3 Things You Likely Missed in Pfizer's Q2 Report

Source: Pfizer.

On Tuesday, July 28, Pfizer , one of the most renowned pharmaceutical companies in the world, reported its second-quarter earnings results. In general, Wall Street was very pleased with what they saw, with Pfizer's stock rising by better than $1 a share, its biggest one-day move in either direction since February.

Pfizer's Q2, by the numbers What had the Street so excited? Primarily it was the headline profit figure which topped estimates, and Pfizer's improved full-year guidance.

For the quarter, Pfizer reported total sales of $11.85 billion, down 7% on a year-over-year basis but inclusive of the negative effects of foreign currency translation. Because the U.S. dollar has been stronger, and most foreign currencies weaker against the dollar, Pfizer has been losing money when converting foreign currency back into dollars. On an operational basis, or sans currency fluctuations, sales rose 1%.

As expected, oncology and vaccines led the charge higher in the pharmaceutical segment, while the loss of patent exclusivity on arthritis drug Celebrex proved to be a proverbial cement block. U.S. sales of Celebrex plunged 89% to just $58 million due to generic competitors entering the market.

On a profitability basis, Pfizer's adjusted EPS declined 3% to $0.56 from $0.58 in the year-ago period, with adjusted income falling 6% to $3.53 billion. Pfizer had 201 million fewer shares outstanding compared to last year due to its aggressive share repurchasing program, making the EPS drop less noticeable than then 6% dip in adjusted income.

Comparatively, Pfizer topped Wall Street's sales and profit expectations, with the Street looking for a profit of just $0.52 per share on $11.42 billion in sales.

Furthermore, Pfizer boosted the low-end of its full-year sales forecast to $45 billion from $44 billion, while leaving its top-end firmly at $46 billion. Its adjusted EPS forecast also rose to a fresh range of $2.01-$2.07 from a prior projection of $1.95-$2.05 in the sequential first quarter.

Source: Pfizer.

Three things you probably missed in Pfizer's Q2 reportThe headline numbers alone were enough to propel Pfizer's stock markedly higher, but investors who focused too much on the headlines may have missed some important points hidden beneath those numbers. Here are three things you may have missed when Pfizer reported its Q2 results.

1. Pfizer is over the revenue humpPfizer has been facing an unprecedented number of patent losses this decade, including the best-selling drug of all-time, Lipitor, Celebrex, Spiriva, and Zyvox in the United States. Despite these patent losses, and Pfizer witnessing in the neighborhood of $22 billion in sales disappear over a five-year period, the worst appears to be over.

Despite only eking out 1% operational sales growth, this marked the third consecutive quarter that Pfizer has delivered operational year-over-year growth. That's pretty impressive when you have blockbusters like Celebrex, which brought in about $3 billion annually, being reduced to an $800 million to $1 billion per year drug overnight. In other words, on an apples-to-apples basis, Pfizer's business is growing once again. It may not be the robust growth Wall Street was accustomed to in the 1990s and 2000s, but it's nonetheless back on the right track. Pfizer is officially rising out of the revenue trough.

2. Ibrance and Prevnar are monstersIt's not as if Pfizer's management didn't discuss the ongoing success of its Prevnar vaccine line or the ongoing launch of breast cancer drug Ibrance in their commentary, but with few sales figures actually mentioned, if you just read the headline numbers then you missed just how dominant these two therapies were.

The Prevnar family of vaccines actually surpassed nerve and muscle pain drug Lyrica to become Pfizer's newest best-selling drug. Sales rose a ridiculous 43% on an operational basis to $1.5 billion, with an 87% increase in the United States. The vaccine, which blocks pneumococcal disease and is the best-selling vaccine in the world at the moment, was cleared by the Centers for Disease Control and Prevention in the U.S. a year ago for use in Americans aged 65 and up. Within the U.S. this is a rapidly growing age group, and it should only expand as access to healthcare (and life expectancy) improves and as baby boomers age.

Source: Pfizer.

When it comes to breast cancer drug Ibrance, there's little doubt left that Pfizer has a successful launch on its hands. Following a partial first quarter where Ibrance sales totaled $38 million, Pfizer's breast cancer star, which doubled progression-free survival in the PALOMA-1 trial that led to its approval, saw its sales rise better than threefold from Q1 to $140 million. Keep in mind, we're talking about a drug already pacing $560 million in annual sales after only four full months on the market, and including just a single indication. Ibrance has the opportunity to expand its label based on between a half-dozen and dozen additional trials set to be run between now and 2020.

In my personal opinion, Ibrance does indeed have $3 billion to $5 billion annual sales potential if additional trials work in its favor.

3. Some swooning blockbusters stabilized Perhaps what I found most intriguing, aside from Pfizer officially signaling a revenue turnaround, is that some of its formerly swooning blockbusters have stabilized.

For instance, oncology drug Sutent, which is used to treat advanced renal cell carcinoma (RCC), advanced pancreatic neuroendocrine tumors, and gastrointestinal stromal tumors, saw its sales rise on an operational basis by 7% as demand improved. This was surprising, especially with Sutent sales dragging in recent quarters. It remains to be seen if Sutent can maintain its share in advanced RCC with phase 3 studies in the indication from Exelixisand Bristol-Myers Squibbhitting the mark in recent weeks, but it's nonetheless great news to see a high-margin therapy like Sutent experiencing a boost in demand.

Source: Pfizer.

Lipitor was another somewhat nice surprise. Despite a 1% decline in operational sales, primarily due to generic competition in the U.S. where sales slumped 58% to $40 million, Lipitor's operational sales spiked 11% in overseas markets -- specifically in China where the drug has found new life. With little left in the way for sales to decline in U.S. markets, it's possible Lipitor could hold the $2 billion annual sales mark for some time to come thanks to its pull in international markets.

Time to buy Pfizer? Pfizer's sales swoon officially looks over -- and that's great news. But, is the stock a buy?

If your holding timeframe is longer than a decade, then perhaps it is. Pfizer's superior dividend and low volatility make it a dream stock for many retirees.

However, there are still some hiccups Pfizer will need to work through, including the integration of Hospira, the likely addition of another mid-to-large healthcare company (Pfizer hasn't been shy about its desire to buy growth), and the imminent loss of patent protection on Lyrica in 2018. Lyrica is capable of producing about $5 billion in sales per year.

With that in mind, I don't believe there's any urgency to enter a position in Pfizer here, and would suggest that many of the future positives, such as the strength of Ibrance and the Prevnar vaccine family, have already been factored into its share price. Investors should keep these points in mind before choosing to click the "buy" button.

The article 3 Things You Likely Missed in Pfizer's Q2 Report originally appeared on Fool.com.

Sean Williamsowns shares of Exelixis (which is also recommended by The Motley Fool), but he has no material interest in any other 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.Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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