3 earnings beats and a miss: Examining Pfizer, Merck, Bristol-Myers, and Novartis' Q3
Pharma giants Merck, Bristol-Myers Squibb, Pfizer, and Novartis all reported Q3 earnings on Tuesday morning, and nearly all of the companies beat analysts' earnings-per-share expectations. Gilead will also be reporting earnings on Tuesday, but not until after the market closes.
Merck, BMS, and Pfizer topped estimates, with Pfizer raising its 2015 forecast for the second time in two months to adjusted full-year EPS of $2.16 to $2.20 per share and Q4 EPS of $0.60 per share (versus average consensus of $2.09 and $0.51 per share, respectively); Bristol-Myers seeing a 4% revenue increase to $4.1 billion for the quarter and Q3 EPS of $0.39; and Merck having its quarterly net income more than double year-over-year to $1.82 billion (versus $895 million in Q3 2014). Merck's Q3 EPS more than doubled from this quarter last year to $0.64 per share despite a 5% decline in global sales.
On a slightly less bullish note, Novartis missed estimates with Q3 EPS of $1.27 versus a consensus of $1.31. The big sting for Novartis came from an in-principle settlement of $390 million the company announced with U.S. regulators over charges that the company paid improper discounts to specialty pharmacies to boost drug sales. That settlement (which has yet to be finalized) helped cause Q3 net income to drop to $1.8 billion, a 42% drop.
But all in all, it was a pretty strong morning for major U.S. pharmaceutical companies, at least on an earnings-per-share basis.
As with any earnings report, Merck, BMS, and Pfizer all demonstrated relative strengths and weaknesses in their pipelines. For Pfizer, the strongest sales came from a 43% boost to vaccine revenue, including a 38% surge in sales for Prevnar family of pneumococcal vaccines, while drugs like Celebrex and Zyvox saw big declines. The Viagra maker is now also clear of its $17 billion acquisition of Hospira, which closed in September.
One lingering question regarding Pfizer's EPS beat may be the extent to which the company used price hikes on older drugs to bolster revenues during a year in which it made a mid-size acquisition.
Bristol-Myers and Merck both benefited from their rock star (and exorbitantly priced) immuno-oncology drugs Opdivo and Keytruda, respectively. Keytruda sales grew nearly 1,000% on the year while Opdivo sales ballooned by more than $180 million to $305 million in Q3.
Opdivo has been outperforming its competing immuno-oncologic from Merck. Although both drugs have won a flurry of cancer indications over the past year, including in various forms of lung cancer and melanoma, Opdivo's indications have generally applied to broader patient pools. The drug also nabbed FDA Breakthrough Therapy status for advanced kidney cancer.
But Opdivo wasn't the only drug in BMS' portfolio with surprisingly strong sales. The hep C med Daklinza, used in combination with Gilead's blockbuster Sovaldi, also brought in $402 million for the quarter, far surpassing estimates of $257 million. Demand was reportedly driven from a big uptick in orders from the Department of Veterans Affairs.
For its part, Merck saw some benefits from its $8.4 billion acquisition of Cubist, including a 1,000% increase in sales for the skin and blood infection drug Cubicin. That benefit will likely wane, however, as U.S. courts have ruled that Merck/Cubist cannot prevent the entry of Cubicin generics into the market past 2016.
Much of Merck's earnings beat can be attributed to an aggressive cost-cutting effort currently underway at the company--in fact, the company said during its earnings call that it had already exceeded its goal of cutting costs by $2.5 billion in 2015 compared to 2012. The type 2 diabetes medication Januvia also continued to fare well.
Pfizer, Merck, and BMS all faced the continuing head winds presented by a strong dollar, which has consistently dogged global pharmaceuticals for the past year.
Novartis CEO Joseph Jiminez brushed off his company's earnings miss and said that the $390 million settlement with regulators did not amount to an admission of guilt. The U.S. DOJ suit against Novartis, alleging kickbacks to specialty pharmacies to shore up sales of Exjade (iron reduction) and Myfortic (immunosuppresant), was originally seeking up to more than $3 billion from Novartis. "It's something we just believe we want to put behind us," said Jiminez in a statement.
Even without the settlement, Novartis' eye care business Alcon missed expectations, and the company also faced currency exchange rate woes. Jiminez said he expects other recently approved medications, including the possible mega-blockbuster and potentially game-changing heart failure drug Entresto, to make up for these shortcomings in future quarters.