3 Questions Wall Street Wants Answered When Pfizer Reports Q2 Results

Source: Pfizer via Facebook.

Earnings season is now well under way, and one of the most important reports in the pharmaceutical sector is right around the corner: Pfizer .

The Big Pharma kingpin is set to report its results before the opening bell on Tuesday, July 28. Wall Street's current consensus estimate calls for $11.38 billion in revenue, representing about a 10% drop from the prior-year quarter, with earnings per share of $0.51, which would be down from $0.58 in the year-ago period. History is certainly on the side of the optimists, with Pfizer surpassing Wall Street's consensus EPS estimates in 10 of the past 11 quarters, often by $0.01 or $0.02.

Three questions Wall Street wants answered Although headline figures certainly give us a rough outline of how well a company performed during the previous quarter, they don't tell us the most important thing: how it arrived at its headline numbers. To get those answers we need to be willing to dig a bit deeper than just the headlines and examine the inner workings of Pfizer. With that in mind, Wall Street and investors have their eyes on a very specific set of questions and concerns that they're looking to be addressed in Pfizer's quarterly report. Let's briefly take a look at these questions so you'll have a good idea of what to keep a lookout for on July 28.

1. Can Pfizer's GEP survive on its own? Arguably the most intriguing question surrounding Pfizer's future is what it might do with its diverging business segments.

Last year, Pfizer decided to begin reporting its quarterly and annual results in four operating segments: global established products (GEP), global innovative products (GIP), vaccines (V), and oncology (O). Doing so makes things a bit easier for analysts and investors to understand how Pfizer makes money, but the primary purpose for the segmentation of its results is to determine if its GEP could be a stand-alone business.

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While oncology, vaccines, and GIP are growing nicely, Pfizer's GEP is comprised of drugs that have either come off patent and are facing substantial generic competition or they're mature drugs that are just months or years away from facing generic competition. As such, GEP sales have been slowly sinking Pfizer's ship since 2010. Annual revenue for Pfizer has plunged from $67.8 billion in 2010 to an estimated midpoint of $45 billion in 2015. Yes, negative currency translation hasn't helped Pfizer's top line either, so it's not entirely related to losses of exclusivity. But make no mistake that patent losses have been a major headwind for the pharma giant.

Over the past decade, Pfizer has witnessed patent losses on cholesterol drug Lipitor, the best-selling drug of all time, as well as blockbuster arthritis drug Celebrex, to name a few. By 2018, Lyrica, currently its best-selling drug, will be exposed to generic competition.

The acquisition of Hospiraand its generic and leading injectables product portfolio should help stem the decline in GEP sales, but Wall Street will certainly be looking for more light to be shed by Pfizer's management team in its Q2 report as to whether a spinoff or sale of its GEP might be in its future.

2. What's the skinny on the Ibrance launch?Falling GEP sales aside, the next biggest catalyst for Pfizer will be the total quarterly sales of its recently-approved drug for advanced breast cancer patients, Ibrance.

Source: Pfizer.

Ibrance has blockbuster potential, but it'll take label expansion of the drug over the coming years to push its peak annual sales potential north of $3 billion. Currently approved for estrogen-positive, HER2-negative advanced breast cancer patients who haven't undergone prior endocrine-based therapy, Ibrance is being studied in multiple new indications. These include recurrent advanced breast cancer patients who have undergone prior endocrine-based therapy (the PALOMA-3 trial), as well as high-risk, estrogen-positive breast cancer patients, and other solid tumor candidates, such as pancreatic cancer. All in all, Pfizer will likely report more than a half-dozen top-line study results for its cancer anchor drug between 2015 and 2020.

Discovering a great drug, however, is only half the challenge these days for Big Pharma. The other part of the struggle for drug developers is in ensuring a successful launch. This means pricing the drug properly so that insurers, physicians, or consumers are not scared away and marketing the drug so that it maximizes interest from these three groups.

In its partial first quarter, Ibrance sales totaled $38 million, which is pretty impressive for just a few weeks on the market. Considering that the PALOMA-1 trial demonstrated a practical doubling in progression-free survival (20.2 months vs. 10.2 months) compared to the placebo, it's not hard to understand why physicians and advanced ER+/HER2- breast cancer patients might be eager to begin taking this drug. Thus, in Q2, all eyes are going to be on Ibrance's first full quarter of sales, as well as any color that management gives for sales expectations for the remainder of the year.

3. What's the near-term outlook on acquisitions?Lastly, Wall Street will be looking for commentary from CEO Ian Read or any of Pfizer's board members regarding the direction Pfizer plans to take with future acquisitions.

Source: Flickr user Nguyen Hung Vu.

Even following the $17 billion acquisition announcement of Hospira, Pfizer was clear that its buying spree was nowhere near done. As Read has noted before, he views the company as "agnostic" on future M&A activity, meaning Pfizer could be comfortable making bolt-on acquisitions that enhance therapeutic indications the company is already focusing on or it could be looking for a mega merger. Getting a better bead on Pfizer's M&A strategy should help Wall Street when it comes to valuing Pfizer and its growth prospects.

For investors, understanding how aggressive Pfizer plans to be with acquisitions could signal whether the current management team feels uncomfortable with its growth prospects. As noted above, Pfizer's sales have been tapering for five years, and Pfizer's urgency to find a company to buy or merge with could signify just how desperate its management team is for growth.

Sit tightThe good news for investors is that Pfizer is a cash cow, and its substantial cost-cutting, share-buyback programs, and dividend have made owning the stock very rewarding these past five years.

Unfortunately, with limited growth prospects on the horizon, current shareholders need to understand that this is a long-tail growth opportunity. A turnaround here isn't going to happen overnight. Once Pfizer can move beyond Lyrica's patent loss in 2018 and decides what to do with its GEP portfolio, then perhaps it can return to mid-single-digit growth, which is what Wall Street and investors would expect.

Until then, investors should essentially sit tight and expect mediocre quarterly results with few surprises in the near term. This doesn't mean you shouldn't intently listen to what Pfizer has to say during its quarterly reports -- but it probably means no rash buy or sell decisions need to be made based on a single earnings report.

The article 3 Questions Wall Street Wants Answered When Pfizer Reports Q2 Results originally appeared on Fool.com.

Sean Williamshas no material interest in any companies mentioned in this article. You can follow him on CAPS under the screen nameTMFUltraLong, track every pick he makes under the screen nameTrackUltraLong, and check him out on Twitter, where he goes by the handle@TMFUltraLong.The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter servicesfree for 30 days. We Fools may not all hold the same opinions, but we all believe thatconsidering a diverse range of insightsmakes us better investors. The Motley Fool has adisclosure policy.

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