The year hasn't been kind to equities so far. And although many drugmakers are escaping the sell-off, Pfizer (PFE 1.00%) isn't one of them. The pharma giant is performing more or less on par with the broader market year to date. Thankfully, Pfizer's most recent quarterly update showed some very encouraging signs.
However, there are also reasons to worry about the future of the healthcare company. Let's consider one earnings-related reason Pfizer might be a buy -- and one reason it might not be.
Reason to buy: The COVID-19 portfolio is performing well
Pfizer has made a fortune over the past couple of years thanks to its coronavirus-related work. The company is still benefiting from these efforts in a big way. During the second quarter, the drugmaker's revenue rose by 53% year over year on an operational basis to $27.7 billion. According to management, Pfizer recorded its largest-ever quarterly sales during this period, and it owed it primarily to its COVID-19 lineup.
Pfizer's sales from its coronavirus vaccine, Comirnaty, came in at $8.8 billion, 20% higher than the year-ago period. The company's coronavirus therapy, Paxlovid, registered $8.1 billion in sales (year-over-year comparisons don't apply here since it earned authorization in December). By themselves, Paxlovid and Comirnaty accounted for well over half of Pfizer's total revenue.
Reason to sell: The rest of Pfizer's lineup isn't that impressive
While Pfizer's coronavirus lineup is currently unstoppable, the rest of the company's portfolio is less impressive. During the second quarter, the drugmaker's non-coronavirus-related revenue grew by a meager 1% year over year. Pfizer's lineup is facing several problems, including headwinds related to Xeljanz, an immunology drug. Xeljanz is part of a class of drugs known as JAK inhibitors.
Last year, Pfizer released data from a post-marketing study that found that Xeljanz was associated with higher rates of cardiovascular events and cancer than TNF inhibitors, a category of medicines that includes AbbVie's Humira.
The results from this study, coupled with the decision by regulators to add a warning related to these risks to Xeljanz's label (and that of other JAK inhibitors), are hindering the medicine's growth. In the second quarter, Xeljanz's sales dropped by 24% year over year to $430 million. Revenue from immunosuppressant Enbrel also dropped by 10% year over year to $257 million, likely due to stiffer competition, a factor that also impacted its sales during the first quarter.
Pfizer does have some solid non-coronavirus-related performers, including Eliquis. During the second quarter, sales of the anticoagulant increased by 23% year over year to $1.7 billion. But overall, the company is barely managing to grow its sales outside of its coronavirus lineup. That could become a problem if sales of its COVID-19 products drop precipitously after this year.
Is Pfizer stock a buy?
In my view, the market is still underestimating Pfizer. First, the company will continue to benefit from Paxlovid and Comirnaty. COVID-19 won't (unfortunately) suddenly disappear out of thin air after this year. Even if the demand for products to prevent or treat the disease decreases, Paxlovid and Comirnaty could continue to contribute meaningfully to Pfizer's top line for a long time.
Second, while the rest of its lineup isn't impressive, that is something pharmaceutical companies sometimes deal with due to increased competition, patent cliffs, or other factors. But drugmakers typically don't have the benefit of growing their sales at the rate at which Pfizer's are increasing when they face such headwinds.
The important thing is whether the company in question can navigate these issues. Having a solid pipeline and plenty of money to pour into research and development help -- and Pfizer has both. The company's cash balance soared as a result of its success in the coronavirus market.
PFE Free Cash Flow data by YCharts
Pfizer has been active in the acquisition realm and plans to continue down that path. That should help strengthen its already solid pipeline, which boasts over 90 clinical trials. Pfizer expects up to 15 new approvals within the next 18 months. Things could go wrong with some of its current programs. But the company has the tools it needs to launch several new potential blockbusters in the next five years. That's why investors should scoop up the company's shares while they are down.
