2019 wasn't a great year for Pfizer (PFE -5.12%). The company's shares decreased by 10% during the year, whereas the performance of the pharmaceuticals industry -- as measured by the SPDR S&P Pharmaceuticals Index -- was much better, with a return of 24% over the same period. That being said, there are things to admire about Pfizer.
First, the company is currently trading at about 13 times future earnings, which is a relatively attractive valuation. Second, Pfizer offers investors a juicy dividend yield of 3.9%, and the company recently raised its quarterly dividend payout to $0.38 per share (up from $0.36 per share).
Pfizer's dividend might be appealing, but what about the company's prospects? Let's see whether the pharma giant can deliver solid returns from here on out.
Pfizer goes through a metamorphosis
Pfizer made several moves in 2019 to transform itself. First, the company acquired Array BioPharma -- a commercial stage pharmaceutical company that focuses primarily on cancer treatments -- in a cash transaction valued at approximately $11.4 billion; this acquisition was completed in July. Second, Pfizer formed a joint business with GlaxoSmithKline, dubbed GSK Consumer Healthcare. The joint venture, which closed in early August, will combine both companies' consumer healthcare segments and create the world's largest over the counter (OTC) healthcare business. Pfizer owns a 32% stake in GSK Consumer Healthcare. Third, Pfizer merged its "off-patent branded and generic established medicines business," Upjohn, with Mylan, to create a "new global pharmaceuticals company." Given the terms of the deal, Pfizer's shareholders will have a 57% stake in this new entity, dubbed Viatris. The merger is expected to close in mid-2020.
Pfizer's CEO Albert Bourla explained the purpose of these moves during the company's second-quarter earnings conference call:
When all these actions are complete, Pfizer will be a smaller, more focused, science based company with a singular focus on innovative pharma. We believe we will be in a position where our pipeline will be able to move the needle even more dramatically in terms of our long-term growth prospects.
Pfizer's strategic moves -- particularly its decision to spin off its Upjohn division -- seem to be justified. During the third quarter, Pfizer's Upjohn unit posted revenue of $2.2 billion, a whopping 28% decrease year over year. According to the company, this decline was primarily due to its losing its patent exclusivity for nerve pain medicine Lyrica. Sales of Lyrica will continue to decline, which is why it made sense for Pfizer to spin off Upjohn.
The likely star of Pfizer's current lineup is Eliquis, a product used to prevent blood clots. Sales of Eliquis increased by 20% year over year during the third quarter, and the research firm EvaluatePharma expects Eliquis to become the top anti-coagulant and one of the five best-selling drugs in the world by 2022. However, Pfizer markets Eliquis with Bristol-Myers Squibb. Pfizer also has other products that has sales growing fast. Most notably, the company's cancer drug Ibrance recorded sales of $1.3 billion during the third quarter, good enough for a 25% year over year increase.
Furthermore, cancer drug Inlyta posted sales of $139 million during the third quarter, a 95% increase year over year, while Xeljanz, a product used to treat rheumatoid arthritis, recorded sales of $599 million, which represented a 38% increase compared to the year ago period. Lastly, Pfizer boasts two dozen products in its late-stage pipeline, and many more in their early testing phases. These include PF-06802861, a potential medicine for an illness called dilated cardiomyopathy, a rare condition that hinders the heart's ability to pump blood.
Should you buy?
Pfizer's moves to become a smaller and more focused company will likely pay off, as it improved its oncology lineup thanks to the acquisition of Array BioPharma, and the company will no longer have to contend with Lyrica, which will see its sales continuing to decline for the foreseeable future. Pfizer also boasts several products that have sales growing rapidly. Lastly, Pfizer offers a juicy dividend yield and a low payout ratio (which is currently at about 49%), and the company could keep rewarding its shareholders by way of dividend increases. For all those reasons, Pfizer looks like a solid buy at the moment.