A big challenge for healthcare giant Pfizer (PFE +1.34%) is going to be replacing revenue from its COVID-19 vaccine this year and beyond. While it has a strong pipeline that can potentially help generate some growth for its business in the long run, the company knows that alone likely won't be enough.
One way to accelerate the growth has been by seeking out acquisitions that can bolster its revenue quickly. The company has already been involved in multiple acquisitions over the past few years, but there's one that it's reportedly eyeing that could be a big one and a potential game-changer for its business.
Pfizer reportedly in talks to buy Seagen
According to a report from The Wall Street Journal, Pfizer is in talks to buy biotech company Seagen (SGEN +0.00%) for more than $30 billion. Last year, Merck was looking to buy Seagen, and at the time, the purchase price was expected to be around $40 billion. However, the stock market's decline has put pressure on valuations across the board.
NYSE: PFE
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Like the Merck deal, there are no guarantees this one will go through, either, as Pfizer's talks are reportedly "at an early stage." If successful, however, it would strengthen Pfizer's oncology portfolio as Seagen has multiple cancer-fighting drugs that in 2022 generated $1.7 billion in revenue. And the company is still in its early growth stages; cervical cancer drug Tivdak only obtained accelerated approval from the Food and Drug Administration (FDA) in September 2021. This year, Seagen projects that its product revenue could top $2 billion.
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Why this is good news for Pfizer investors
A big issue with Pfizer's stock right now is that the company's business just isn't that diverse given how significant of a role its COVID-19 pill and vaccine have been for its business. In last year's fourth quarter, Pfizer's oncology business generated just over $3 billion in sales and accounted for 12% of total revenue. Primary care, by comparison, which includes its COVID-19 products, generated $17.3 billion in sales and represented 71% of revenue.
Image source: Company filings. Chart by author.
A deeper glance at revenue by product shows just how significant COVID-19 treatments were for the business last quarter, with Comirnaty and Paxlovid combining for more than half of the company's total revenue.
Image source: Company filings. Chart by author.
Whether Pfizer acquires Seagen or another company, the important takeaway for investors is that the business is serious about making a big move to improve its growth prospects. And if it does that, the stock's value could improve, because right now investors are discounting it significantly due to its dependence on COVID-19 products. At just 7 times earnings, the stock is trading well below the healthcare average of 22.
Is Pfizer a buy?
Pfizer is a deeply discounted stock, and while its numbers will likely tumble this year as COVID-19 sales nose-dive, even when factoring in analysts' projections, the stock is still trading at a fairly low multiple of 12 times its estimated future earnings. There's some potentially good value here, especially with the business having the resources to make a big acquisition; as of the end of 2022, the company had more than $22 billion in cash and short-term investments.
For long-term investors, Pfizer could be a good stock to load up on right now. Its pipeline isn't bare; it has a vaccine for the respiratory syncytial virus that the Food and Drug Administration may approve as early as May; and it's still eyeing acquisitions. It may only be a matter of time before the stock starts rallying.
