Shares of Pfizer (PFE +1.71%) desperately need a positive catalyst. The pharma giant's stock has fallen by over 22% year to date in response to its declining COVID-19 franchise, consisting of the vaccine Comirnaty and antiviral drug Paxlovid.
And as a direct result of its rapidly declining share price, Pfizer's annualized dividend yield has ballooned to a whopping 4.11%, which is nearly 2.5 times the average yield of stocks listed on the benchmark S&P 500. The drugmaker's valuation has also fallen to a near industry-low 3.25 times 2024 estimated sales (most big pharma stocks trade at over 4 times future sales) during the opening months of 2023.
NYSE: PFE
Key Data Points
Monday, Pfizer announced a $43 billion deal to acquire cancer specialist Seagen (SGEN +0.00%). This transaction still has to gain approval from regulators, but the two companies expect the merger to officially close in either late 2023 or early 2024.
Is this sizable business development deal the catayst required to change the narrative around Pfizer's stock? Let's dig deeper to find out.
What is Pfizer gaining?
By acquiring Seagen, Pfizer is onboarding four approved cancer treatments: Adcetris, Padcev, Tukysa, and Tivdak. Together, these four commercial-stage medications, along with Seagen's royalty and licensing revenue, are expected to generate approximately $2.2 billion for the company this year. To put this revenue figure into context, this amount is roughly equivalent to 3% of Pfizer's projected 2024 sales total. As such, the near-term impact of this transaction on the top line will be fairly modest.
In the longer term, Pfizer expects Seagen's current label-expansion opportunities for its approved drugs -- combined with its assets in mid- to late-stage development -- to help generate a grand total of $10 billion in total sales by 2030. This outlook is dependent on multiple wins in both the clinical and regulatory arenas.
But if this turns out to be true, Pfizer will likely break even from this hefty transaction early in the next decade. This $43 billion buyout, in turn, is clearly about the Pfizer of tomorrow (the 2030s onward).
Fortunately, Pfizer has enough cash on hand, due to its record-breaking COVID-19 franchise, to both acquire Seagen and continue to support its highly coveted dividend program. In fact, the drugmaker noted in its accompanying investor presentation on this buyout that this deal won't affect future dividend increases or potential share buybacks.
Conclusions
Is this buyout a table-pounding reason to buy Pfizer stock? The answer is "probably not." While this Seagen acquisition does have the potential to push Pfizer into the upper echelon of cancer companies by the middle of the next decade, most of the value wrapped up in this transaction is latent at this point. In other words, this Seagen acquisition is highly unlikely to significantly bolster Pfizer's top or bottom lines within the next two years.
This buyout did drive another point home, however. Pfizer's goal is to deliver $25 billion in risk-adjusted revenue through business development deals by 2030. Even after this hefty deal, though, the company is still roughly $5 billion short of its stated goal (and that's assuming a best-case scenario in regards to multiple upcoming data readouts and commercial launches). As a result, it is probably gearing up for another small to midsize acquisition to cover this potential shortfall.
Having said that, this next acquisition is also unlikely to be a near-term needle-moving event due to its anticipated size (likely well under $5 billion). Offsetting declining sales from historic franchises like Comirnaty and Paxlovid is a long-term project. There's no way around this basic fact.
So if you're buying this blue chip pharma stock today for its dividend or lowball valuation, it's important to keep the long view firmly in mind. This moody market has shown little interest in deep value or potential revenue streams.
