It may seem difficult to get excited about Pfizer (PFE 0.55%) these days. After the company brought in record revenue of $100 billion last year thanks to its coronavirus vaccine, Comirnaty, and its COVID antiviral treatment, Paxlovid, the story has changed quite a bit. The pharmaceutical giant recently lowered its expectations for coronavirus product revenue this year as demand declines. And in the third quarter, Pfizer reported a $2.4 billion net loss.
But, before you turn your back on Pfizer stock, it's important to look beyond this dark cloud hanging over the company -- and consider the full picture. Pfizer has reached a turning point, and the highest levels of coronavirus-related revenue may be in the past. But there's actually a silver lining to this cloud, and it could represent growth and billions of dollars in revenue down the road.
Image source: Getty Images.
Pfizer's patent cliff
We'll start with the bad news first. Pfizer actually faces two challenges: the decline in demand for coronavirus products, and the impending loss of exclusivity of some of its other blockbuster products, including blood thinner Eliquis and breast cancer drug Ibrance. Pfizer has said that patent expirations should result in $17 billion in lost revenue from 2025 to 2030.
Due to those issues, we're not likely to see another year with $100 billion in revenue from Pfizer in the near future.
The silver lining, though, is that Pfizer is in the middle of one of its most prolific product launch streaks ever. The company set out to release 19 new products and indications in just 18 months, and it has almost reached the goal. Pfizer has launched 13 so far. Four more have won regulatory approval and will hit the market soon.
Of those 19, only the company's stand-alone flu vaccine and its combination flu/coronavirus vaccine candidates may reach commercialization after 2024.
A new revenue growth story
All of this means that next year could be the start of a new revenue growth story. Of course, sales still will fall short if we compare them to last year's levels, which were boosted by high demand for coronavirus products during earlier phases of the pandemic. But that was a unique situation, which makes it a poor point of comparison. Instead, we should look ahead to the potential of Pfizer's new products to generate recurrent revenue and growth over time.
The company says that by 2030, it expects as much as $20 billion in revenue from these new launches and indications -- and it predicts as much as $25 billion in non-COVID product revenue from new business development deals by that time. Recent launches have included a respiratory syncytial virus (RSV) vaccine and products targeting eczema and multiple myeloma -- a wide variety of treatment and prevention areas that should lead to recurring revenue.
Earlier this year, Pfizer said the new launches, business development deals, and additional internal pipeline progress could result in $84 billion in non-coronavirus revenue in 2030. That's compared to about $51 billion in revenue back in 2019, before coronavirus products entered the scene. That's pretty significant, especially considering Pfizer is set to lose exclusivity on some of its top performers.
Is Pfizer stock cheap?
So, what does all of this mean for you as an investor? It's difficult to consider Pfizer's valuation right now since we're at a transition point. The stock looks cheap if we look at it in relation to trailing 12-month earnings, but earnings moving forward are going to look quite different as coronavirus product sales decline.
PFE PE Ratio data by YCharts.
If we look at a valuation based on next year's expected earnings, we're taking a view that is too short term to include the expected growth from sales of new products. Still, even from this perspective, the stock is reasonably priced, trading at about 10 times forward earnings estimates.
So, it's fair to say Pfizer shares aren't expensive. Of course, I wouldn't expect the stock to take off right away, but if you plan on holding it for the long term -- and this is the best way to benefit from an investment -- you could see the shares progressively gain as Pfizer's new products start adding significantly to the top line.
All of this means that while everyone else is focused on the dark cloud, now would be a great time to do just the opposite: Consider the silver lining, and get in on this potential long-term winner.
