Image Source: Zoetis Inc – 2019 Annual Shareholders Meeting Presentation
Calendar third-quarter 2019 earnings was a busy time for biotech and pharma companies. We covered a number of biotech and pharma earnings in this piece here, but let’s dig into a few others. In alphabetical order by ticker: GSK, PFE, ZTS.
By Callum Turcan
In alphabetical order by ticker: GSK, PFE, ZTS
GlaxoSmithKline plc (GSK)–4.6% yield–reported third quarter results for 2019 on October 30. Its pro forma adjusted sales rose by 6% year-over-year, and please note the British pharmaceutical and consumer health giant has been very busy over the past couple of years. Before we get into that, note GlaxoSmithKline reported strong performance across the board at its three main operating segments; ‘Pharmaceuticals’, ‘Vaccines’, and ‘Consumer Healthcare’. The shingles vaccine Shingrix sold very well, led by strong growth in the US. GlaxoSmithKline also noted that it had generated £2.5 billion in free cash flow during the first three quarters of 2019 in its earnings summary.
For starters, GlaxoSmithKline agreed to acquire Novartis AG’s (NVS) 36.5% stake in their consumer heath joint venture for ~$13 billion back in 2018. In late-2018, GlaxoSmithKline and Pfizer Inc (PFE) reached a deal to combine their consumer health businesses through a joint venture, with GlaxoSmithKline retaining a 68% stake in that venture and Pfizer owning the rest. That transaction was completed in August 2019, and the venture is targeting £0.5 billion in annual cost savings by 2022, with cash restructuring charges of £0.9 billion and non-cash restructuring charges of £0.3 billion expected to be incurred. One-quarter of the annual cost savings will be reinvested back into the business, and the remainder will support the venture’s future free cash flows. Divestment proceeds are expected to cover cash integration costs.
Looking ahead, the goal is for GlaxoSmithKline to spin-off its ‘Consumer Healthcare’ segment from its ‘Pharmaceuticals’ and ‘Vaccines’ segments via a listing on a UK stock exchange within three years. These transactions have fundamentally transformed GlaxoSmithKline as the company seeks to move more aggressively into the lucrative prescription drug space.
In January 2019, GlaxoSmithKline acquired US biopharmaceutical company TESARO for ~$5 billion to bulk up its oncology and other offerings. That included gaining access to Zejula, a US FDA approved drug that can treat “advanced ovarian, fallopian tube, or primary peritoneal cancer treated with three or more prior chemotherapy regimens and whose cancer is associated with homologous recombination deficiency (HRD)-positive status” according to the FDA’s website. Oncology represents a major growth market as the pharmaceutical industry increasingly gets a better idea of how to treat cancer and improve patient outcomes.
Pfizer–3.9% yield–reported third quarter results for 2019 on October 29 (period ended September 29). Due to the aforementioned deal with GlaxoSmithKline, its GAAP revenues declined by just under 5% year-over-year but when removing that impact, its adjusted non-GAAP revenues were broadly flat. The company reported strong at its ‘Biopharma’ segment with sales in emerging markets holding up nicely. Sales of Ibrance (treats HR-positive and HER2-negative breast cancer), Xeljanz (treats rheumatoid arthritis, psoriatic arthritis and ulcerative colitis), Eliquis (treats and prevents blood clots), Vyndaqel (treats heart disease) and Inlyta (treats kidney cancer) performed well.
The US pharmaceutical giant raised its full-year guidance for 2019 last quarter, with management now aiming for $51.2 billion – $52.2 billion in sales (with the midpoint of guidance up from $50.5 billion – $52.5 billion previously) and $2.94 – $3.00 in adjusted non-GAAP EPS (with both the midpoint and lower bound up from $2.76 – $2.86 previously). Share buybacks have been key to supporting its EPS, with management noting the firm had repurchased $8.9 billion of its stock during the first three quarters of 2019, and that Pfizer had $5.3 billion in buyback authority remaining as of October 29.
Furthermore, please note that Pfizer agreed to merge its Upjohn segment with Mylan NV (MYL) earlier this year, which we covered in this article here.
Zoetis Inc (ZTS)–0.6% yield–reported third quarter earnings for 2019 on November 7. Please note Zoetis, which produces medicines and vaccines for pets and livestock, was spun out of Pfizer and that by 2013, Pfizer had completely exited its remaining equity stake in Zoetis. On a GAAP basis, Zoetis’ revenues in the third quarter grew by 7% year-over-year, led by growth at its parasiticide products, dermatology portfolio, and diagnostic operations. Back in 2018, Zoetis agreed to acquire Abaxis to bulk up its diagnostic portfolio for ~$2 billion in cash, and so far that deal appears to be panning out favorably.
Additionally, Zoetis completed its acquisition of Phoenix Lab, a veterinary reference laboratory company, on October 31. The financial details of the transaction were not disclosed. With Zoetis now being able to offer reference laboratory services, its diagnostics offering has now become far more expansive and comprehensive.
Management updated their guidance for Zoetis during the firm’s third quarter earnings report. Full-year revenues are now expected to be $6.2 billion – $6.25 billion (a narrower range versus guidance calling for $6.175 billion – $6.275 billion in sales previously) and its adjusted (non-GAAP) EPS is expected to come in at $3.57 – $3.62 (with the midpoint up modestly from guidance calling for $3.53 – $3.60 in adjusted non-GAAP EPS previously).
Zoetis has done very well as a standalone company, and its shares have surged over the past several years due to strong demand for pet and livestock medicines and vaccines. To read more about this space, check out our thoughts in this article here.
Concluding Thoughts
Big pharma continued to post solid financial results and operational performance during the third quarter of 2019. We continue to like the space as it relates to an industry fully capable of generating material shareholder value. We will keep our members posted on the industry’s progress going forward, and if you haven’t already, please check out our other big pharma third quarter earnings roundup article here—>>>>
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Pharmaceuticals (Big) Industry – ABT ABBV AMGN AZN BMY LLY GSK MRK NVS NVO PFE SNY
Pharmaceuticals (Biotech/Generic) Industry – ALXN AGN BHC BIIB BMRN GILD MYL REGN TEVA VRTX ZTS
Related: XLV, IBB, XBI, FBT, BIB, PBE
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Callum Turcan does not own shares in any of the securities mentioned above. Some of the companies written about in this article may be included in Valuentum’s simulated newsletter portfolios. Contact Valuentum for more information about its editorial policies.