Pfizer (PFE +0.95%) is on a roll. The company's COVID-19 vaccine sales are growing. Several other products continue to generate strong revenue growth. Pfizer's share price has jumped more than 16% so far this year, beating the S&P 500 index's performance.
In addition, the big drugmaker projects average annual adjusted earnings-per-share growth of at least 10% through 2025. And that's a risk-adjusted estimate that doesn't include any revenue from Pfizer's COVID-19 programs.
But when everything appears to be going great for a company, there's sometimes a catch. Is that true in this case? Yes. Here's a chart that every Pfizer investor needs to see:
Data source: Pfizer 10-K filing. Chart by author. *Pending patent terms extension (PTE).
A looming patent cliff
This chart shows the impact of Pfizer's looming patent cliff. Beginning in 2025, the company will begin losing key U.S. patents for several of its top-selling products.
The worst hit comes in 2026. That's when blood thinner Eliquis and pneumococcal conjugate vaccine Prevnar 13 lose U.S. patent exclusivity. These two products together generated more than one-fourth of Pfizer's total revenue in 2020.
Overall, key patents will expire later this decade for products that represented combined sales of $22.3 billion in 2020. That amount is more than half of Pfizer's total revenue last year.
Using 2020 global sales doesn't fully reflect how hard these patent losses could affect Pfizer, though. Sales for several of the products facing loss of exclusivity (LOE) are growing fast. For example, Vyndaqel/Vyndamax sales soared 77% year over year in the second quarter of 2021 to $501 million. With the rare disease drug's momentum, LOE will hurt Pfizer worse than the chart indicates.
What else the chart doesn't show
However, there are several other things that this chart doesn't show that are important to consider. First, sales for these products won't disappear overnight with the losses of key U.S. patents. Pfizer will undoubtedly do everything it can to extend sales for as long as possible.
The chart also omits the impact of Pfizer's other products, notably including its COVID-19 vaccine, Comirnaty. Pfizer expects Comirnaty to rake in sales of $33.5 billion this year.
Granted, net profits are split with BioNTech. Also, there's no guarantee that Comirnaty's sales will continue at this level going forward. But Pfizer could still make a lot of money from its COVID-19 vaccine throughout the rest of this decade and perhaps beyond -- especially if emerging coronavirus variants drive sustained demand for vaccines.
Image source: Getty Images.
Pfizer already has newer products ready to take the baton from some of the top-selling products facing LOE within the next several years. For example, it won U.S. approval for Prevnar 20 in June. The 20-valent pneumococcal conjugate vaccine should be able to offset much of any sales losses for 13-valent vaccine Prevnar 13.
None of the drugmaker's pipeline programs are reflected in the chart, either. Pfizer could file for Emergency Use Authorization of a COVID-19 pill by year-end. If authorized or approved, this oral antiviral therapy would likely be a massive commercial success for Pfizer.
The big pharma company is evaluating another potential blockbuster vaccine targeting respiratory syncytial virus in late-stage testing. And that's just the tip of the iceberg: Pfizer's pipeline includes close to 100 clinical programs, many of which could be on the market within a few years.
The big picture
To be sure, Pfizer faces headwinds from the coming LOE for several of its top products. But the company won't be taken by surprise by these patent expirations. It has built a robust pipeline. Pfizer has also made key acquisitions to improve its growth prospects and will likely make even more deals in the not-too-distant future.
The current valuation of the pharma stock (Pfizer's shares trade at only 12 times expected earnings) reflects the patent cliff that's on the way. However, a few pipeline wins or sustained recurring revenue for Comirnaty could change the dynamics for Pfizer significantly.
It's easy to see a chart like the one shown above and dismiss Pfizer's prospects. However, investors should always look at the big picture for any stock and not just one that's in front of them.
