Pfizer Pitches Pipeline Over Deals; Investors Aren't Buying

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(Bloomberg) -- No news is bad news for Pfizer Inc. investors.

After posting underwhelming first-quarter sales, the drugmaker said it still hasn’t decided what to do with its consumer-health unit after getting no “acceptable offer” for the business. Splitting the company remains off the table and Pfizer doesn’t need a major acquisition, Chief Executive Ian Read said on a conference call with analysts.

“We never say never on big deals, but I don’t believe that we need to do a transformative acquisition,” Read said in a brief telephone interview after the call. “Our own pipeline is extremely strong and investing in our own pipeline looks to me today to be the best return possible for our capital. It’s as simple as that.”

Shareholders seemed to disagree: The stock fell by as much as 5.4 percent, the biggest decline in the price-weighted Dow Jones Industrial Average. The intraday drop is Pfizer’s largest in three months.

There’s some “frustration” that Pfizer needs to drive long-term growth, said Ashtyn Evans, an analyst at Edward Jones & Co. who rates the shares buy.

“The disappointment today was on overall strategy and what’s going to be the growth driver for Pfizer over the long term, and what they’re going to do with their cash," she said.

Even before Tuesday, the New York-based company had been facing increasing pressure from investors to do a major deal and replenish its pipeline. A proposed $160 billion merger with Allergan Plc was scrapped after the Obama administration cracked down on so-called inversion deals. Pfizer also attempted a $120 billion deal with British drugmaker AstraZeneca Plc.

Pfizer began reviewing the consumer-health business in October for a possible sale or a spinoff, but its fate has been under question after potential buyers dropped out of the bidding process.

“Look, it’s a strong business,” Read said in the interview. “We weren’t taking a strategic review of our consumer business out of weakness. We were taking a strategic review because we believed, and we still believe, that there’s untrapped value inside our company, and it would fit better with other consumer businesses."

In the first quarter, overall sales rose 1 percent, coming in lower than analysts anticipated. While some of Pfizer’s newest drugs are performing well, the quarter was dragged down by a 5 percent revenue decline from its division of older drugs, partly due to a 12 percent drop in sales for sterile injectible drugs tied to its Hospira product shortages.

Some investors were also disappointed that the company didn’t raise its 2018 outlook. Unlike many of large-pharmaceuticals peers, Pfizer is sticking to its previous forecast for the year.

“Those are hefty numbers that we issued at the beginning of the year, and then we reaffirmed those based on first-quarter results and obviously everything we currently see for the rest of the year," Chief Financial Officer Frank D’Amelio said in an interview.

©2018 Bloomberg L.P.

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