Pfizer's stock is up 4% year-to-date, but this event was a clear disappointment for its shareholders in 2015.
It may have been a pretty disappointing year for the pharmaceutical sector as a whole, but shareholders in Pfizer (NYSE:PFE) have very little to complain about, with their stock up 4% year-to-date, slightly outperforming the broad-based S&P 500. Keep in mind this doesn't factor in Pfizer's superior 3.4% dividend yield, either.
Rays of sunshine in Pfizer's performance
There were a lot of things for Pfizer's shareholders to be thankful for in 2015. For one, Pfizer's grown its sales on an operational basis (i.e., excluding negative currency movements, one-time benefits, charges, divestments, and acquisitions) in three straight quarters, albeit minimally. That's great news for a company that's witnessed sales erode by around $20 billion from its peak in 2010.
Ibrance
Image source: Pfizer.
Pfizer's also witnessed strong sales from HER2-positive, estrogen receptor-negative breast cancer drug Ibrance. In clinical studies this drug essentially doubled progression-free survival in metastatic breast cancer patients and added a little more than four months of median survival time over the placebo. Its quality of life improvements translated into $230 million in sales during the third-quarter. Extrapolated out, Ibrance is nearly pacing $1 billion in annual sales.
Even Pfizer's M&A activity has investors excited. The buyout of Hospira and its vast generic and injectable drug franchise should help strengthen Pfizer's global established products portfolio. The more recently announced merger with Allergan (NYSE:AGN) should also boost profits vis-à-vis product diversity, and could ultimately generate $2 billion in annual cost savings, which is primarily tied to relocating its headquarters to Ireland, a country known for its low corporate taxes.
Pfizer's biggest disappointment in 2015
But not everything went right for Pfizer in 2015. If we were to pinpoint a specific disappointment, arguably the complete response letter received from the Food and Drug Administration concerning Xeljanz as a treatment for moderate to severe plaque psoriasis takes the cake.
Before Xeljanz hit the market as a treatment for moderate to severe rheumatoid arthritis in November 2012, there were rumblings on Wall Street that Pfizer's JAK inhibitor could deliver $3 billion in peak annual sales. To be frank, Xeljanz has cut itself a nice niche in moderate to severe rheumatoid arthritis, with sales rising 53% on an operational basis to $127 million in the third quarter, or a half-billion dollar annual pace on an extrapolated basis. However, plaque psoriasis was always viewed as the prime label opportunity for Xeljanz.
So what went wrong? Efficacy in clinical trials certainly wasn't the issue for Xeljanz. In the OPT Compare trial, which witnessed Xeljanz square off against incumbent blockbuster Enbrel, which is made by Amgen (NASDAQ:AMGN), Xeljanz matched Enbrel's efficacy, and it also provided a similar safety profile to Amgen's Enbrel per the data release.
Xeljanz
Image source: Pfizer.
The problem arose with some Wall Street analysts questioning Xeljanz's safety profile and wondering whether it was really a step up over Amgen's Enbrel and other plaque psoriasis medications already on pharmacy shelves. Though all approved medicines have possible side effects, Xeljanz's list of potential adverse effects is quite long. I suspect what really concerned Wall Street, and perhaps the FDA, was that Xeljanz can lead to an increased risk of developing skin cancer and lymphoma.
Pfizer noted during its latest conference call that Xeljanz may wind up being deemphasized in the near-term for plaque psoriasis despite the company initially signaling that it would work to rectify whatever concerns the FDA had following its receipt of the CRL. Pfizer is still developing Xeljanz as a treatment for ulcerative colitis, but may run into similar safety concerns in this indication as well.
When all is said and done, Xeljanz may only have a third of the peak sales potential that Wall Street initially projected, and that's pretty disappointing for Pfizer shareholders. On the flipside, Amgen and its shareholders can breathe a sigh of relief as Enbrel's $5 billion in annual sales (across multiple therapeutic indications, not just plaque psoriasis) appears secure.
What now for Pfizer?
The failure of Xeljanz might be disappointing, but failure is a common occurrence for drug developers. Medscape has suggested that just one out of every 5,000 preclinical drugs will actually make it onto pharmacy shelves, so the failure of a single drug for Pfizer shouldn't be damning to its outlook.