New York-based drugmaker and Dow-30 component Pfizer (PFE Free Pfizer Stock Report) reported first-quarter GAAP earnings of $0.68 a share, versus $0.59 in the comparable period of 2018. The year-over-year improvement was fueled by a decent uptick in revenues, lower taxes, and reductions in production, R&D, and SG&A expenses. Meantime, adjusted earnings, which exclude one-time gains, losses, and other nonrecurring items, and are more closely followed by Wall Street, came in at $0.85 a share versus $0.75 in Q1, 2018. The adjusted figure easily surpassed consensus expectations of $0.75 a share, with much of the upside coming from strength in the Biopharma portfolio (more below). Management responded by upping its 2019 guidance and PFE shares were trading a few points higher on the release.  

In the March period, worldwide revenues advanced 2% year over year, to $13.1 billion, representing the seventh-consecutive quarter of top-line growth. The tally also beat consensus targets by about $100 million, driven by stronger performances in the blockbuster Ibrance franchise (+21% year over year, to $1.13 billion) and lead vaccine asset Prevnar (+8%, to $1.49 billion). Continued momentum in rheumatoid arthritis drug Xeljanz (+30%) and blood thinner medication Eliquis (+32%) provided further support to top-line comps, helping to mitigate declines in the Upjohn (-1%) and Consumer Healthcare (-5%) segments. Investors recall that at the start of 2019 Pfizer reorganized its commercial operations into three businesses: Biopharma (70% of Q1 revenues), focusing on innovative medicines; Upjohn (23%), consisting of off-patent branded and generic established medicines; and Consumer Healthcare (7%), for over-the-counter products. 

Due to the solid Q1 showing and an announced bump up in milestone income, management, under new CEO Albert Bourla (appointed January 1st), raised its adjusted earnings guidance modestly from $2.82-$2.92 a share, to $2.83-$2.93. The outlook reflects total revenues of $52.0 billion-$54.0 billion (unchanged), which implies a 1% year-over-year pullback at the midpoint owing to a combination of foreign exchange and biosimilar-related pressures. In regard to the latter, Pfizer's second-highest grossing product Lyrica (9% of total revenues) is scheduled to lose U.S. exclusivity in June. With cheaper generics hitting the market, we are likely to see significant erosion in the back half of this year and into 2020 (the nerve pain medication generated $4.6 billion in sales in 2018). On a positive note, management indicated that Lyrica would be the last ``top-selling product'' to go off patent until the second half of next decade.  The drugmaker will be leaning heavily on continued development of Ibrance, Xeljanz, and Eliquis to help fill the void. 

All told, we continue to view Pfizer as a solid core holding in the large pharmaceutical space. The company has strong finances, high-grade fundamentals, and an impressive track record of returning value to shareholders. The equity scores well across all of our proprietary risk metrics and also boasts an attractive 3.4% dividend yield, which should appeal to more conservative, income-oriented portfolios.

About The Company: Pfizer is a major producer of pharmaceuticals. The company is engaged in discovering, developing, and manufacturing of healthcare products. Important product names include LYRICA (nerve and muscle pain); PREVNAR (vaccine); ENBREL (arthritis, psoriasis, and more); IBRANCE (advanced breast cancer) and CELEBREX (osteoarthritis, rheumatoid arthritis). The company acquired injectable drugmaker Hospira in 2015 and medical devices producer Medivation in 2016.

At the time of this article’s writing, the author did not have positions in any of the companies mentioned.