Markets
PFE

5 Things Pfizer Inc.'s Management Wants You to Know

Big pharma giant Pfizer reported its second quarter earnings results two weeks ago, reminding shareholders that the patent cliff is very real, and that its operations are going through a sizable shift.

For the quarter, Pfizer reported that revenue slipped 2%, or $200 million, to $12.77 billion. Profits were also a mixed tale with Pfizer's adjusted income dipping 6% and its adjusted EPS rising 4%. The company also lowered its full-year revenue guidance due to generic competition entering the market against Celebrex.

Pfizer investor presentation , Source: Pfizer.

However, Pfizer's earnings report only scratches the surface of what's going on at the world's largest pharmaceutical company.

That's why today we're going to take a closer look at the five most important quotes from Pfizer's conference call, courtesy of S&P Capital IQ , in order to get a better understanding of where the company is headed next.

Buybacks are here to stay

Source: Steven Depolo , Flickr.

With Pfizer's top-line growth stymied by the loss of exclusivity on key drugs it's turning to incentives for shareholders, including stock buybacks. According to Frank D'Amelio, Pfizer has returned $53 billion to shareholders from 2011-2013, which equates to almost 30% of its current market cap!

Share buybacks do have the positive effect of reducing the number of shares outstanding, which can in turn boost EPS if income remains constant. The idea here is that rising EPS could make Pfizer appear inexpensive relative to its peers and boost its share price, benefiting shareholders.

Of course, investors would be wise to pay more attention to the company's apples-to-apples net income figure rather than its EPS since share buybacks can also mask stagnant growth as we saw during the second quarter.

Palbociclib could become a big catalyst

Pfizer's management team had a lot to say about the company's developing pipeline, but no drug stands out as a larger potential game-changer for the company than first-line ER-positive, HER2-negative breast cancer drug hopeful palbociclib.

As a breakthrough therapy designated drug, palbociclib met its primary endpoint in the midstage PALOMA-1 study and delivered progression-free survival of 20.2 months compared to just 10.2 months for the control arm. This accelerated new drug application acceptance by the Food and Drug Administration is a potentially key near-term catalyst which could add some pop to Pfizer's sales beginning in 2015. Peak annual sales estimates for palbociclib range wildly between $2 billion and $5 billion, and it remains a key cornerstone, in my opinion, of Pfizer's oncology portfolio.

M&A: It's not a matter of if, but when

If there was a prevailing theme during Pfizer's conference call and its Q&A session afterwards, it revolved around the possibility of Pfizer breaking up its business or pursuing additional acquisitions.

Pfizer has essentially come to terms with the idea that it needs to buy growth in addition to its existing pipeline products. Although Read noted that Plan A still remains the company's internal pipeline, Read's made it obvious that acquisitions, including those which could result in a corporate tax inversion that sees Pfizer moving its corporate headquarters overseas, remain a viable possibility. Investors should certainly keep their eyes and ears open as Pfizer still has an appetite for deals.

Emerging markets are vital to Pfizer's growth

Though business development activity and the development of new compounds took center stage, I believe a long-lost "hero," so to speak, of Pfizer's quarterly results was its strong emerging markets growth.

For the quarter, emerging market revenue rose 11% operationally, although it's not a big enough component of Pfizer's total sales to make a huge impact... yet! The big overseas growth driver which is going to be a critical component to Pfizer's success in the second half of this decade is China. As Frank D'Amelio noted above, China delivered incredible growth; and it did so with legacy brands that Pfizer understands how to market backwards and forwards. Lipitor, for example, saw sales in China rise 55% operationally quarter-over-quarter. We'll want to watch China and other emerging markets growth very carefully moving forward, as this could be a key opportunity for Pfizer.

Don't overlook these stealthy generic drugs

Source: Alberta Innovation and Advancd Education , Flickr.

Finally, if you can't beat them, join them! Pfizer's long been a stronghold of big pharma innovation, but even it's succumbing to the allure of generic drugs.

Generic drugs have lower margins than branded drugs, and can sometimes even have a fiercer competition. However, generics are also cheaper than branded drugs, and thus hold a strong draw for physicians and consumers when it comes to being prescribed. In 2012 alone generic drugs saved the U.S. healthcare system a whopping $217 billion. In other words, generics aren't going to single-handedly save Pfizer's business. However, generic drugs do offer Pfizer a nice buffer against ongoing loss of exclusivity in key drugs.

In addition to its recent purchase of InnoPharma whose current generic portfolio consists of 10 FDA-approved products, John Young notes above that Pfizer has a number of high-profile generic drugs in the works that should be ready to hit pharmacy shelves in the latter half of this decade. Don't be shocked if you see other big pharma companies taking a similar route and beefing up their generic drug segments in the coming years.

If you think palbociclib offers a lot of potential, wait until you get a load of this game-changing technology!

The best pharmaceutical investors consistently reap gigantic profits by recognizing true potential earlier and more accurately than anyone else. Let me cut right to the chase. There is a product in development that will revolutionize not just how we treat a common chronic illness, but potentially the entire health industry. Analysts are already licking their chops at the sales potential. In order to outsmart Wall Street and realize multi-bagger returns you will need The Motley Fool's new free report on the dream-team responsible for this game-changing blockbuster. CLICK HERE NOW .

The article 5 Things Pfizer Inc.'s Management Wants You to Know originally appeared on Fool.com.

Sean Williams has no material interest in any companies mentioned in this article. You can follow him on CAPS under the screen name TMFUltraLong , track every pick he makes under the screen name TrackUltraLong , and check him out on Twitter, where he goes by the handle @TMFUltraLong .The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days . We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy .

Copyright © 1995 - 2014 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy .

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

In This Story

PFE

Other Topics

Stocks

Latest Markets Videos

    The Motley Fool

    Founded in 1993 in Alexandria, VA., by brothers David and Tom Gardner, The Motley Fool is a multimedia financial-services company dedicated to building the world's greatest investment community. Reaching millions of people each month through its website, books, newspaper column, radio show, television appearances, and subscription newsletter services, The Motley Fool champions shareholder values and advocates tirelessly for the individual investor. The company's name was taken from Shakespeare, whose wise fools both instructed and amused, and could speak the truth to the king -- without getting their heads lopped off.

    Learn More