Last Tuesday, pharmaceutical titan Pfizer (PFE 0.76%) reported its 2019 fourth-quarter earnings. This underwhelming Q4 report -- in conjunction with the downturn in the broader markets due to the coronavirus threat -- have caused the drugmaker's shares to dip by nearly 7% so far this week.

While Pfizer's year-end results were certainly nothing to write home about, it's still fairly rare for a megacap pharma company to fall by high single-digits in just a matter of two trading sessions. Should investors take advantage of this profound weakness, or is this hefty sell-off justified? Let's break down Pfizer's near-term prospects to find out. 

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Pfizer's transformation might be a buying opportunity

Going forward, Pfizer's biopharma unit will be the foundation of its success or failure. The drugmaker, after all, is slated to spin off its flagging Upjohn generic drug business with Mylan by mid-year.

What's on the near-term horizon for Pfizer's all-important biopharma business? Since announcing the planned merger between Mylan and Upjohn, Pfizer has repeatedly stated that its remaining biopharma unit should post exceptional top-line growth in the area of 6% per year, on average, for the next five years. The company's long-term revenue forecast is predicated upon the continued success of existing growth products such as Ibrance, Xtandi, Eliquis, Xeljanz, and Vyndaqel, as well as the future commercial success of a suite of next-generation products currently under development.

Fleshing out this point, Pfizer stated during its Q4 conference call that the company is on track to make major strides across several key therapeutic areas such as dermatitis, hemophilia, cancer, and vaccines, among many others, over the next year or so. As a direct result, the company revealed that it plans on boosting its already rich dividend program over the course of 2020 and investing in additional business development opportunities to further strengthen its biopharma unit.

In the same breath, management also announced that the company probably won't make any further share repurchases during calendar year 2020. That's a major departure from the company's former policy of beefing up its bottom line through massive share buybacks nearly every quarter.


As things stand now, Pfizer arguably already has the assets in place to achieve a respectable 6% compound annual growth rate for its top line over the forecast period -- that is, once the Upjohn/Mylan merger becomes official later this year. In fact, that's not really a major risk factor, given the company's proven track record as a top-notch innovator and commercial powerhouse. Things start to get truly interesting from a value creation standpoint when you consider Pfizer's stated interest in pursing additional mergers and acquisitions (M&A) to solidify its core biopharma business.

The obvious problem, though, is that Pfizer has a poor track record when it comes to the M&A scene. For example, its $14 billion buyout of Medivation still looks questionable almost four years later, and the drugmaker also paid a rather steep price for cancer specialist Array Biopharma Inc. in 2019. So, there's no guarantee that will be able to readily boost its top line by acquiring late- or commercial-stage assets -- at least not at an acceptable price tag. And that's probably the main reason investors have largely kept their distance from this top biopharma stock over the past 12 months.

In the final analysis, though, there's still a strong case to be made that Pfizer's stock does indeed deserve a spot in almost any growth or income-oriented portfolio. The next stage of the company's life cycle promises to be far more lucrative for investors than the prior decade. Pfizer, after all, finally has a viable growth engine in place thanks to its successful pivot to oncology as a main source of growth. That means management won't have to repeatedly lean on financial engineering tactics -- such as massive share buybacks -- to impress the market. At some point, the drugmaker's healthy top-line growth will shine through.