It's been a banner year for shares of America's largest pharmaceutical company, but you wouldn't know it by looking at Pfizer's (PFE 0.78%) top line in recent quarters. Total revenue has hardly grown over the past couple of years and it isn't expected to go very far in 2018, either.
Despite the stagnation, Pfizer's stock price has risen 19% this year and is up near its highest point in a decade. If you're wondering what investors have found below the surface that has them revved up, here's what you need to know.
Growing where it counts
Pfizer is made of enough moving parts that its top and bottom line don't always travel in the same direction. The company expects adjusted earnings to rise at least 12.5% in 2018 to $2.98 per share on the strength of younger drugs that carry wider profit margins.
Over the past year Pfizer's generated a whopping $15.7 billion in free cash flow, and instead of hunting for giants to merge with, the company's returning that cash to shareholders with glee. The company repurchased $9 billion worth of shares during the first nine months of 2018 and expects to raise that figure to $12 billion before we ring in the new year.
Income investors have been flocking to Pfizer because it pays a dividend that offers a healthy 3.1% yield at recent prices, and they can reasonably expect the payout to continue rising in the years ahead. The company used just 51% of free cash flow to make dividend payments over the past year, and a lower share count will make further increases easier to commit to.
What's driving growth now
This year Pfizer thrilled its shareholders with reports of explosive growth for three drugs that are already blockbusters. Sales of the company's breast cancer tablet Ibrance jumped 24% higher in the first nine months of 2018 to $3 billion. Strong uptake in Europe and Japan, where Ibrance's new drug launch is still ongoing, could keep it moving in the right direction.
Pfizer's anti-inflammation tablet Xeljanz is gaining popularity in the rheumatoid arthritis indication, which drove sales 31% higher in the first nine months of the year to $1.2 billion. Recent label expansions that make the treatment available for ulcerative colitis patients in the U.S. and EU should push the blockbuster even higher.
Eliquis, a next-generation blood thinner Pfizer markets in partnership with Bristol-Myers Squibb (BMY 0.94%), continues to produce stunning gains. During the first nine months of 2018, Pfizer's share of Eliquis revenue rose 39% to $2.5 billion and it isn't showing any sign of a slowdown.
Pfizer took a lot of heat when it spent $14 billion on Medivation in 2016 to get its hands on the prostate cancer drug Xtandi and an experimental breast cancer treatment in development. Now that talazoparib has been approved as Talzenna, and Xtandi's about to become the go-to pill for nearly anyone with prostate cancer, it looks like the Medivation investment will pay off for patient shareholders.
Earlier this year the FDA expanded Xtandi's available patient population to include castration-resistant prostate cancer patients with tumors that haven't spread yet. This is a large population that generally stays on treatment longer than those in advanced stages. Plus, results from the arches study with castration-sensitive patients are expected later this year. If adding Xtandi to standard androgen deprivation therapy extends survival, sales could keep surging for years to come.
In October, the FDA approved Talzenna for HER2-negative breast cancer patients who test positive for BRCA mutations. Talzenna's launch will run into competition with Lynparza from AstraZeneca for some but not all patients due to some complicated restrictions on Lynparza's prescribing label. With fewer hoops for patients and their oncologists to jump through, Talzenna has blockbuster written all over it.
And further ahead
In September, Pfizer's late-stage pipeline belted out an FDA approval for Vizimpro, a treatment aimed at a genetically defined group of newly diagnosed lung cancer patients. In November, Pfizer earned another new drug approval for Lorbrena, which is now available for lung cancer patients who relapse after Xalkori or a related kinase inhibitor.
In June, the FDA began a priority review for glasdegib as a treatment for newly diagnosed acute myeloid leukemia patients. When added to standard chemotherapy, it reduced the risk of death by 49.9% compared with chemo on its own. Those are the sort of results that oncologists find hard to ignore, and a strong launch with blockbuster sales is expected if it earns an approval.
Oncology isn't the only team at Pfizer putting points on the board lately. An application for a rare-disease drug the FDA rebuffed years ago is back in front of regulators and this time it's supported by some impressive long-term outcome data. Tafamidis, which Pfizer already markets as Vyndaqel in the EU, could enjoy a blockbuster homecoming if approved.
Still a bargain
Despite Pfizer's recent run-up in 2018, the shares have been trading at just 10.9 times trailing earnings, which is well below the S&P 500 average. With plenty of growth drivers to push the bottom line forward, this big pharma stock looks like it could keep on climbing while delivering plenty of dividends along the way.