hospira. That made Pfizer the global leader in injectable drugs, including new, slightly cheaper biotech drugs known as biosimilars.
CEO Ian Read told analysts on a conference call that Pfizer expects this year to launch just-approved Inflectra, a biosimilar of Johnson & Johnson blockbuster Remicade, a pricey biotech medicine for inflammatory disorders. It’s only the second biosimilar approved in the U.S., though Pfizer already sells it and two others elsewhere.
Read noted Pfizer has made “excellent progress” integrating Hospira and now expects $200 million more in related cost savings, for $1.0 billion altogether by 2018.
Higher revenue was driven by big sales jumps for top drug Lyrica, to $1.23 billion; vaccine Prevnar 13, for pneumonia and related pneumococcal infections, to $1.51 billion; new breast cancer drug Ibrance, to $429 million, and injectable drugs, to $1.52 billion. Also, five more selling days compared to the year-ago quarter boosted revenue by $900 million; that will be offset by fewer selling days in the fourth quarter.
Pfizer said it now expects 2016 earnings of $2.38 to $2.48 per share, up from January’s forecast of $2.20 to $2.30, and revenue of $51 billion to $53 billion, up by $2 billion.
It began a $5 billion accelerated share repurchase program in March, after buying back $50.7 billion of stock since 2010.
“Pfizer remains a company in flux. In 2011 it articulated a future where, because of past M&A, the company would likely split itself up. Yet, it has once again gone down the path of M&A,” Sanford C. Bernstein LLC analyst Dr. Tim Anderson wrote to investors. “At current prices, the stock is cheap relative to peers, (as) has often been the case over the last decade.”
Since 2000, Pfizer has grown primarily through mega-acquisitions of Wyeth and two other drugmakers, followed by buying Hospira last year. It unsuccessfully tried to buy AstraZeneca in 2014 and then Allergan this year.
In afternoon trading, Pfizer shares rose $1.09, or 3.3 per cent, to $33.89, while the broader markets all declined.
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