Steve Jobs once told biographer Walter Isaacson, "Deciding what not to do is as important as deciding what to do." Pfizer (PFE -0.47%) has taken that message to heart, using a joint venture and merger to become a research-based pharmaceutical company with a singular focus on innovation.
Will the transformation be enough for shareholders who have seen the stock fall 12% since the end of 2018 while the S&P 500 has climbed almost 50% over those same two years? The new year is likely to provide the answer.
A strategic shift
Pfizer's moves have been in the works even before CEO Albert Bourla officially took the job. In 2018 as chief operating officer, he announced the company would reorganize into three business segments, saying that its competitive advantage was its pipeline of drugs in its innovative medicines unit.
Two big deals followed: a joint venture with GlaxoSmithKline combining the two companies' consumer health businesses, and the spinoff of Upjohn -- the off-patent drugs division -- in a merger with Mylan that created Viatris. The deals have left Pfizer smaller but more focused on developing best-in-class and first-in-class drugs.
It's understandable that Bourla wanted to devote resources to more innovation-driven areas. Upjohn followed a 7.2% decline in sales for 2018 with an 18% decline in 2019. Meanwhile, the company's biopharma division (what Pfizer kept in-house) experienced 5.7% and 5% sales growth in 2018 and 2019, respectively.
That improvement was led by cancer drugs, which grew 18.5% and 20.7% in the same two years, respectively. Even with a pandemic disrupting many healthcare operations, oncology saw year-over-year growth of 24.2%, 18.4%, and 17.5% in the first three quarters of 2020. There is still room to grow: Oncology only made up 27% of biopharma sales in the latest quarter.
2021 and beyond
Oncology isn't the only area showing bright spots. Sales of the company's drugs for rare diseases, such as hemophilia, have grown 30% in the first nine months of this year to $2.1 billion. During the same period, revenue for Eliquis, Pfizer's cardiovascular drug, was $3.7 billion, an 18% jump. Representing the inflammation and immunology category, arthritis drug Xeljanz has brought in $1.7 billion, 6.5% more than the previous year. Although vaccines were down almost 10%, that promises to turn around in the coming quarters as the company's coronavirus vaccine rolls out.
As of Dec. 31, 2020, 2.8 million Americans have received a COVID-19 vaccine developed by Pfizer and partner BioNTech or Moderna. Pfizer's and BioNTech's vaccine has demonstrated 95% efficacy -- a high bar to clear for competitors. Some estimates have Pfizer hauling in $19 billion in revenue in 2021 from the coronavirus vaccine alone, with $9 billion more over the following two years. Those same analysts are less sanguine about earnings, as they expect the proliferation of COVID vaccines to put pressure on prices, limiting profits.
With the company's transformation complete, and the tailwinds of an authorized COVID-19 vaccine, 2021 may offer investors a good look at what to expect from Pfizer in the years ahead. The company currently has a 4.25% dividend yield and trades at only 12 times the $3.00 per share analysts expect it to earn in 2021. That price-to-earnings ratio is 40% less than the 20 times earnings investors paid on average from 2010 to 2019.
While that doesn't necessarily mean the stock is worth more than it currently trades for, it does mean Wall Street is more negative on the company just as it is ready to show off the benefits of its strategic transformation. When balancing risk versus reward, the pharmaceutical stock looks like a buy if you expect current trends to continue.