Pfizer, Inc. (NYSE:PFE) stock is lagging behind the S&P 500 Index so far in 2017. That's nothing new, though. Pfizer has underperformed the S&P 500 over the past year, the past three years, the past five years, and the past decade.
Despite this less-than-stellar track record, I bought Pfizer stock earlier this year. I'm counting on the drugmaker's future to be better than it's recent past. Here's why I think the best is yet to come for Pfizer.
Pfizer already has plenty of successful drugs in its lineup. Several of them should be able to grow sales significantly in the future, and Ibrance stands at the top of the list. The cancer drug generated $2.1 billion in revenue last year, but analysts think it could reach peak annual sales of up to $5 billion.
The company's acquisitions have added more likely winners. Pfizer bought Anacor in 2016, picking up atopic dermatitis drug Eucrisa, which won FDA approval in December. Eucrisa has the potential for peak annual sales of $2 billion. Pfizer's acquisition of Medivation last year allowed it to gain Xtandi. The prostate cancer drug could generate peak annual sales of up to $5 billion, although profits must be shared with Astellas Pharma.
Pfizer's pipeline is also loaded with great candidates. Thirty-four programs are in late-stage development, with another 20 in phase 2. One especially promising late-stage pipeline candidate is avelumab, which won approval for its first indication, Merkel cell carcinoma, in March. Nine phase 3 studies are in progress targeting other cancer indications. Analysts think the drug can achieve peak annual sales of between $4 billion and $6 billion. However, Pfizer will split profits with its partner, Merck KGaA.
Improvement from essential health
Some investors might ignore Pfizer's essential-health business segment. The business hasn't generated growth like Pfizer's innovative-health segment, which includes drugs such as Ibrance, Eucrisa, and Xtandi. The essential-health segment is stuck with legacy drugs such as Lipitor and Norvasc, which are seeing sales slide because of generic competition.
I think, though, that the essential-health segment will be key to Pfizer's future success. For one thing, the drag from the products that have lost exclusivity will diminish in the coming years. By 2020, the negative impact from these products will be minimal.
Other areas within the essential-health segment are growing and should continue to do so. Pfizer is already marketing Inflectra, a biosimilar to Johnson & Johnson's Remicade. The company awaits approval for a biosimilar to Epogen and also has five other biosimilars in late-stage studies.
Pfizer's acquisition of Hospira in 2015 catapulted the company into a lead spot in the growing sterile injectables market. The company is also the top player in the anti-infectives market and continues to expand its presence through acquisitions.
Pfizer's dividend is one of the most attractive things about the stock. The dividend currently yields close to 4%, and Pfizer has steadily increased its dividend in recent years.
Why is the dividend important for the future of Pfizer? The key thing for investors to look at with a stock is its total return -- not just the stock appreciation. Although the S&P 500 Index has outgained Pfizer in recent years, the gap is considerably smaller when dividends are included.
I expect dividend increases to continue in the future. Pfizer's cash flow allows it to fund the dividend program at current earnings levels, but those earnings should grow faster in the coming years than they have in the past few years.
The best is yet to come
Pfizer isn't without its challenges, of course. Sales are slipping for several of its products. There's always the risk that its pipeline candidates will flop.
However, the drugmaker appears to be in better position for success than it's been in a long time. Are the best days yet to come for Pfizer? The company's stable of potential blockbusters, improving essential-health business, and increasing dividends indicate that the future should be brighter than the past.