On August 1, 2017 Pfizer Inc. (NYSE:PFE) reported financial results for second-quarter 2017, increased the midpoint of its 2017 financial guidance range for Adjusted diluted EPS(2) and reaffirmed its 2017 financial guidance range for Revenues (Press release, Pfizer, AUG 1, 2017, View Source [SID1234519972]). Schedule your 30 min Free 1stOncology Demo! Results for the second quarter and first six months of 2017 and 2016(3) are summarized below.
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OVERALL RESULTS
($ in millions, except
per share amounts)
Second-Quarter Six Months
2017 2016 Change 2017 2016 Change
Revenues $ 12,896 $ 13,147 (2 %) $ 25,675 $ 26,152 (2 %)
Reported Net Income(1) 3,073 2,047 50 % 6,194 5,085 22 %
Reported Diluted EPS(1) 0.51 0.33 53 % 1.02 0.82 24 %
Adjusted Income(2) 4,063 3,929 3 % 8,255 8,105 2 %
Adjusted Diluted EPS(2) 0.67 0.64 5 % 1.36 1.31 4 %
REVENUES
($ in millions) Second-Quarter Six Months
2017 2016 % Change 2017 2016 % Change
Total Oper. Total Oper.
Innovative Health $ 7,671 $ 7,105 8 % 9 % $ 15,086 $ 14,139 7 % 8 %
Essential Health 5,226 6,042 (14 %) (12 %) 10,590 12,013 (12 %) (10 %)
Total Company $ 12,896 $ 13,147 (2 %) — $ 25,675 $ 26,152 (2 %) (1 %)
Excluding HIS revenues from all periods:
Total Company $ 12,896 $ 12,852 — 2 % $ 25,578 $ 25,553 — 1 %
Essential Health 5,226 5,746 (9 %) (7 %) 10,493 11,414 (8 %) (6 %)
Acquisitions and divestitures completed in 2016 and the first six months of 2017 impacted financial results in the periods presented.(4) 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.(5)
2017 FINANCIAL GUIDANCE(6)
The midpoint of the guidance range for Adjusted diluted EPS(2) was increased by $0.02 to an updated range of $2.54 to $2.60, reflecting a $300 million increase to the guidance for Adjusted Other (Income)/Deductions(2) due to lower-than-forecasted net interest expense as well as higher-than-forecasted royalty income from certain products and dividend income from ViiV Healthcare Ltd. (ViiV).
Additionally, the updated financial guidance absorbs $75 million of Adjusted research and development expenses(2) that were recorded in second-quarter 2017 resulting from our May 2017 agreement with Sangamo Therapeutics, Inc. (Sangamo) to develop and commercialize gene therapy programs for Hemophilia A.
Pfizer’s updated 2017 financial guidance is presented below:
Revenues $52.0 to $54.0 billion
Adjusted Cost of Sales(2) as a Percentage of Revenues 20.0% to 21.0%
Adjusted SI&A Expenses(2) $13.7 to $14.7 billion
Adjusted R&D Expenses(2) $7.5 to $8.0 billion
Adjusted Other (Income)/Deductions(2) Approximately $200 million of income
(previously approximately $100 million of deductions)
Effective Tax Rate on Adjusted Income(2) Approximately 23.0%
Adjusted Diluted EPS(2) $2.54 to $2.60
(previously $2.50 to $2.60)
CAPITAL ALLOCATION
During the first six months of 2017, Pfizer returned $8.9 billion directly to shareholders, through a combination of:
$3.9 billion of dividend payments, composed of $0.32 per share of common stock in each of the first and second quarters of 2017; and
a $5.0 billion accelerated share repurchase agreement executed in February 2017 and completed in May 2017, which resulted in a reduction of approximately 150 million shares of Pfizer’s outstanding common stock.
As of August 1, 2017, Pfizer’s remaining share repurchase authorization was approximately $6.4 billion.
EXECUTIVE COMMENTARY
Ian Read, Chairman and Chief Executive Officer, stated, "I am pleased with our second-quarter 2017 results and our year-to-date performance is in line with our expectations. Revenues for the quarter increased 2% operationally, excluding the unfavorable impacts of the HIS divestiture and foreign exchange. Innovative Health revenues grew 9% operationally, driven by the performance of our key growth drivers, notably Ibrance, Eliquis, Xeljanz and Xtandi. While Essential Health revenues for the quarter declined 12% operationally primarily due to continued headwinds from products that recently lost marketing exclusivity, we had solid operational growth in emerging markets and in biosimilars. I believe the continued strength from both businesses’ key growth drivers positions the Company for long-term success.
"We have a strong pipeline with a steady flow of scientific innovation coming from all of our key therapeutic areas. Over the next five years, we project the potential for approximately 25 to 30 approvals of which up to 15 have the potential to be blockbusters, and we believe half of these potential blockbusters could receive approval by 2020. Our strategy remains focused on maximizing in-market opportunities while continuing to advance the pipeline and managing our cost structure to deliver attractive financial performance over time," Mr. Read concluded.
Frank D’Amelio, Executive Vice President, Business Operations and Chief Financial Officer, stated, "Today we raised the midpoint of our Adjusted diluted EPS(2) guidance range by $0.02 to a range of $2.54 to $2.60 to reflect a $300 million increase to the guidance for Adjusted Other (Income)/Deductions(2) as well as our strong operational performance to date and confidence in the business going forward. The midpoint of our new guidance range for Adjusted diluted EPS(2) represents 7% growth compared with last year."
QUARTERLY FINANCIAL HIGHLIGHTS (Second-Quarter 2017 vs. Second-Quarter 2016)
Second-quarter 2017 revenues totaled $12.9 billion, a decline of $251 million, or 2% compared to the prior-year quarter, reflecting a slight operational decline of $48 million and the unfavorable impact of foreign exchange of $202 million, or 2%.
Excluding the revenues for HIS in both periods and the unfavorable impact of foreign exchange, second-quarter 2017 revenues increased by $248 million, or 2%. Second-quarter 2017 revenues excluding the net impact of acquisitions and divestitures completed in 2016 and the first six months of 2017 were flat operationally compared to second-quarter 2016.
Innovative Health Highlights
IH revenues increased 9% operationally in second-quarter 2017, driven by continued growth from key brands including Ibrance and Eliquis globally, the addition of Xtandi revenues in the U.S. resulting from the September 2016 acquisition of Medivation, as well as Xeljanz and Lyrica, both primarily in the U.S. Global Ibrance revenues increased 67% operationally while global operational revenue growth for Eliquis and Xeljanz was 52% and 56%, respectively.
Second-quarter 2017 operational growth was negatively impacted by lower revenues for Enbrel in most developed Europe markets, primarily due to continued biosimilar competition.
Global Prevnar 13/Prevenar 13 revenues declined 7% operationally in second-quarter 2017. In the U.S., Prevnar 13 revenues decreased 16%, primarily due to the unfavorable timing of government purchases for the pediatric indication and the continued decline in revenues for the Adult indication due to a smaller remaining "catch up" opportunity compared to the prior-year quarter. Prevenar 13 revenues in international markets increased 8% operationally, primarily due to the favorable timing of government purchases in certain emerging markets for the pediatric indication.
Essential Health Highlights
Second-quarter 2017 EH revenues declined 12% operationally, of which 5% operationally was due to the February 2017 divestiture of HIS. Second-quarter 2017 EH revenues were also negatively impacted by a 27% operational decline from Peri-LOE Products, including declines in Pristiq in the U.S., which lost marketing exclusivity in the U.S. in March 2017, as well as Vfend and Lyrica, both in developed Europe, and a 3% operational decline from Legacy Established Products (LEP). These declines were partially offset by 60% operational growth from Biosimilars, primarily driven by Inflectra in certain developed Europe markets and in the U.S.
Developed markets revenues declined 18% operationally, of which 5% operationally was due to the February 2017 divestiture of HIS. EH developed markets revenues were also negatively impacted by a 40% operational decline from Peri-LOE Products and a 9% operational decline from the LEP portfolio, partially offset by 63% operational growth from Biosimilars.
Revenues in emerging markets grew 5% operationally, primarily driven by 7% operational growth from the LEP portfolio and 10% operational growth from the SIP portfolio. Excluding HIS from both periods, EH revenues in emerging markets grew 6% operationally.
GAAP Reported(1) Income Statement Highlights
SELECTED TOTAL COMPANY REPORTED COSTS AND EXPENSES(1)
($ in millions)
(Favorable)/Unfavorable
Second-Quarter Six Months
2017 2016 % Change 2017 2016 % Change
Total Oper. Total Oper.
Cost of Sales(1) $ 2,663 $ 3,174 (16 %) (10 %) $ 5,134 $ 6,026 (15 %) (11 %)
Percent of Revenues 20.7 % 24.1 % N/A N/A 20.0 % 23.0 % N/A N/A
SI&A Expenses(1) 3,425 3,471 (1 %) — 6,733 6,856 (2 %) (1 %)
R&D Expenses(1) 1,780 1,748 2 % 3 % 3,487 3,478 — 1 %
Total $ 7,868 $ 8,392 (6 %) (3 %) $ 15,354 $ 16,359 (6 %) (4 %)
Other (Income)/Deductions––net(1) ($66 ) $ 1,068 * * ($68 ) $ 1,398 * *
Effective Tax Rate on Reported Income(1) 19.4 % 14.4 % 20.1 % 14.4 %
* Indicates calculation not meaningful.
Adjusted(2) Income Statement Highlights
SELECTED TOTAL COMPANY ADJUSTED COSTS AND EXPENSES(2)
($ in millions)
(Favorable)/Unfavorable
Second-Quarter Six Months
2017 2016 % Change 2017 2016 % Change
Total Oper. Total Oper.
Adjusted Cost of Sales(2) $ 2,595 $ 3,062 (15 %) (9 %) $ 5,029 $ 5,627 (11 %) (7 %)
Percent of Revenues 20.1 % 23.3 % N/A N/A 19.6 % 21.5 % N/A N/A
Adjusted SI&A Expenses(2) 3,385 3,443 (2 %) — 6,673 6,811 (2 %) (1 %)
Adjusted R&D Expenses(2) 1,771 1,740 2 % 2 % 3,476 3,463 — 1 %
Total $ 7,750 $ 8,246 (6 %) (3 %) $ 15,178 $ 15,901 (5 %) (3 %)
Adjusted Other (Income)/Deductions––net(2) ($170 ) ($230 ) (26 %) (43 %) ($258 ) ($380 ) (32 %) (51 %)
Effective Tax Rate on Adjusted Income(2) 22.9 % 22.7 % 22.6 % 23.1 %
The diluted weighted-average shares outstanding used to calculate Reported(1) and Adjusted(2) diluted EPS declined by 112 million shares compared to the prior-year quarter due to Pfizer’s share repurchase program, reflecting the impact of a $5 billion accelerated share repurchase agreement executed in March 2016 and completed in June 2016 and another $5 billion accelerated share repurchase agreement executed in February 2017 and completed in May 2017.
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 May 2, 2017)
Product Developments
Bavencio (avelumab)
In July 2017, Merck KGaA, Darmstadt, Germany (Merck KGaA) and Pfizer announced that the Committee for Medicinal Products for Human Use (CHMP) of the European Medicines Agency (EMA) recommended the approval of avelumab as a monotherapy for the treatment of adult patients with metastatic Merkel cell carcinoma (mMCC), a rare and aggressive skin cancer. The European Commission (EC) will now review the CHMP’s recommendation, with a decision expected in the third quarter of 2017. Bavencio was previously granted accelerated approval from the U.S. Food and Drug Administration (FDA) for the treatment of adults and pediatric patients 12 years and older with mMCC based on tumor response and duration of response. Continued FDA approval for this indication may be contingent upon verification and description of clinical benefit in confirmatory trials.
In May 2017, EMD Serono Inc., the biopharmaceutical business of Merck KGaA in the U.S. and Canada, and Pfizer announced that the FDA approved Bavencio for the treatment of patients with locally advanced or metastatic urothelial carcinoma who have disease progression during or following platinum-containing chemotherapy, or who have disease progression within 12 months of neoadjuvant or adjuvant treatment with platinum-containing chemotherapy. This indication was approved under accelerated approval based on tumor response and duration of response. Continued approval for this indication may be contingent upon verification and description of clinical benefit in confirmatory trials.
Besponsa (inotuzumab ozogamicin) — In June 2017, Pfizer announced that the EC approved Besponsa as monotherapy for the treatment of adults with relapsed or refractory CD22-positive B-cell precursor acute lymphoblastic leukemia (ALL). This indication includes treatment of adults with Philadelphia chromosome positive (Ph+) as well as Philadelphia chromosome negative (Ph-) relapsed or refractory B-cell precursor ALL. Adults with Ph+ relapsed or refractory CD22-positive B-cell precursor ALL should have failed treatment with at least one tyrosine kinase inhibitor. With this approval, Besponsa became the first and only antibody drug conjugate (ADC) available for patients with this type of leukemia in the European Union (EU). In the U.S., Besponsa received Breakthrough Therapy designation from the FDA in October 2015 for ALL. A Biologics License Application (BLA) for Besponsa for the treatment of adult patients with relapsed or refractory B-cell precursor ALL was accepted for filing and granted Priority Review by the FDA in February 2017. The Prescription Drug User Fee Act (PDUFA) goal date for a decision by the FDA is in August 2017.
Mylotarg (gemtuzumab ozogamicin) — In July 2017, Pfizer announced that the FDA’s Oncologic Drug Advisory Committee (ODAC) voted 6-1 that Mylotarg in combination with chemotherapy has a favorable risk-benefit profile for patients with newly-diagnosed CD33-positive acute myeloid leukemia (AML). The role of the ODAC is to provide recommendations to the FDA. The PDUFA goal date for a decision by the FDA is in September 2017.
Retacrit (proposed epoetin alpha biosimilar) — In June 2017, Pfizer announced that it received a Complete Response Letter (CRL) from the FDA regarding the Company’s BLA for its proposed epoetin alfa biosimilar. This CRL relates to matters noted in a Warning Letter issued in February 2017 following a routine FDA inspection of Pfizer’s manufacturing facility in McPherson, Kansas in 2016. This facility was listed as the potential manufacturing site in the BLA for the proposed epoetin alfa biosimilar. The issues noted in the Warning Letter do not relate specifically to the manufacture of epoetin alfa. No additional clinical data was requested in the CRL. An ODAC voted in May 2017 to recommend this proposed biosimilar for approval.
Sutent (sunitinib malate) — In May 2017, Pfizer announced that a supplemental New Drug Application (sNDA) for Sutent was accepted for filing by the FDA. If approved, the sNDA would expand the approved use of Sutent to include use as an adjuvant treatment in adult patients at high risk of recurrent renal cell carcinoma (RCC) following nephrectomy (surgical removal of the cancer-containing kidney). In addition, the EMA has validated for review a Type II Variation application for Sutent in the same patient population. The PDUFA goal date for a decision by the FDA is in January 2018.
Trumenba (Meningococcal Serogroup B Bivalent Recombinant Lipoprotein vaccine) — In May 2017, Pfizer announced that the EC approved Trumenba for the prevention of invasive meningococcal disease caused by Neisseria meningitidis serogroup B in individuals 10 years of age and older.
Vyndaqel (tafamidis) — In June 2017, Pfizer announced that the FDA granted Fast Track designation to tafamidis, the Company’s investigational treatment for transthyretin cardiomyopathy (TTR-CM). This rare disease is associated with progressive heart failure and is universally fatal. Currently in Phase 3 clinical development for TTR-CM, tafamidis is being evaluated for its potential to reduce mortality and cardiovascular-related hospitalizations. The FDA’s Fast Track approach is a process designed to facilitate the development and expedite the review of new drugs and vaccines intended to treat or prevent serious conditions and address an unmet medical need. Vyndaqel was first approved in 2011 in the EU for the treatment of transthyretin familial amyloid polyneuropathy (TTR-FAP) in adult patients with early-stage symptomatic polyneuropathy to delay peripheral neurologic impairment and is currently approved for TTR-FAP in 40 countries. Pfizer received a CRL from the FDA on its application to approve tafamidis for TTR-FAP in 2012; tafamidis is not approved in the U.S.
Xeljanz (tofacitinib citrate)
In July 2017, Pfizer announced that the FDA accepted for review a sNDA for Xeljanz for the treatment of adult patients with moderately to severely active ulcerative colitis. The PDUFA goal date for a decision by the FDA is in March 2018.
In May 2017, Pfizer announced that the FDA accepted for review a sNDA for Xeljanz 5 mg twice daily for the treatment of adult patients with active psoriatic arthritis (PsA). A separate sNDA was also accepted for Xeljanz XR extended release 11 mg once daily use in PsA. The PDUFA goal date for a decision by the FDA is in December 2017. The FDA’s Arthritis Advisory Committee is scheduled to meet on August 3, 2017 to discuss the efficacy and safety data as well as benefit-risk considerations for these sNDAs.
Xtandi (enzalutamide) — In June 2017, Astellas Pharma Inc. (Astellas) and Pfizer announced the amendment of the protocol for the registrational PROSPER trial, a multi-national, randomized, double-blind, placebo-controlled study evaluating the efficacy and safety of Xtandi in patients with non-metastatic castration-resistant prostate cancer (CRPC). The primary endpoint of the PROSPER trial remains the same: metastasis-free survival. The main purpose of the amendment is to revise the plan for the analyses of the primary and several secondary endpoints, which allows for a reduction in the target sample size to approximately 1,440 from 1,560 patients. The companies now anticipate PROSPER top-line results will be disclosed later this year. Previously the expected primary completion date for PROSPER was June 2019. Xtandi is currently approved by the FDA for the treatment of patients with metastatic CRPC.
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.
Ertugliflozin (PF-04971729) — In June 2017, Merck, known as MSD outside the U.S. and Canada, in partnership with Pfizer, announced that two Phase 3 studies (VERTIS MET and VERTIS SITA) of ertugliflozin, an investigational oral SGLT-2 inhibitor in development to help improve glycemic control in adults with type 2 diabetes, met their primary endpoints. In the studies, both doses of ertugliflozin tested (5 mg and 15 mg daily) achieved statistically significant reductions in A1C, a measure of average blood glucose over a two- to three-month timeframe, when added to metformin or in initial co-administration with sitagliptin. The results of these studies, along with 52-week extension data from three other studies in the VERTIS clinical development program of ertugliflozin, were presented at the 77th Scientific Sessions of the American Diabetes Association.
PF-06439535 (proposed biosimilar bevacizumab) — In July 2017, Pfizer announced that the REFLECTIONS B7391003 study, a comparative, confirmatory safety and efficacy study of PF-06439535 versus Avastin(7) (bevacizumab), met its primary endpoint, demonstrating equivalence of objective response rate of PF-06439535 versus Avastin(7), both taken in combination with carboplatin/paclitaxel, for the first line treatment of patients with advanced non-squamous non-small cell lung cancer.
Talazoparib (MDV3800) — In June 2017, Pfizer announced Phase 2 data showing that its investigational, dual-mechanism poly ADP ribose polymerase (PARP) inhibitor, talazoparib, demonstrated anti-tumor activity in patients with germline (inherited) BRCA1/2-positive (gBRCA+) advanced breast cancer. Results from the Phase 2 ABRAZO trial were presented during an oral session at the 53rd Annual Meeting of the American Society of Clinical Oncology (ASCO) (Free ASCO Whitepaper). ABRAZO is an open-label Phase 2, two-stage, single arm, parallel cohort study that investigated the clinical efficacy and safety of single-agent talazoparib in 83 evaluable, heavily pretreated gBRCA+ advanced breast cancer patients. The primary endpoint was objective response rate (ORR) by independent radiology review. Cohort 1 consisted of 49 patients who previously responded to platinum-based chemotherapy and subsequently developed disease progression. A 21% ORR (95% CI: 10-35) was observed in this group of patients. Cohort 2 consisted of 35 patients who developed disease progression following at least three lines of non-platinum-based therapy. This group of patients had a 37% ORR (95% CI: 22-55). Talazoparib is also being assessed in the open-label Phase 3 randomized, parallel, two-arm EMBRACA trial. EMBRACA is evaluating talazoparib vs. protocol-specific physician’s choice of chemotherapy in patients with advanced and/or metastatic gBRCA+ breast cancer who have received zero to three prior chemotherapy regimens for advanced disease. The EMBRACA trial has completed enrollment and top-line results are expected by January 2018.
Tanezumab (PF-4383119) — In June 2017, Pfizer and Eli Lilly and Company (Lilly) announced that the FDA granted Fast Track designation for tanezumab for the treatment of chronic pain in patients with osteoarthritis and chronic low back pain. Tanezumab is an investigational humanized monoclonal antibody that selectively targets, binds to and inhibits nerve growth factor (NGF). It is the first and only NGF inhibitor to receive Fast Track designation. In 2013, Pfizer and Lilly entered into a worldwide co-development and co-commercialization agreement for the advancement of tanezumab.
Corporate Developments
In July 2017, Pfizer and Basilea Pharmaceutica Ltd. (Basilea) completed a licensing agreement whereby Pfizer obtained the exclusive commercialization rights in Europe to Cresemba (isavuconazole), a novel anti-fungal treatment for adult patients with diagnosed invasive aspergillosis and mucormycosis, two serious infections associated with high morbidity and mortality among immunocompromised patients. Under the terms of the agreement, Pfizer will have exclusive rights to distribute and commercialize Cresemba in Europe, including Austria, France, Germany, Italy and the United Kingdom, where it is currently available. These rights do not extend to the Nordic countries (Denmark, Finland, Norway, Sweden and Iceland). In addition, Pfizer will be responsible for additional Cresemba launches, predominantly in Europe, which are expected throughout 2017 and 2018. Basilea will remain the marketing authorization holder for the EU.
In May 2017, Sangamo and Pfizer announced an exclusive, global collaboration and license agreement for the development and commercialization of gene therapy programs for Hemophilia A, including SB-525, one of Sangamo’s four lead product candidates. Under the terms of the agreement, Pfizer recorded $75 million in research and development expenses in the second quarter of 2017, which included an upfront payment of $70 million to Sangamo. Sangamo will be responsible for conducting the SB-525 Phase 1/2 clinical study and certain manufacturing activities. Pfizer will be operationally and financially responsible for subsequent research, development, manufacturing and commercialization activities for SB-525 and additional products, if any. Sangamo is eligible to receive potential milestone payments of up to $475 million, including up to $300 million for the development and commercialization of SB-525 and up to $175 million for additional Hemophilia A gene therapy product candidates that may be developed under the agreement. Sangamo will also receive tiered double-digit royalties on net sales. Additionally, Sangamo will be collaborating with Pfizer on manufacturing and technical operations utilizing viral delivery vectors.
Pfizer announced in February 2017 that it had entered into an accelerated share repurchase agreement with Citibank N.A. (Citibank) to repurchase $5 billion of Pfizer’s common stock. Pursuant to the terms of the agreement, on February 6, 2017, Pfizer paid $5 billion to Citibank and received an initial delivery of approximately 126 million shares of Pfizer common stock from Citibank. Upon settlement of the agreement in May 2017 and pursuant to the agreement’s settlement terms, Citibank delivered approximately 24 million additional shares of Pfizer common stock to Pfizer. After giving effect to the accelerated share repurchase agreement, Pfizer’s remaining share-purchase authorization was approximately $6.4 billion as of August 1, 2017.