In theory, 2020 should have been a great year for Pfizer (PFE 0.89%) shareholders. The big drugmaker, along with its German partner BioNTech (BNTX 3.85%), became the first to secure U.S. emergency use authorization for a coronavirus vaccine. Pfizer also wrapped up a long-awaited deal to spin off its Upjohn unit, paving the way for stronger growth.
But theories don't always fare so well in the real world. Despite its major achievements last year, Pfizer's shares actually slipped nearly 1%. Pfizer was a surprising loser in 2020. However, the pharma stock could win big time in 2021.
Behind Pfizer's malaise
During the market meltdown early in the year caused by the COVID-19 pandemic, Pfizer's shares plunged close to 30%. Like most stocks, Pfizer rebounded strongly beginning in April. However, it didn't bounce back as much as most stocks did. Why? You can mainly blame disappointing clinical results for Ibrance.
On May 29, Pfizer announced that the independent data monitoring committee of its phase 3 study of Ibrance in treating early breast cancer determined that the drug was unlikely to achieve statistically significant improvement. In October, the company reported results from another late-stage flop for Ibrance in treating early breast cancer. These were big blows for Pfizer, which had expected the early breast cancer market to be a major growth opportunity for Ibrance.
Progress with COVID-19 vaccine candidate BNT162b2 helped spark some upward movement in Pfizer's shares. By early December, the big pharma stock was up nearly 15% -- almost keeping pace with the S&P 500 index. However, those gains quickly evaporated.
A big part of the problem was that Pfizer and BioNTech faced competition from Moderna in the COVID-19 vaccine market. While Moderna's mRNA-1273 uses messenger RNA (mRNA) technology like BNT162b2, it doesn't have the same ultracold storage requirements that Pfizer's vaccine does. Investors also were rattled somewhat by some adverse reactions experienced by people receiving BNT162b2.
Why 2021 should be better
I think there are several reasons why 2021 will be a much better year for Pfizer. Importantly, the company should return to solid revenue growth. Older drugs such as Lyrica, which have lost patent exclusivity, negatively impacted Pfizer's growth in recent years. Those drugs now belong to Viatris after the merger of Upjohn with Mylan. Pfizer will no longer be like a jogger running with ankle weights.
The pharmaceutical giant's Q1 and Q2 updates will almost certainly be fun for investors. Pfizer will report billions of dollars in additional revenue, thanks to its supply deals for BNT162b2. Bernstein analyst Ronny Gal projects that Pfizer and BioNTech will be the biggest winners in the COVID-19 vaccine market this year with sales topping $14 billion.
What about the ultracold storage limitation? Pfizer could address that issue this year. The company's chief scientific officer, Mikael Dolsten, stated in an interview with Business Insider in November that Pfizer is working on a freeze-dried version of BNT162b2 that should be ready in 2021 and won't require ultracold storage.
Pfizer also has several important approval decisions from the U.S. Food and Drug Administration (FDA) on the way. In March, an FDA advisory committee will review tanezumab as a potential treatment for osteoarthritis. The FDA is expected to make a decision on approval for Pfizer's 20-valent pneumococcal vaccine candidate in June. Both products could have blockbuster potential.
Looking farther ahead
Through 2025, Pfizer expects to generate average annual adjusted earnings-per-share growth of around 10%. It also intends to continue prioritizing its dividend program. The combination of these two factors should enable Pfizer to deliver solid total returns for investors.
However, those projections don't include any impact from BNT162b2. It's a certainty that Pfizer will make a lot of revenue from the coronavirus vaccine this year. What isn't certain yet is how frequently booster shots will be required. There's a real possibility that Pfizer could enjoy annual sales of $5 billion or more for years to come.
Theoretically, Pfizer should be a pretty good stock to own over the next decade. We'll have to wait to see if reality backs up the theory.