One of the dangers of investing in Pfizer (PFE -0.36%) today is that its business depends heavily on its COVID-19 pill and vaccine for revenue growth. This year, for instance, sales from its COVID-19 products will account for about half of its top line. That's a key reason why investors aren't paying much of a premium for the stock; there's a fair bit of uncertainty about how its financials will look in a year or two.
Making that haziness even worse is a recently published study that calls into question the effectiveness of Pfizer's COVID-19 treatment pill, Paxlovid. Let's take a look at all these factors and what to make of them.
Is Paxlovid ineffective for non-seniors?
The Israeli study was published in The New England Journal of Medicine. It examined about 109,000 COVID-19 patients during the ongoing omicron wave of the virus, and found that while Paxlovid was beneficial for those who were 65 and older, it wasn't as helpful for younger patients. Based on the data for those between 40 and 65, the study concluded that "no evidence of benefit was found in younger adults."
The study wasn't randomized, nor was there a control group, so it's by no means definitive. However, it could lead to more research on Paxlovid to see if the pill is a useful option for younger people. In December, the Food and Drug Administration issued an Emergency Use Authorization for Paxlovid as a treatment for mild to moderate cases of COVID-19 in adults and children as young as 12. Those with the virus are advised to start taking the pill within five days of developing symptoms.
A big year from its COVID-19 products
In 2022, Pfizer projects that its COVID-19 vaccine and pill will generate $54 billion in revenue for the company. Of that tally, Paxlovid is expected to account for $22 billion. In total, Pfizer is projecting around $100 billion in revenue from all of its products this year. To put that into perspective, consider that in 2020, Pfizer's revenue totaled $41.9 billion. Paxlovid's 2022 sales will equal more than half that amount.
It's likely that the healthcare company's sales will decline next year as people's concerns about COVID-19 continue to ease. But if countries and medical regulators grow concerned that Paxlovid is only effective in treating seniors, that could result in a more significant revenue decline. Some countries are already hesitant about Paxlovid because it can have harmful interactions with other drugs.
Merck has its own COVID-19 treatment on the market: Molnupiravir. That pill isn't as effective at keeping patients out of the hospital as Paxlovid, but in some markets, it's preferred because it has fewer potentially risky interactions with other drugs. Molnupiravir could potentially pull some market share away from Paxlovid, especially in light of this new study.
Should you buy Pfizer's stock, anyway?
Although this latest data on Paxlovid is a bit concerning, it doesn't necessarily make Pfizer a worse buy. The uncertainty about the future of the business is arguably priced into the stock already. It trades at a price-to-earnings multiple of just 9, so investors aren't paying a premium based on Pfizer's recent results. And the company has been loading up on acquisitions, putting itself in a better position to make up for declining COVID-19 revenue in the long run. The company currently has 28 trials in phase 3, suggesting that more products could be contributing to its top line in the not-too-distant future.
That's why if you're focused on the long term, Pfizer can still be an excellent buy. Not only has it bolstered its pipeline with its recent deals, it also pays a dividend that yields 3.5% at the current share price -- more than double the S&P 500's average yield of 1.7%. Given that it offers both an appealing amount of recurring income and promising growth prospects, Pfizer's stock makes sense for many types of investors.
