Pfizer Inc. (NYSE:PFE)
saw a strong pullback earlier this month, with its stock tumbling over 6% after reporting first-quarter earnings results. Meanwhile, fellow drug maker Merck & Co., Inc. (NYSE:MRK)
was down over 4% for similar reasons. Does this present investors with a buying opportunity? Quite possibly so; however, not all drug makers are created equally.
After the pullback, Pfizer trades at 12.3 times forward earnings and Merck & Co., Inc. (NYSE:MRK) at 12 times, which is pretty cheap compared to Bristol-Myers Squibb Co. (NYSE:BMY)
at 18.5 times.
Pfizer Inc. (NYSE:PFE) was down nearly 6% after lowering EPS guidance. It posted Q1 EPS of $0.54, below consensus of $0.56. The drug maker also cut full year 2013 EPS estimates from $2.20 – $2.30 to $2.14 – $2.24. Its revenue from established products was also down 16% last quarter on a year over year basis due to several generic versions of Lipitor. Specifically, Pfizer saw Lipitor revenue fall 55% year over year last quarter.
Pfizer Inc. (NYSE:PFE) should see issues related to top line growth going forward due to the upcoming loss of patent exclusivity on Lipitor, Norvasc, Protonix, Camptosar, and Zoloft, as well as other upcoming expirations. Another key drug, Chantix, was severely affected by safety-related issues. Chantix, an oral nicotinic partial agonist for smoking cessation, had initially delivered solid sales. Yet, U.S. sales have been hit ever since Pfizer updated the product label in 2008 to include a potential relationship between Chantix use and neuropsychiatric symptoms. Chantix worldwide sales declined 7% in 2012.
Pfizer Inc. (NYSE:PFE) has a number of notable patent expirations coming up. The company’s major expirations are outlined below.
| Drug || 2012 Revenue || Patent Expiration (U.S.) |
|Celebrex ||$2.71 billion ||2014 |
|Zyvox ||$1.34 billion ||2015 |
|Lyrica ||$4.15 billion ||2018 |
|Chantix ||$670 million ||2020 |
|Sutent ||$1.23 billion ||2021 |
The upcoming inflow of generic competition will put downward pressure on the company’s revenue and pricing.
Bristol-Myers reported Q1 EPS dropping 36% year over year to $0.41, $0.02 below forecast. Apart from announcing financial results, Bristol-Myers reaffirmed its adjusted earnings guidance for 2013 provided in January. The company still expects adjusted 2013 earnings in the range of $1.78 to $1.88 per share. Recent numbers were impacted by last year’s Plavix patent expiration.
The genericization of Plavix and Avapro in early 2012 has resulted in significant loss of revenue. What’s more concerning is that Bristol’s replacement pipeline for new drugs is lacking. Back in August, Bristol voluntarily suspended a phase II study evaluating hepatitis-C candidate, BMS-986094, following heart failure of a patient in the trial.
Merck & Co., Inc. (NYSE:MRK) has been down over 4% after its recent earnings announcement. Q1 EPS was $0.85 per share, above consensus of $0.78. Meanwhile, revenue for the quarter fell 9% year over year and earnings fell 7% due to genericization of Singulair and a few other products. However, I think Merck could be one of the top picks in the industry.
In conjunction with earnings, Merck & Co., Inc. (NYSE:MRK) lowered its 2013 outlook, due to pressure on sales. The drug company now expects earnings in the range of $3.45 and $3.55 per share, down from its earlier guidance of $3.60 to $3.70 per share. Although the EPS outlook was lowered, the company also announced a new share buyback program under which it will use up to $15 billion to buy back shares, with half to used up over the next twelve months.