Thanks to the success of its COVID-19 vaccine, Pfizer (PFE +0.46%) more than doubled its cash hoard in 2021. The drugmaker plans to use that cash pile to ramp up M&A and fuel growth through 2030, with a few acquisitions already under its belt -- and plenty more cash left to invest. Here's how the company's big plan might play out.
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Pfizer is ready to grow
In 2021, sales of Pfizer's COVID-19 vaccine, Comirnaty, totaled $36.8 billion -- just under half of the company's overall annual revenue. That helped the company's cash and short-term investments swell from $12.2 billion at the end of 2020 to over $31 billion at the end of 2021 .
Pfizer set forth an ambitious goal to use its war chest to add $25 billion of revenue by 2030 through mergers and acquisitions, and it's been actively building its pipeline to reach that goal over the last several months. It has already closed its $6.7 billion acquisition of Arena Pharmaceuticals , which brings a pipeline of developmental-stage therapies for immune-inflammatory diseases like ulcerative colitis, Crohn's Disease, and atopic dermatitis. In April, Pfizer announced that it will acquire ReViral and its clinical-stage vaccine to treat severe and life-threatening lower respiratory tract infections. The deal cost Pfizer a scant $525 million.
The most transformational deal came earlier in May, when Pfizer announced an agreement to buy any shares of Biohaven Pharmaceuticals that it did not already own for $148.50 per share -- less than the $173 per share it paid for its original stake. The deal totaled $11.6 billion, to be financed with cash on hand. Biohaven's migraine treatment, Nurtec, is the first medication approved for treating and preventing migraines.
According to a recent investor presentation, Pfizer believes that it can glean peak sales of $1.5 billion from the ReViral acquisition and $6 billion from Biohaven. If Pfizer's projections are accurate, the two deals will account for 30% of its $25 billion revenue goal even before you factor in Arena, for whom Pfizer didn't predict future sales.
Don't worry too much about Pfizer running out of cash. The company predicted $32 billion in COVID vaccine revenue in 2022 -- a modest drop-off from 2021 -- alongside $22 billion in revenue from its COVID treatment, Paxlovid, which makes a startling jump from its $76 million in 2021.
Where do we go from here?
Toward the second half of this decade, some of Pfizer's drugs are due to come off patent, cutting into its current sales. At least one analyst sees these losses cutting Pfizer's revenues from $61.7 billion in 2024 to $46.8 billion in 2030.
Though patent expirations are common, most pharma companies don't have the dry powder Pfizer does. Even if revenue from Pfizer's current portfolio falls to $46.8 billion by 2030, adding $25 billion from acquisitions would give the company almost $72 billion in 2030 revenue -- higher than any year from 2012 to 2019 . Not all deals may work out the way the company expects, but with ample cash in Pfizer's wallet and stocks down this year, the public sector may provide fertile ground for deals in the near term.
Pfizer's stock trades at a non-GAAP TTM P/E of just 10. The valuation seems attractive, but vaccine-enhanced EPS for 2020 and 2021 were $3.85 and $4.36 -- by far its highest per-share earnings since at least 1990. Though the P/E would be higher without the benefit of the huge bump in EPS from the vaccine, even jumping to a P/E of 15 would leave Pfizer well below its 10-year average multiple around 20. For a company with Pfizer's present promise, that seems like a great valuation.
Pfizer's growth-by-spending-spree strategy sets a clear path for the company to compound earnings over the next several years. Interested pharmaceutical stock investors should keep an eye on its revenue and earnings growth to see whether it keeps making progress toward that ambitious goal.
