Q4 Earnings Beat Fails To Lift Pfizer Stock

  • Pfizer's guidance on 2016 earnings were 6 cents short of optimistic estimates.
  • The strategy going forward is that of Allergan, which it's buying to go offshore.
  • The company needs a political win to get the wind back in its sails.

Pfizer (NYSE:PFE) beat earnings estimates, but offered weak guidance, causing the Pfizer stock to fall roughly 2% before trade on February 2.

Net income came in at $613 million, 10 cents per share, on revenue of $14.05 billion. Adjusted for non-recurring costs, Pfizer Q4 earnings were reported at 53 cents per share. Estimates had been for Pfizer to report earnings of 52 cents/share on $13.6 billion in revenue.

The beat was offset by two factors.

First, the numbers were far worse than they had been a year ago, when Pfizer earned $1.23 billion, 19 cents per share.

Second, and more important, Pfizer’s guidance for 2016 was below analysts’ estimates, with total revenue at $49-51 billion and total earnings at $2.20-2.30/share. Analysts had been hoping it would guide toward revenue of $52.5 billion and earnings of $2.36/share.

As a direct result of these numbers, shares in Allergan (NYSE:AGN) also fell. Pfizer announced last year that it would buy Allergan for about 11.3 shares of Pfizer, moving the headquarters of the company to Ireland for tax purposes, and when the deal was announced it was said to be worth about $360 for each Allergan share. But Allergan traded early on February 2 below $280.

Pfizer is the poster child for the “patent cliff,” the expiration of drug patents resulting in generic competition. During 2015, for instance, Pfizer lost exclusivity on Celebrex, a drug to treat arthritis. It was helped during the year by sales results from Prevnar 13, a vaccine for pneumonia, as well as Ibrance, which is used to treat breast cancer.

But these new drugs have yet to offset losses from the patent expiration on Lipitor, which was bringing in $13 billion/year before it went off-patent, and prices plunged with generic competition. That is why Pfizer has been on an acquisition binge for years, buying Wyeth and Hospira before making the Allergan deal, under which its shareholders will still have more than half the company, making the transition tax-free.

The strategy going forward is basically Allergan’s. Move the profits offshore, buy up generic competitors, cut research and raise prices. That strategy is increasingly controversial, especially because this is an election year in the U.S. and health costs remain a major concern for many people.

Thus Allergan has been on a PR offensive in recent weeks, with an economic impact study showing how its plant has improved the economy of Waco, Texas. CEO Brent Saunders actually traveled to Waco saying he could double capacity there, reminding regulators that taxes aren’t the only benefit companies like Allergan deliver.

Will that be enough to keep the regulators off Pfizer-Allergan in 2017? I tend to doubt it, unless Texas Senator Ted Cruz wins the White House in November.

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