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Morningstar | Pfizer Posts Largely In-Line 3Q as Recently Launched Products Offset Generic Pressures

Pfizer reported third-quarter results largely in line with both our and consensus expectations, with a little softness on the top line and a little strength on the bottom line, but we are not making any significant changes to our fair value based on the results. Additionally, the bottom-line strength was partly supported by stronger other income, which we don't view as a fundamental driver of growth for the company, but rather a line used more for one-time items. Overall, the largely in-line quarter reinforces our current valuation for Pfizer, which is close to the market price.

Turning to the company's wide moat, we continue to view the company in a strong competitive position, and the results reinforce the company's strength with recently launched drugs offsetting patent pressures on older drugs. Total sales in the quarter increased 2% operationally, supported by strong growth from cardiovascular drug Eliquis, cancer drug Ibrance, and immunology drug Xeljanz offsetting generic competition on older drugs. While we expect these growth drivers to decelerate over the next three years, Ibrance should continue to grow rapidly in international markets and adjuvant indications should reaccelerate growth in the U.S. in 2021. Also, Eliquis should continue to take share from older, inferior drug warfarin, which still holds 35% U.S. market share.

Additionally, Pfizer's late-stage pipeline is setting up the company for steady growth over the next three years. We expect new blockbusters (drugs with sales over $1 billion annually) to include pain drug tanezumab, Vyndaqel for the rare cardiovascular disease transthyretin amyloid cardiomyopathy, Prevnar-20 (extending the company's pneumococcal vaccine franchise) and two JAK inhibitors (PF-06651600 and PF-04965842) for immunology diseases. These late-stage drugs look well positioned to offset the key patent losses over the next three years, including the 2019 U.S. patent loss on neuroscience drug Lyrica (7% of total sales).

For a complete review of the NGF market and the outlook for tanezumab, please see our report "No Pain, Potential for Lots of Gain for Pfizer, Lilly, and Regeneron." Also, the report "Key Opinion Leader Call: Anti-NGF Treatments From Pfizer, Lilly, and Regeneron Address Unmet Need in Chronic Pain Market" provides insights from Thomas Schnitzer, MD, PhD, on the outlook for the NGF class.