Pfizer (PFE -3.85%) brought in more than $100 billion in revenue last year -- a record. But investors know it may be difficult for the pharmaceutical giant to reach that level again anytime soon. That's because Pfizer's coronavirus vaccine and treatment drove revenue -- and now, vaccine demand is on the decline.
At the same time, Pfizer is facing a patent cliff. That means several top drugs soon will lose exclusivity. So today, Pfizer's biggest problem is slowing growth. Meanwhile, Pfizer has invested in its pipeline and bought several companies over the past few years. And now, Pfizer is making its biggest recent acquisition. The company plans to buy oncology specialist Seagen for $43 billion. Does the deal solve Pfizer's growth problem? And does this make Pfizer stock a buy? Let's find out.
The growth situation
First, let's take a closer look at Pfizer's growth situation. We'll start with the coronavirus vaccine, Comirnaty, and treatment, Paxlovid. They brought in more than $37 billion and $18 billion in revenue last year, respectively.
This year, Pfizer predicts Comirnaty will generate $13.5 billion and Paxlovid $8 billion. Governments still have plenty of product inventory to be used -- that will weigh on sales of both products. And fewer people may go for vaccines as the pandemic wanes.
This doesn't mean sales growth is over for these products, though. Pfizer expects 2023 to be a transition year, amid vaccine demand declines and as the market shifts to a private one. In a private market, pharma companies sell products directly to healthcare providers instead of to governments. At this time, Pfizer aims to quadruple Comirnaty's price.
Pfizer last fall said its coronavirus products would be "multibillion-dollar revenue generators for the foreseeable future."
Still, it's clear the coronavirus products probably will see a big decline in revenue from today's levels.
Losing exclusivity on top drugs
Pfizer also is set to lose exclusivity on several top drugs due to patent expirations. And that should lead to the loss of $17 billion in revenue from 2025 through 2030.
Now, for a look at Pfizer's recent actions to solve this growth problem. The company's acquisition spree over the past few years -- with purchases of Arena Pharmaceuticals and Biohaven Pharmaceuticals, among others -- should help. Pfizer predicts these recent deals should add $10.5 billion to revenue in 2030.
And Seagen alone may contribute $10 billion in revenue in 2030. Seagen commercializes four cancer drugs -- three of these are antibody-drug conjugates (ADCs). These combine monoclonal antibodies -- for their targeting abilities -- with agents that kill cancer cells. Seagen is an expert in this area. And its next-generation ADC platform could result in more ADCs in Pfizer's future. Seagen brings Pfizer a total of 11 clinical programs.
Pfizer's effort to grow its oncology portfolio through the Seagen acquisition is a good strategic move. That's because the company's biggest oncology drug right now -- Ibrance -- faces loss of exclusivity later this decade.
$5 billion away
Through the purchase of Seagen, Pfizer is only $5 billion away from its goal for $25 billion in revenue.
At the same time, the company's own pipeline should contribute to growth in a major way. Pfizer expects to launch 19 new products and/or indications over an 18-month period. And Pfizer says 15 of them will more than compensate for revenue declines linked to loss of exclusivity.
So investors should expect Pfizer's growth to slow in the near term. But it's already put in place many of the elements needed to drive revenue growth a few years down the road and beyond. The Seagen acquisition alone doesn't solve Pfizer's growth problem. It's one of these key elements, though, so it's definitely good news.
Should you buy Pfizer stock considering this? Today, Pfizer trades for 11 times forward earnings estimates. That's a very reasonable price to pay for a company promising so much growth both from the internal pipeline and through acquisitions.
We can't expect post-pandemic vaccine sales to look exactly like pandemic vaccine sales -- and stay at those levels forever. And they don't have to. Pfizer is showing us that, through an ensemble of products and potential products, it can solve its growth problem. And that should boost the shares over time.
