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5 Things You Might Miss in Pfizer's Q3 Earnings Without Reading the Fine Print

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Mixed results. That's what the headlines will tell you about Pfizer 's (NYSE: PFE) third-quarter earnings report, announced before the market opened on Tuesday.

And Pfizer did provide mixed results in its Q3 update. The company topped earnings estimates, with adjusted earnings per share (EPS) of $0.78 compared to the consensus Wall Street estimate of $0.75. However, Pfizer's Q3 revenue of $13.3 billion came in below the $13.5 billion that analysts were expecting.

But there was a lot more to Pfizer's update than those mixed results. Here are five things in the drugmaker's Q3 earnings that you might miss unless you read the fine print.

Man holding magnifying glass over a document

Image source: Getty Images.

1. The bad news for Ibrance

Pfizer's press release stated that sales for Ibrance outside the U.S. were up a whopping 98% operationally with the gain "primarily driven by continued uptake in developed Europe and the December 2017 launch in Japan." CEO Ian Read mentioned Ibrance prominently in his list of key brands with continued growth.

What those comments don't tell you, though, is that sales for Ibrance fell by 1% year over year in the U.S. during the third quarter. Overall, revenue generated by the breast cancer drug increased 17% from the prior-year period but was flat compared to the second quarter of 2018 . Ibrance is still generating growth, but its momentum appears to have largely evaporated.

2. Just how much losing Lyrica patent exclusivity will hurt

Total sales for Lyrica fell 6% year over year in the third quarter. Still, Lyrica remained Pfizer's No. 2 best-selling drug. The company is seeking pediatric exclusivity for Lyrica, with an FDA decision expected before the end of the year. Neither these facts nor Pfizer's overall Q3 performance tell just how big an impact losing patent exclusivity for Lyrica will have.

The drug generated total sales during the third quarter of $1.21 billion. To put that number into perspective, it's more than Pfizer's Q3 sales of Eliquis, Xtandi, and Eucrisa combined. Granted, Pfizer could win pediatric exclusivity -- but it would only push back the loss of exclusivity by six months, to June 30, 2019. If you want to get a sense for what the future for Lyrica is, look at the 40% year-over-year decline in Q3 sales for the drug in markets where it has already lost exclusivity.

3. Essential health segment performance is a little worse than it looks

Pfizer reported that its essential health segment Q3 revenue fell 4% from the prior-year period. That's not good, but it's not horrible, either. Except there's more to the story.

The segment's performance was helped considerably by Pfizer's transfer of Viagra from its innovative health segment. Sales for Viagra jumped 35% year over year to $137 million.

4. Share buybacks aren't quite as helpful as you might think

Pfizer CFO Frank D'Amelio stated in the company's press release that "to date in 2018, we returned $15.0 billion directly to shareholders through dividends and share repurchases, demonstrating our continued commitment to returning capital to our shareholders." He's right. As of the end of Q3, Pfizer paid out $6 billion in dividends and repurchased $9 billion of its stock.

But those share buybacks haven't been as advantageous to shareholders as you might think. Why? Take a look at this statement in Pfizer's update: "Dilution related to share-based employee compensation programs is expected to offset the reduction in shares associated with these share repurchases by approximately half." In other words, only around 50 cents of every dollar Pfizer spends on buybacks directly benefit shareholders.

5. The worrisome sign in Pfizer's updated guidance

Pfizer narrowed its revenue and earnings guidance for full-year 2018. The good news was that the company kept the midpoint of its adjusted EPS range unchanged, with new guidance of adjusted EPS between $2.98 and $3.02 compared to previous guidance of $2.95 to $3.05. The bad news, though, was that Pfizer's 2018 revenue guidance is now $53 billion to $53.7 billion, with the upper end of the range slipping from the previous outlook of $55 billion.

What's most concerning is that Pfizer stated that a key reason for the lower guidance was "continued legacy Hospira Sterile Injectable Pharmaceuticals (SIP) product shortages in the U.S." In the company's Q2 conference call , Ian Read predicted that Pfizer expected to see year-over-year improvement for the SIP business beginning in the third quarter. That didn't happen.

And some good news

Unfortunately, much of the fine print in Pfizer's Q3 earnings release contained bad news. However, there were plenty of reasons to be optimistic about Pfizer's future included in the announcement -- none of which show up in the company's financial numbers.

Pfizer, as always, featured product development and pipeline highlights in its quarterly update. These highlights included two new FDA approvals for breast cancer drug Talzenna and lung cancer drug Vizimpro, as well as European approvals for new indications for Xeljanz in ulcerative colitis and Xtandi in non-metastatic prostate cancer. Notable pipeline advances included great late-stage results for pain drug tanezumab and FDA regulatory submissions for three new biosimilars .

Investors should focus as much or more on these items as they do on Pfizer's numbers. Over the long run, they're what will matter, rather than mixed results in one quarter.

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Keith Speights owns shares of Pfizer. The Motley Fool has no position in any of the stocks mentioned. 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.

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