The FINANCIAL — Pfizer Inc. reported financial results for first- quarter 2015. The company manages its commercial operations through two distinct businesses: an Innovative Products business and an Established Products business.
The Innovative Products business is composed of two operating segments: the Global Innovative Pharmaceutical segment (GIP)(3) and the Global Vaccines, Oncology and Consumer Healthcare segment (VOC). The Established Products business consists of the Global Established Pharmaceutical segment (GEP). Financial results for each of these segments are presented in the Operating Segment Information section. Some amounts in this press release may not add due to rounding.All percentages have been calculated using unrounded amounts, according to Pfizer.
EXECUTIVE COMMENTARY
Ian Read, Chairman and Chief Executive Officer, stated, “We began the year with good performance on both the top and bottom line and I believe the company is well-positioned in terms of in-line products, recent product launches, geographic reach and product pipeline.”
“During the first quarter of 2015, our new products delivered strong performances. We continued to see strong uptake for our Prevnar 13 vaccine in older adults in the U.S. Ibrance, our recently approved therapy for first-line advanced breast cancer in the U.S., performed very well following its February launch. We also announced this month that a Phase 3 trial of Ibrance for recurrent breast cancer had met its primary endpoint of progression-free survival (PFS). Additionally, Eliquis delivered another strong quarter of growth as adoption among cardiologists continues to improve globally.”
“Also during the first quarter of 2015, we announced the proposed acquisition of Hospira, Inc. (Hospira). This business represents an excellent strategic fit in growing market segments and is expected to accelerate the growth trajectory of our Global Established Pharmaceuticals business. In addition to share repurchases and dividend payments, we continue to consider business development to be an attractive use of shareholder capital.”
“We continue to advance our product pipeline, which currently includes a competitive and diverse mix across small and large molecules and vaccines. I believe we are well-positioned in promising new areas of biology such as immune-oncology, anti-PCSK9 for improved cardiovascular outcomes associated with LDL cholesterol reduction and vaccines for the potential prevention of life threatening infections such as staphylococcus aureus and clostridium difficile.”
“During the remainder of 2015 and beyond, we will continue to focus on driving growth for our key products and geographies, accelerating innovation and continuing to allocate capital to value-creating opportunities,” Mr. Read concluded.
Frank D’Amelio, Chief Financial Officer, stated, “Overall, I am pleased with our first-quarter 2015 financial results and with our ability to continue delivering shareholder value through prudent capital allocation. We were able to grow revenues on an operational basis by 2% despite the significant negative impact from product losses of exclusivity, including Celebrex in the U.S., and the termination of the Spiriva co-promotion collaboration in the U.S. In addition, in first-quarter 2015, we entered into a definitive merger agreement with Hospira under which Pfizer agreed to acquire Hospira, the world’s leading provider of injectable drugs and infusion technologies and a global leader in biosimilars, for a total enterprise value of approximately $17 billion. We also continued to demonstrate our commitment to delivering significant value directly to shareholders by returning approximately $7.8 billion to shareholders through dividends and share repurchases so far this year, including entering into a $5 billion accelerated share repurchase agreement executed in February. After repurchasing $6.0 billion of our common stock in first-quarter 2015, we have already met our 2015 share repurchase target and do not currently expect to repurchase additional shares this year.”
“As a result of unfavorable changes in foreign exchange rates in relation to the U.S. dollar since mid-January 2015, primarily the weakening of the euro, we lowered our 2015 financial guidance for reported revenues(1) by $500 million, which resulted in a $0.05 negative impact to our guidance ranges for reported diluted EPS(1) and adjusted diluted EPS(2). Importantly, our update to these guidance components is solely due to recent negative changes in foreign exchange rates and does not reflect any unfavorable changes to our operational outlook for the year,” Mr. D’Amelio concluded.
QUARTERLY FINANCIAL HIGHLIGHTS (First-Quarter 2015 vs. First-Quarter 2014
Reported revenues decreased $489 million, or 4%, which reflects operational growth of $250 million, or 2%, more than offset by the unfavorable impact of foreign exchange of $739 million, or 7%. Operational growth in developed markets was driven by the performance of certain key products, including Prevnar 13 and Eliquis, as well as Lyrica, Nexium 24HR, Xeljanz and Viagra primarily in the U.S., and the launch of Ibrance (palbociclib) in the U.S. in February 2015.Additionally, revenues in emerging markets increased 12% operationally, reflecting continued strong operational growth from Prevenar 13, Lipitor, Viagra and Norvasc. Operational growth was partially offset primarily by the loss of exclusivity and immediate multi-source generic competition for Celebrex in the U.S. in December 2014 as well as by other product losses of exclusivity in certain markets and the termination of the Spiriva co-promotion collaboration in certain countries.
Established Products Business Highlights
GEP(3) revenues decreased 10% operationally, primarily due to the loss of exclusivity and immediate launch of multi-source generic competition for Celebrex in the U.S. in December 2014 as well as generic competition for Zyvox IV in the U.S. beginning in January 2015 and for Lyrica in certain developed Europe markets beginning in first-quarter 2015. Revenues for Lipitor in developed markets declined as a result of continued generic competition.Additionally, the co-promotion collaboration for Spiriva has terminated in most countries, including in the U.S. inApril 2014. These declines were partially offset by strong performance in emerging markets, where revenues increased 10% operationally, primarily driven by Lipitor, Viagra and Norvasc.
Innovative Products Business Highlights
Revenues for the Innovative Products business increased 16% operationally, reflecting the following:
GIP(3) revenues increased 7% operationally, primarily due to strong operational growth from Lyrica,
primarily in the U.S. and Japan, as well as the performance of recently launched products, including Eliquis globally and Xeljanz, primarily in the U.S. Operational growth was partially offset by generic competition for Rapamune in the U.S., which began in October 2014.
VOC(3) revenues increased 29% operationally, reflecting the following:
–Global Vaccines(3) revenues grew 51% operationally. Prevnar 13 revenue in the U.S. increased 80%, primarily driven by continued strong uptake among adults following the positive recommendation from the U.S. Centers for Disease Control and Prevention’s (CDC) Advisory Committee on Immunization Practices (ACIP) for use in adults aged 65 and over in third-quarter 2014 as well as the timing of government purchases for the pediatric indication compared to the year-ago quarter. International revenues increased 21% operationally, driven by Prevenar 13, which grew 15% operationally, primarily reflecting the favorable impact of Prevenar’s inclusion in additional national immunization programs in certain emerging markets compared with the year-ago quarter, as well as the inclusion in first-quarter 2015 of revenues associated with the acquisition of Baxter International Inc.’s portfolio of marketed vaccines in Europe.
–Consumer Healthcare(3) revenues increased 12% operationally, primarily due to the launch of Nexium 24HR in the U.S. in late-May 2014, as well as growth in the base business in certain emerging markets.
–Global Oncology(3) revenues increased 17% operationally, primarily driven by the recent launch of Ibrance in the U.S. ($38 million) for advanced breast cancer as well as continued strong underlying demand for Xalkori and Inlyta globally.
Income Statement Highlights
Adjusted cost of sales, adjusted SI&A expenses and adjusted R&D expenses(2) in the aggregate increased $605 million operationally, or 9%, reflecting the following operational factors:
–higher adjusted cost of sales(2), primarily reflecting an unfavorable change in product mix and an increase in sales volume;
–higher adjusted SI&Aexpense(2), primarily as a result of increased investments to support several recent product launches and other in-line products as well as a higher cost for the Branded Prescription Drug Fee compared to the prior-year quarter, partially offset by continued benefits from cost-reduction and productivity initiatives; and
–higher adjusted R&D expense(2), primarily due to the $295 million upfront payment to OPKO in first- quarter 2015 associated with a worldwide development and commercialization agreement.
The effective tax rate on adjusted income(2) declined 0.6 percentage points to 24.4% from 25.0%. This decline was primarily due to a favorable change in the jurisdictional mix of earnings partially offset by a decrease in the favorable impact of the resolution of certain tax positions pertaining to prior years, primarily with various foreign tax authorities.
The diluted weighted-average shares outstanding declined by 184 million shares compared to the prior- year quarter due to the company’s ongoing share repurchase program, including the partial-quarter impact of the $5 billion accelerated share repurchase agreement executed in February 2015.
In addition to the aforementioned factors, first-quarter 2015 reported earnings were primarily impacted by the following:
Favorable impacts:
–lower legal charges, asset impairment charges and purchase accounting adjustments in first-quarter 2015 compared to the prior-year quarter.
Unfavorable impacts:
–higher charges incurred in first-quarter 2015 for business and legal entity alignment activities; and
–a higher effective tax rate, primarily due to a decline in tax benefits associated with the resolution of certain tax positions pertaining to prior years, primarily with various foreign tax authorities, partially offset by the favorable change in the jurisdictional mix of earnings.
RECENT NOTABLE DEVELOPMENTS
Product Developments
Ibrance (palbociclib)
–In February 2015, Pfizer announced that the U.S. Food and DrugAdministration (FDA) granted accelerated approval of Ibrance, in combination with letrozole, for the treatment of postmenopausal women with estrogen receptor-positive, human epidermal growth factor receptor 2-negative (ER+/ HER2-) advanced breast cancer as initial endocrine-based therapy for their metastatic disease. This indication is approved under accelerated approval based on PFS. Continued approval for this indication may be contingent upon verification and description of clinical benefit in a confirmatory trial.
–Pfizer announced inApril 2015 that the Phase 3 PALOMA-3 trial for Ibrance met its primary endpoint of demonstrating an improvement in PFS for the combination of Ibrance plus fulvestrant compared with fulvestrant plus placebo in women with hormone receptor-positive/HER2- metastatic breast cancer following disease progression during or after endocrine therapy. The adverse events observed with Ibrance in combination with fulvestrant in PALOMA-3 were generally consistent with their respective known adverse event profiles. Detailed efficacy and safety results from PALOMA-3 will be presented at theAmerican Society of Clinical Oncology 2015Annual Meeting.
Prevenar 13 — Pfizer announced in March 2015 that the European Commission approved an expanded indication for the use of Prevenar 13 for the prevention of pneumonia caused by the 13 pneumococcal serotypes in the vaccine in adults aged 18 years and older. The Summary of Product Characteristics has also been updated to include efficacy data from Pfizer’s landmark Community-Acquired Pneumonia Immunization Trial in Adults (CAPiTA), which demonstrated statistically significant reductions in first episodes of vaccine-type pneumococcal community-acquired pneumonia (CAP), including non-invasive/ non-bacteremic CAP, and invasive pneumococcal disease in adults aged 65 and older.
Trumenba
–Pfizer announced in February 2015 that the CDC’sACIP voted to recommend serogroup B meningococcal vaccination to help protect individuals at increased risk. Specifically, the ACIP voted to recommend serogroup B meningococcal vaccination for persons aged 10 years and older at increased risk for meningococcal disease.
–Pfizer announced in February 2015 positive top-line results of a Phase 2 study of Trumenba co- administered with FDA-approved, routine meningococcal (groupsA, C, Y and W) (MCV4) and single-dose tetanus, diphtheria and pertussis (Tdap) vaccines in more than 2,600 healthy individuals 10 through 12 years of age. The study met its co-primary immunogenicity objectives regarding co- administration of Trumenba with MCV4 and Tdap vaccines. In addition, data from a recently completed Phase 3 study demonstrated the safety and tolerability of Trumenba in approximately 5,600 healthy individuals 10 through 25 years of age, and were consistent with data from studies that supported the October 2014 accelerated approval in the U.S. These data have been shared with the FDA. Pfizer plans to present the full results of both studies at upcoming medical meetings in 2015.
Xeljanz
–Pfizer announced in February 2015 that the FDAaccepted for review a supplemental New Drug Application (sNDA) for Xeljanz 5 mg and 10 mg tablets for the treatment of adult patients with moderate to severe chronic plaque psoriasis who are candidates for systemic therapy or phototherapy. The FDA has provided an anticipated Prescription Drug User FeeAct (PDUFA) action date in October 2015 for the sNDA.
Pfizer presented in March 2015 detailed pooled results from two pivotal Phase 3 studies from the Oral treatment Psoriasis Trials (OPT) program as well as an integrated safety analysis at the 73rd American Academy of Dermatology (AAD) Annual Meeting. The detailed, pooled analysis of 16 week data from the OPT Pivotal #1 and OPT Pivotal #2 studies showed that tofacitinib 10 mg and 5 mg tablets twice daily met the co-primary efficacy endpoints of superiority over placebo at 16 weeks in the proportion of patients achieving a Physician’s Global Assessment response of “clear” or “almost clear,” and the proportion of patients achieving at least a 75% reduction in PsoriasisArea and Severity Index (PASI75), two commonly used measures of efficacy in psoriasis.
Xalkori — Pfizer announced inApril 2015 that Xalkori (crizotinib) received Breakthrough Therapy designation by the FDA for the potential treatment of patients with ROS1-positive non-small cell lung cancer (NSCLC). Occurring in approximately one percent of NSCLC cases, ROS1-positive NSCLC represents a particular molecular subgroup of NSCLC. Xalkori currently is approved in the U.S. for the treatment of patients with metastatic NSCLC whose tumors are anaplastic lymphoma kinase (ALK)- positive as detected by a FDA-approved test. Pfizer will work closely with the FDAon the development of Xalkori for ROS1-positive NSCLC and provide the information needed to support a potential regulatory submission.
Rapamune — Pfizer announced in February 2015 that the FDAaccepted for priority review a sNDAfor Rapamune for the treatment of lymphangioleiomyomatosis (LAM), a rare, progressive lung disease in women of childbearing age that is often fatal. This sNDA has a PDUFA action date in June 2015.
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