Are the good times over for Pfizer (PFE 0.23%) investors? It might seem that way. The stock soared 60% last year. However, so far in 2022, Pfizer's share price has dropped close to 20%.
There's no need for despair, though. Here are 120 million reasons to buy Pfizer stock on the dip.
Image source: Getty Images.
Of courses
Those 120 million reasons correspond to the number of courses of COVID-19 pill Paxlovid that Pfizer plans to produce this year. Why does the production of Paxlovid make the big-pharma stock attractive? Follow the money.
Pfizer provided guidance in its fourth-quarter update of $22 billion in Paxlovid sales this year. If the company makes 120 million courses, that puts the average price per course at around $183. But that figure is much lower than the $530 per course that Pfizer has received from the U.S. government.
There are two possible reasons for the seeming discrepancy. First, Pfizer could be charging a much lower price for Paxlovid to other governments. Second, the company could be sandbagging its estimated sales for the COVID-19 pill. I think both factors are at work.
Sure, Pfizer won't make as much money from Paxlovid in many countries as it will in the U.S. However, it's also making more revenue per treatment course in some countries. And the evidence appears to be compelling that Pfizer lowballed its sales guidance for Paxlovid.
Straight from the horse's mouth
There were several clear indications from Pfizer in its fourth-quarter conference call that the company will make a lot more than $22 billion from Paxlovid this year. Let's look at comments made by four executives during Pfizer's call.
Mikael Dolsten, Pfizer's president of worldwide research and development and medical, said that the company expects the U.S. Food and Drug Administration (FDA) will make a decision on approval of Paxlovid in the high-risk population later this year. He also noted that a pivotal readout from a clinical study evaluating the drug in preventing COVID-19 after contact with an infected household member will be announced in the second quarter of 2022.
Consider Dolsten's remarks in light of what Angela Hwang, president of Pfizer biopharmaceuticals group, said in the Q4 call. She stated, "I think that the full clinical program [for Paxlovid] will also be another point of impetus for contracting and ordering." In other words, positive clinical results for the COVID-19 pill should lead to additional orders -- and additional revenue.
Pfizer CFO Frank D'Amelio said that "demand for Paxlovid should have upside" from the $22 billion level. He mentioned that Pfizer is in talks with other governments about potential purchases of the drug.
But the strongest argument that Pfizer is sandbagging its Paxlovid guidance came from CEO Albert Bourla. During the Q4 call, Bourla stated, "Clearly, the numbers could become way bigger than what we have right now." He explained during the discussion that Pfizer's guidance only reflected contracts that have already been signed or that haven't been signed yet but for which key terms have been finalized.
Increased confidence
With all of this in mind, Pfizer's valuation appears to be dirt cheap right now. The big-pharma stock currently trades at 7.3 times expected earnings based on 2022 guidance. However, we've already seen that guidance is almost certainly overly pessimistic.
Granted, there's some uncertainty about how strong Pfizer's COVID-19 sales (including Paxlovid and its vaccine Comirnaty) will be after this year. But the company remains confident that it will deliver revenue growth of at least 6% per year through 2025.
Many on Wall Street expect Pfizer's top line to shrink between 2025 and 2030 due to several drugs losing exclusivity. Bourla, though, argued in the Q4 call that the company will continue to grow its revenue during the second half of this decade. He listed several reasons behind his confidence, notably including "the durability of our COVID-19 offerings."
The bottom line is that Pfizer is a highly profitable company that could very well deliver solid growth for years to come. And its shares trade at an attractive valuation that could be even better than the numbers appear at first glance. That's the kind of stock to buy on a dip, in my view.
