The S&P 500 index soared 19% in 2017 (so far). The healthcare sector performed even better, with year-to-date gains of close to 21%. Several major drugmakers completed significant acquisitions. Some biopharmaceutical companies enjoyed tremendous revenue and earnings gains this year. But for Pfizer (NYSE: PFE), none of this was applicable.
Although 2017 wasn't a horrible year for Pfizer, with the stock gaining more than 11%, it wasn't exactly a great one, either. Here are three key reasons why this was a year to forget for the big pharma company.
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1. Lackluster financial results
Pfizer didn't lose money, or experience massive revenue and earnings declines in 2017. However, the company didn't post strong growth. In the first quarter, Pfizer announced a year-over-year revenue decline of 2%, with adjusted earnings basically the same as the prior-year period. Things didn't change much in the second quarter, as Pfizer reported another revenue decrease of 2% and adjusted earnings growth of only 3%.
The story got a little better for Pfizer in the third quarter of 2017, but it was still nothing to jump up and down over. Pfizer posted a third-quarter revenue increase of less than 1% over the same period in 2016. However, adjusted earnings jumped by 8% year over year, and came in better than Wall Street expected.
Pfizer's essential health segment continued to weigh down the company's overall financial results. Sales dropped due to loss of exclusivity for several drugs. Even Pfizer's more profitable innovative health unit faced headwinds, with competition for blockbuster autoimmune disease drug Enbrel taking its toll, and lackluster performance for the company's top-selling product, pneumococcal vaccine Prevnar 13.
2. No huge pipeline splash
Pfizer announced several advances for its pipeline this year. Bavencio, an immunotherapy co-developed by Pfizer and partner Merck KGaA, won Food and Drug Administration (FDA) approval for treating Merkel cell carcinoma in March, and another approval for treating urothelial carcinoma in May. Pfizer gained FDA approval for leukemia drugs Besponsa in August and Mylotarg in September. Rising star Ibrance won an additional approval from the FDA in March as a first-line treatment for breast cancer.
There also was some good news outside of the oncology arena. Xeljanz won European approval as a treatment for rheumatoid arthritis in March. In October, blockbuster drug Lyrica CR picked up an additional two approved indications in the U.S. for extended-release tablets.
Despite all of this, though, Pfizer didn't have any pipeline announcement that made a huge splash. And the company experienced a few setbacks, as well. Lyrica CR failed to win FDA approval for management of fibromyalgia. Bavencio flopped in a late-stage study targeting treatment of gastric cancer.
3. Little else to excite investors
When biopharmaceutical companies don't have great financials or pipeline progress to excite investors, they often turn to dealmaking to generate interest in their stocks. While Pfizer made a couple of big acquisitions in 2016 with the purchases of Medivation and Anacor, there were no deals this year.
This wasn't unique to Pfizer, though. With the exceptions of Johnson & Johnson's buyout of Actelion and Gilead Sciences' acquisition of Kite Pharma, 2017 was a relatively sluggish year for business development in the biopharmaceutical industry. There were several reasons for this, including the potential for corporate tax reform in the U.S., which caused big companies to hold off on making big deals.
Pfizer continued to buy back shares, and hiked its dividend for 2017 by 7%. However, while both moves were good for investors, neither were significant enough to make a huge impact on the stock.
Better year ahead?
There's reason to believe that 2018 could be a better year for Pfizer. First, Wall Street expects higher earnings growth than in recent years, driven, in large part, by continued success for Ibrance and blood thinner Eliquis. In particular, Ibrance is expected to grow sales by more than $1 billion next year. Pfizer also could be in store for launches of new products that could move the needle. These potential launches include diabetes drug ertugliflozin and pain drug tanezumab.
It also seems likely that Pfizer will be much busier on the acquisitions front. With both houses of the U.S. Congress passing tax reform bills, the chances are even higher that corporate tax rates will come down and a one-time lower tax rate for repatriation of money parked overseas will be implemented. Pfizer should be a key beneficiary of tax reform, and I suspect the company is already eyeing a major deal for 2018.
There could also be a divestiture or spinoff in the cards for Pfizer next year. The company announced in October that it's evaluating the options for its consumer healthcare business. While Pfizer could decide to hold on to the business, my view is that it won't -- and that would be good for investors.
As a Pfizer shareholder, I eagerly await the new year to see what happens with the company and the stock. I have a feeling that 2018 will probably be a year to remember.
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