Pfizer Inc.'s (NYSE:PFE) fourth-quarter and full-year 2017 financial results suggest it's on its way toward becoming a growth stock again, and on its quarterly conference call, management unveiled plans for label expansions and new drug launches that could accelerate its momentum. Does Pfizer's R&D strategy make it a top stock to own in the future?

What's the backstory

Pfizer's cholesterol-lowering drug, Lipitor, was once the planet's best-selling medicine; however, it lost its patent protection in 2011, and its annual sales have declined from $13 billion to $1.9 billion in 2017.

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Up until now, the company has struggled to offset Lipitor's lost sales' however, evidence mounted in 2017 that the worst is behind it. Pfizer's $52.5 billion in sales was roughly in line with 2016, and excluding divestitures, its sales inched up 2% on an operational basis. Pfizer's bottom-line results were even better, as adjusted earnings per share of $2.65 outpaced the $2.58 to $2.62 per share management had anticipated.

The big driver of Pfizer's stabilizing sales and accelerating profitability are FDA approvals that are expanding the addressable market for its existing drugs and allowing it to sell into new indications. For example, the FDA expanded the label for Pfizer's breast cancer drug, Ibrance, in March, and in 2017, Ibrance's sales increased 46% to $3.1 billion. Similarly, the FDA approved an extended-release version of Xeljanz for rheumatoid arthritis in 2016, and that helped Xeljanz's sales increase 45% to $1.3 billion in 2017. Overall, Pfizer won 10 FDA approvals that helped support its sales growth last year.

A lab scientist holds up a medicine capsule while images of chemical formulas float around it.


What management's saying

Pfizer's momentum should continue this year thanks to additional R&D wins late last year and new drugs that are making their way to market.

In November, Pfizer's kidney cancer drug, Sutent, secured FDA approval for use as an adjuvant therapy to prevent disease progression. In December, the FDA approved Steglujan, a diabetes drug it co-developed with Merck & Co. (NYSE:MRK), it expanded the label for its chronic myelogenous leukemia drug Bosulif, and it approved the use of Xeljanz in psoriatic arthritis.

This year, Pfizer could secure even more OKs. An FDA decision on Xeljanz's use in ulcerative colitis is scheduled for June 2018, and Pfizer and its collaboration partner, Astellas, have filed an application to expand the use of their prostate cancer drug, Xtandi, into non-metastatic prostate cancer. Soon, Pfizer expects to file for FDA approval of lorlatinib, a next-generation ALK-inhibitor, in metastatic non-small-cell lung cancer; talazoparib, a breast cancer drug; dacomitinib, a non-small cell lung cancer drug; and glasdegib, an acute myeloid leukemia drug.

A bit further down the road, Pfizer has a long list of intriguing research programs in its pipeline that could move the needle, too.

It's evaluating Ibrance as an early-line breast cancer treatment, it plans to begin clinical studies of a next-generation drug that may overcome the resistance some patients develop to Ibrance, and it's conducting phase 3 trials for its C. difficile vaccine. It's also got a slate of immunology studies under way for its JAK inhibitor, and it's advancing new therapies for hemophilia, including Spark Therapeutics (NASDAQ:ONCE) "one-and-done" gene therapy SPK-9001. Pfizer expects to report data from a phase 3 study later this year that's evaluating a sickle-cell disease drug, rivipansel, that it licensed from GlycoMimetics (NASDAQ:GLYC), too.

Furthermore, Pfizer should make headway with its fast-growing biosimilars business in 2018. It's already the market share leader in biosimilars, and its biosimilar sales grew 66% to $531 million in 2017. Since six biosimilars achieved various regulatory and data milestones last year, Pfizer should be able to take even bigger advantage of this emerging multibillion-dollar market opportunity.

What's the takeaway

It will take time for Pfizer to fully capitalize on all of these research programs, but management expects that as its strategy takes hold, its sales will grow 4% in 2018. It also expects that leveraging sales against fixed costs and a drop in its effective tax rate from 20% to 17% this year will result in EPS growth of 11% in 2018. If it can deliver double-digit bottom-line growth, then there should be plenty of financial wiggle room to boost its dividend and buy back more shares. 

Overall, I think 2018 could mark an important turning point for Pfizer, and for that reason, it's one of my top stocks to buy.