On May 1, 2018 Pfizer Inc. (NYSE:PFE) reported financial results for first-quarter 2018 and reaffirmed all components of 2018 financial guidance (Press release, Pfizer, MAY 1, 2018, View Source [SID1234525891]).
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Results for the first quarter of 2018 and 2017(3) are summarized below.
OVERALL RESULTS
($ in millions, except per share amounts)
First-Quarter
2018 2017 Change
Revenues $ 12,906 $ 12,779 1%
Reported Net Income(1) 3,561 3,121 14%
Reported Diluted EPS(1) 0.59 0.51 15%
Adjusted Income(2) 4,668 4,192 11%
Adjusted Diluted EPS(2) 0.77 0.69 12%
REVENUES
($ in millions)
First-Quarter
2018
2017
% Change
Total
Oper.
Innovative Health $ 7,829 $ 7,415 6 % 3 %
Essential Health 5,077 5,364 (5 %) (9 %)
Total Company $ 12,906 $ 12,779 1 % (2 %)
On February 3, 2017, Pfizer completed the sale of its global infusion therapy net assets, Hospira Infusion Systems (HIS). Therefore, financial results for the first quarter of 2018 do not reflect any contribution from legacy HIS operations, while the first quarter of 2017 reflects approximately one month of legacy HIS domestic operations and approximately two months of legacy HIS international operations(3).
Some amounts in this press release may not add due to rounding. All percentages have been calculated using unrounded amounts. References to operational variances pertain to period-over-period growth rates that exclude the impact of foreign exchange(4).
2018 FINANCIAL GUIDANCE(5)
Pfizer’s reaffirmed 2018 financial guidance is presented below.
Revenues $53.5 to $55.5 billion
Adjusted Cost of Sales(2) as a Percentage of Revenues 20.5% to 21.5%
Adjusted SI&A Expenses(2) $14.0 to $15.0 billion
Adjusted R&D Expenses(2) $7.4 to $7.9 billion
Adjusted Other (Income)/Deductions(2) Approximately $400 million of income
Effective Tax Rate on Adjusted Income(2),(6) Approximately 17.0%
Adjusted Diluted EPS(2) $2.90 to $3.00
Financial guidance for Adjusted diluted EPS(2) now anticipates share repurchases totaling approximately $6.1 billion in 2018, which includes shares repurchased during first-quarter 2018. Dilution related to share-based employee compensation programs is expected to offset by approximately half the reduction in shares associated with these share repurchases.
CAPITAL ALLOCATION
During first-quarter 2018, Pfizer returned $8.1 billion directly to shareholders, through a combination of:
$2.0 billion of dividends, or $0.34 per share of common stock; and
$6.1 billion of share repurchases, composed of $2.1 billion of open-market share repurchases and a $4.0 billion accelerated share repurchase agreement executed in March 2018.
As of May 1, 2018, Pfizer’s remaining share repurchase authorization was $10.3 billion.
EXECUTIVE COMMENTARY
Ian Read, Chairman and Chief Executive Officer, stated, "Our first-quarter 2018 financial results were solid, driven by continued strength from our anchor brands, primarily Ibrance, Eliquis and Xeljanz. The Essential Health business delivered strong growth in emerging markets and biosimilars but was negatively impacted by continued legacy Hospira product supply shortages in the U.S. as well as product losses of exclusivity. We remain focused on executing our commercial strategies, managing expenses, advancing our pipeline and prudently allocating our capital to position Pfizer for sustainable success.
"Our pipeline today, with a range of targeted compounds, biologics and vaccines, is as deep and focused as it has ever been. With several potential near-term opportunities in core therapeutic areas, I believe our pipeline presents an unprecedented opportunity to deliver a life-changing impact on a growing number of patients while creating enhanced value for all of our stakeholders," Mr. Read concluded.
Frank D’Amelio, Executive Vice President, Business Operations and Chief Financial Officer, stated, "First-quarter 2018 results were in-line with our expectations and we remain on track to deliver a solid financial performance in 2018. We reaffirmed all components of our 2018 financial guidance, reflecting our performance to date as well as our confidence in the business going forward. Additionally, in first-quarter 2018, we returned $8.1 billion directly to shareholders through dividends and share repurchases, demonstrating our continued commitment to returning capital to our shareholders."
QUARTERLY FINANCIAL HIGHLIGHTS (First-Quarter 2018 vs. First-Quarter 2017)
First-quarter 2018 revenues totaled $12.9 billion, an increase of $127 million, or 1%, compared to the prior-year quarter, reflecting the favorable impact of foreign exchange of $430 million, or 3%, partially offset by an operational decline of $302 million, or 2%.
Innovative Health Highlights
IH revenues increased 3% operationally in first-quarter 2018, primarily driven by continued growth from key brands including Ibrance, Eliquis and Xeljanz. Global operational revenue growth for Ibrance, Eliquis and Xeljanz was 35%, 30% and 29%, respectively.
First-quarter 2018 IH operational revenue growth was negatively impacted primarily by the loss of exclusivity of Viagra in the U.S. in December 2017 and the resulting shift in the reporting of U.S. and Canada Viagra revenues to the Essential Health business at the beginning of 2018(3). IH operational revenue growth was also negatively impacted by lower revenues for Enbrel in most developed Europe markets due to continued biosimilar competition. In the U.S., revenue for Ibrance, Xeljanz and certain other products was negatively impacted by customer buying patterns.
Global Prevnar 13/Prevenar 13 revenues declined 3% operationally in first-quarter 2018.
Prevenar 13 revenues in international markets increased 16% operationally, primarily due to the favorable impact of the inclusion of Prevenar 13 in additional national immunization programs in certain emerging markets for the adult indication as well as higher volumes for the pediatric indication resulting from the second-quarter 2017 launch of Prevenar 13 in China and increased shipments associated with Gavi, the Vaccine Alliance, partially offset by the overall unfavorable impact of timing associated with government purchases in certain international markets compared with the prior-year quarter.
In the U.S., Prevnar 13 revenues declined 12%, primarily due to lower government purchases in first-quarter 2018 compared to first-quarter 2017 for the pediatric indication due to a change in ordering patterns and, to a lesser extent, the continued decline in revenues for the adult indication due to a smaller remaining "catch up" opportunity compared to the prior-year quarter.
Essential Health Highlights
First-quarter 2018 EH revenues declined 9% operationally, negatively impacted primarily by a 15% operational decline from the Sterile Injectable Pharmaceuticals (SIP) portfolio, primarily due to continued legacy Hospira product shortages in the U.S. EH operational revenue growth was also negatively impacted by a 15% operational decline from the Peri-LOE Products portfolio, primarily due to expected declines in Lyrica in developed Europe and Pristiq in the U.S., partially offset by the addition of Viagra U.S. revenues previously recorded in the IH business. These declines were partially offset primarily by 12% operational growth in emerging markets and 53% operational growth from Biosimilars, primarily from Inflectra in certain channels in the U.S. as well as in developed Europe.
GAAP Reported(1) Income Statement Highlights
SELECTED TOTAL COMPANY REPORTED COSTS AND EXPENSES(1)
($ in millions)
(Favorable)/Unfavorable
First-Quarter
2018
2017
% Change
Total
Oper.
Cost of Sales(1) $ 2,563 $ 2,468 4% (6%)
Percent of Revenues 19.9 % 19.3 % N/A N/A
SI&A Expenses(1) 3,412 3,315 3% —
R&D Expenses(1) 1,743 1,716 2% 1%
Total $ 7,718 $ 7,498 3% (2%)
Other (Income)/Deductions––net(1) ($178
)
$ 60 * *
Effective Tax Rate on Reported Income(1),(6) 13.5 % 20.8 %
* Indicates calculation not meaningful or result is equal to or greater than 100%.
Pfizer recorded other income––net(1) in first-quarter 2018 compared with other deductions––net(1) in first-quarter 2017 primarily due to:
higher income from collaborations, out-licensing arrangements and sale of compound/product rights; and
unrealized net gains on equity securities, reflecting the adoption of a new accounting standard in first-quarter 2018. Prior to the adoption of the new standard, net unrealized gains and losses on virtually all readily tradeable equity securities were reported in Accumulated other comprehensive income.
Pfizer’s effective tax rate on Reported income(1) for first-quarter 2018 was favorably impacted by the December 2017 enactment of the Tax Cuts and Jobs Act (TCJA)(6).
Adjusted(2) Income Statement Highlights
SELECTED TOTAL COMPANY ADJUSTED COSTS AND EXPENSES(2)
($ in millions)
(Favorable)/Unfavorable
First-Quarter
2018
2017
% Change
Total
Oper.
Adjusted Cost of Sales(2) $ 2,536 $ 2,432 4% (6%)
Percent of Revenues 19.7 % 19.0 % N/A N/A
Adjusted SI&A Expenses(2) 3,286 3,295 — (3%)
Adjusted R&D Expenses(2) 1,739 1,713 1% 1%
Total $ 7,561 $ 7,440 2% (3%)
Adjusted Other (Income)/Deductions––net(2) ($322 ) ($100 ) * *
Effective Tax Rate on Adjusted Income(2),(6) 16.4 % 22.3 %
* Indicates calculation not meaningful or result is equal to or greater than 100%.
Pfizer’s effective tax rate on Adjusted income(2) for first-quarter 2018 was favorably impacted by the aforementioned December 2017 enactment of the TCJA(6).
First-quarter 2018 diluted weighted-average shares outstanding used to calculate Reported(1) and Adjusted(2) diluted EPS declined by 35 million shares compared to the prior-year quarter due to Pfizer’s ongoing share repurchase program, reflecting the impact of the $5 billion accelerated share repurchase agreement executed in February 2017 and completed in May 2017 and, to a lesser extent, share repurchases during first-quarter 2018, partially offset by dilution related to share-based employee compensation programs.
A full reconciliation of Reported(1) to Adjusted(2) financial measures and associated footnotes can be found starting on page 18 of the press release located at the hyperlink below.
RECENT NOTABLE DEVELOPMENTS (Since January 30, 2018)
Product Developments
Bavencio (avelumab) — In February 2018, Merck KGaA, Darmstadt, Germany, which operates its biopharmaceutical business as EMD Serono in the U.S. and Canada (Merck KGaA), and Pfizer announced results from the Phase 3 JAVELIN Lung 200 trial comparing avelumab to docetaxel in patients with unresectable, recurrent or metastatic non-small cell lung cancer (NSCLC) whose disease progressed after treatment with a platinum-containing doublet therapy. While the trial did not meet its pre-specified endpoint of improving overall survival (OS) in patients with programmed death ligand-1-positive (PD-L1+) (1% or higher) tumors, the proportion of patients in the chemotherapy arm crossing over to immune checkpoint inhibitors outside the study was higher than previously reported in post-platinum immunotherapy clinical trials, which may have confounded this trial outcome (percentage of patients receiving subsequent checkpoint inhibitor therapy: docetaxel arm 26.4%; avelumab arm 5.7%). Improvements in OS versus the control arm were observed in the moderate-to-high PD-L1+ expression (50% or greater, which represented approximately 40% of the study population) and high PD-L1+ expression (PD-L1+ expression 80% or greater, which represented approximately 30% of the study population) population subsets. The safety profile for avelumab in this trial was consistent with that observed in the overall JAVELIN clinical development program; no new safety signals were identified.
Bosulif (bosutinib)(7) — In April 2018, Pfizer announced that the European Commission (EC) approved an indication extension for Bosulif for the treatment of adults with newly diagnosed chronic phase Philadelphia chromosome-positive chronic myelogenous leukemia (Ph+ CML). Bosulif previously received conditional marketing authorization from the EC in March 2013 for the treatment of adult patients with chronic phase, accelerated phase and blast phase Ph+ CML previously treated with one or more tyrosine kinase inhibitors (TKIs) and for whom imatinib, nilotinib and dasatinib are not considered appropriate treatment options.
Chantix/Champix (varenicline) — In March 2018, Pfizer announced results from a Phase 4 study evaluating the efficacy and safety of Chantix/Champix for smoking cessation in nicotine dependent adolescents 12-19 years of age. The study did not meet its primary endpoint of the four-week continuous abstinence rate at weeks 9 through 12 for Chantix/Champix compared to placebo. The study is a regulatory post-marketing commitment for Chantix/Champix in the U.S. and the European Union (EU) for adolescents 12-16 years and 12-17 years of age, respectively. As part of planned regulatory interactions in the U.S. and EU, these data will be submitted to the U.S. Food and Drug Administration (FDA) for pediatric exclusivity determination.
Inlyta (axitinib) — In April 2018, Pfizer announced that the independent Data Monitoring Committee for the Phase 3 ATLAS trial evaluating Inlyta as adjuvant therapy for patients at high risk of recurrent renal cell carcinoma (RCC) after nephrectomy recommended stopping the trial at a planned interim analysis due to futility. The recommendation was based on the study failing to demonstrate a clear improvement in the primary endpoint of extending disease-free survival for patients treated with Inlyta compared with patients treated with placebo. No new safety signals were observed, and the safety profile was consistent with the known profile of Inlyta in advanced RCC.
Mylotarg (gemtuzumab ozogamicin) — In April 2018, Pfizer announced that the EC approved Mylotarg in combination with daunorubicin and cytarabine for the treatment of patients age 15 years and above with previously untreated, de novo, CD33-positive acute myeloid leukemia, except acute promyelocytic leukemia.
Steglatro (ertugliflozin), Steglujan (ertugliflozin and sitagliptin) and Segluromet (ertugliflozin and metformin hydrochloride) — In March 2018, the EC approved the oral sodium-glucose cotransporter 2 (SGLT2) inhibitor Steglatro (ertugliflozin) and the two fixed-dose combinations Steglujan (ertugliflozin and sitagliptin) and Segluromet (ertugliflozin and metformin hydrochloride) for use in adults aged 18 years and older with type 2 diabetes mellitus as an adjunct to diet and exercise to improve glycemic control. These products will be exclusively promoted by Merck, known as MSD outside the U.S. and Canada, in the EU.
Sutent (sunitinib malate) — In February 2018, Pfizer announced that the Committee for Medicinal Products for Human Use (CHMP) of the European Medicines Agency (EMA) has recommended against expanding use of Sutent to include the adjuvant treatment of adult patients at a high risk of recurrent RCC following nephrectomy. The CHMP’s recommendation is not binding but will now be taken into consideration by the EC. There is currently no approved adjuvant treatment option available for patients with non-metastatic RCC at high risk for recurrence in the EU.
Trumenba (Meningococcal Serogroup B Bivalent Recombinant Lipoprotein vaccine) — In April 2018, Pfizer announced that Trumenba received Breakthrough Therapy designation from the FDA for active immunization to prevent invasive disease caused by Neisseria meningitidis group B (MenB) in children ages 1 through 9 years. This is the first Breakthrough Therapy designation for a MenB vaccine to help protect children as young as 1 year of age. Trumenba previously received Breakthrough Therapy designation in 2014 for the prevention of MenB in adolescents and young adults ages 10 through 25 years, and later the same year received FDA approval as the first MenB vaccine approved in the U.S.
Vyndaqel (tafamidis) — In March 2018, Pfizer announced that the Tafamidis Phase 3 Transthyretin Cardiomyopathy (ATTR-ACT) study evaluating tafamidis for the treatment of transthyretin cardiomyopathy (TTR-CM) met its primary endpoint, demonstrating a statistically significant reduction in the combination of all-cause mortality and frequency of cardiovascular-related hospitalizations compared to placebo at 30 months. The preliminary safety data showed that tafamidis was generally well tolerated in this population and no new safety signals were identified. Vyndaqel is approved in 40 countries for the treatment of transthyretin amyloid polyneuropathy (TTR-FAP) in adult patients with early-stage symptomatic polyneuropathy to delay peripheral neurologic impairment. Tafamidis is an investigational treatment for TTR-CM and is not approved for this indication.
Xeljanz (tofacitinib)
In April 2018, the CHMP of the EMA adopted a positive opinion recommending a change to the terms of the marketing authorization for Xeljanz to include Xeljanz in combination with methotrexate for the treatment of active psoriatic arthritis in adult patients who have had an inadequate response or who have been intolerant to a prior disease-modifying antirheumatic drug therapy. The CHMP’s opinion will now be reviewed by the EC, which has the authority to approve medicines for the EU.
In March 2018, Pfizer announced a positive outcome from an FDA Gastrointestinal Drugs Advisory Committee (GIDAC) meeting. The GIDAC met to discuss Pfizer’s supplemental New Drug Application (sNDA) for Xeljanz, which is currently under review by the FDA, for the treatment of adult patients with moderately to severely active ulcerative colitis (UC). The role of the GIDAC is to provide recommendations to the FDA; however, the recommendations are not binding. The FDA’s decision on whether or not to approve Xeljanz for UC is expected by the Prescription Drug User Fee Act (PDUFA) date in June 2018.
Xtandi (enzalutamide)
In March 2018, Pfizer and Astellas Pharma Inc. (Astellas) announced that a sNDA for Xtandi was accepted for filing and granted Priority Review designation by the FDA. If approved, the sNDA would expand the indication of Xtandi to include men with non-metastatic (M0) Castration-Resistant Prostate Cancer (CRPC), based on data from the Phase 3 PROSPER trial. Xtandi is currently indicated for the treatment of patients with metastatic CRPC. The PDUFA goal date assigned by the FDA is in July 2018. In addition, the EMA validated the Type II Variation for Xtandi seeking to expand the current indication to the same patient population.
In February 2018, Pfizer and Astellas announced results from the Phase 3 PROSPER trial in patients with M0 CRPC. The results show that the use of Xtandi plus androgen deprivation therapy (ADT) significantly reduced the risk of developing metastases or death by 71% compared to ADT alone. The median for the primary endpoint, metastasis-free survival, was 36.6 months for men who received Xtandi compared to 14.7 months with ADT alone. Full results were presented at the 2018 Genitourinary Cancers Symposium in San Francisco.
Pipeline Developments
A comprehensive update of Pfizer’s development pipeline was published today and is now available at www.pfizer.com/science/drug-product-pipeline. It includes an overview of Pfizer’s research and a list of compounds in development with targeted indication and phase of development, as well as mechanism of action for some candidates in Phase 1 and all candidates from Phase 2 through registration.
Dacomitinib (PF-00299804) — In April 2018, Pfizer announced that the FDA accepted and granted Priority Review for the company’s New Drug Application (NDA) for dacomitinib, a pan-human epidermal growth factor receptor (EGFR) TKI, for the first-line treatment of patients with locally advanced or metastatic NSCLC with EGFR-activating mutations. The PDUFA goal date assigned by the FDA is in September 2018. The EMA has also accepted the Marketing Authorization Application for dacomitinib for the same indication.
Lorlatinib (PF-06463922) — In February 2018, Pfizer announced that the FDA accepted and granted Priority Review for the company’s NDA for lorlatinib, an investigational, anaplastic lymphoma kinase (ALK) TKI for the treatment of patients with ALK-positive metastatic NSCLC, in patients previously treated with one or more ALK TKIs. The PDUFA goal date assigned by the FDA is in August 2018. The EMA and the Japan Pharmaceutical and Medical Devices Agency have also accepted marketing applications for the use of lorlatinib.
PF-04965842 — In February 2018, Pfizer announced that its once-daily oral Janus kinase 1 (JAK1) inhibitor PF-04965842 received Breakthrough Therapy designation from the FDA for the treatment of patients with moderate-to-severe atopic dermatitis (AD). The Phase 3 program for PF-04965842 initiated in December 2017 and is the first trial in the JAK1 Atopic Dermatitis Efficacy and Safety (JADE) global development program.
PF-05280014 (proposed biosimilar trastuzumab) — In April 2018, Pfizer announced that it received a Complete Response Letter (CRL) from the FDA in response to the Biologics License Application for the company’s proposed trastuzumab biosimilar. In the CRL, the FDA highlighted the need for additional technical information. The additional requested information does not relate to safety or clinical data submitted in the application. Pfizer is working closely with the FDA to address the contents of the letter and remains committed to bringing this important medicine to patients in the U.S.
PF-06939926 — In April 2018, Pfizer announced that a Phase 1b clinical trial for its mini-dystrophin gene therapy candidate, PF-06939926, in boys with Duchenne muscular dystrophy (DMD) was initiated. The first boy received an infusion of the mini-dystrophin gene on March 22nd, administered under the supervision of principal investigator, Edward Smith, MD, Associate Professor of Pediatrics and Neurology at Duke University Medical Center. Screening and enrollment of patients is expected to continue at up to four clinical research sites in the U.S. Early data from this trial are expected in the first half of 2019, once the first patient has been evaluated for one full year post-treatment. The multi-center, open-label, non-randomized, ascending dose study of a single intravenous infusion of PF-06939926 will enroll approximately 12 ambulatory boys aged 5 to 12 years with DMD. In addition to evaluating safety and tolerability, the study will evaluate measurements of dystrophin expression and distribution, as well as assessments of muscle strength, quality and function. As part of the screening process, potential candidates for treatment will be tested to confirm a negative result for antibodies against the adeno-associated virus serotype 9 (AAV9) capsid and for a T-cell (immune) response to dystrophin.
Corporate Developments
In April 2018, Pfizer and Allogene Therapeutics, Inc. (Allogene) announced that the two companies entered into an asset contribution agreement for Pfizer’s portfolio of assets related to allogeneic chimeric antigen receptor T cell (CAR T) therapy, an investigational immune cell therapy approach to treating cancer. Allogene is co-founded and led by former executives of Kite Pharma. Pfizer views this agreement as an attractive opportunity to support the continued development of allogeneic CAR T therapy in a highly focused and skilled manner. Pfizer will continue to participate financially in the development of the CAR T portfolio through a 25% ownership stake in Allogene. Separately, Pfizer maintains its approximate 8% ownership stake in Cellectis through an equity agreement entered into in 2014 by which Pfizer obtained exclusive rights to pursue the development and commercialization of certain Cellectis CAR T therapies. These CAR T therapy development programs obtained from Cellectis comprise the assets contributed to Allogene.
On March 12, 2018, Pfizer entered into an accelerated share repurchase agreement with Citibank N.A. (Citibank) to repurchase $4.0 billion of Pfizer’s common stock. Pursuant to the terms of the agreement, on March 14, 2018, Pfizer paid $4.0 billion to Citibank and received an initial delivery of approximately 87 million shares of Pfizer common stock from Citibank. At settlement of the agreement, which is expected to occur during or prior to the third quarter of 2018, Citibank may be required to deliver additional shares of common stock to Pfizer, or, under certain circumstances, Pfizer may be required to deliver shares of its common stock or may elect to make a cash payment to Citibank, with the number of shares to be delivered or the amount of such payment based on the volume-weighted average price of Pfizer’s common stock during the term of the transaction.