Pfizer (PFE 1.10%) was a top performer when the U.S. government was shoveling COVID-related revenue in its direction. Unfortunately, the past year hasn't been nearly as kind. The former high-flying stock has fallen by about 41% in 2023, and the year ahead isn't shaping up to be its best.
Pfizer's stock price fell sharply on Wednesday, Dec. 13, after management issued guidance for 2024 that wasn't nearly as good as Wall Street expected.
NYSE: PFE
Key Data Points
Why Pfizer stock fell
Pfizer stock fell about 8% when the market opened on Dec. 13 in a knee-jerk reaction to forward-looking estimates that didn't align with Wall Street's predictions.
The average analyst who follows Pfizer was expecting the company to predict $63.2 billion in annual revenue and $3.16 in earnings per share. Instead, the pharmaceutical giant disappointed Wall Street with a guided revenue range between $58.5 billion and $61.5 billion. On the bottom line, earnings are only expected to land somewhere between $2.05 and $2.25 per share.
Rapidly eroding sales of Pfizer's COVID-19 vaccine, Comirnaty, and Paxlovid, its antiviral COVID-19 treatment, are a big reason Pfizer caught Wall Street by surprise. The company expects just $8 billion in sales from the pair next year, down from a whopping $56.7 billion in 2022.
The long-awaited Seagen merger is on
This May, Pfizer offered to buy Seagen (SGEN +0.00%), a successful cancer drug developer, for $43 billion in cash. On Tuesday, Dec. 12, Pfizer announced that it had received regulatory approval to complete the acquisition, and it expects to wrap things up on Thursday, Dec. 14.
Seagen's drugs are made from antibodies that target tumor cells and unleash lethal chemotherapy payloads only after they reach their target. Padcev, a bladder cancer treatment that earned its first approval from the U.S. Food and Drug Administration (FDA) in 2019, is quickly becoming a top seller. Third-quarter Padcev sales jumped 89% year over year to $200 million.
Padcev's sales jump is the result of a recent label expansion to treat newly diagnosed bladder cancer patients, in combination with Keytruda from Merck. Currently, patients must be ineligible for treatment with standard chemotherapy to receive Padcev plus Keytruda.
Image source: Getty Images.
In September, Seagen announced success in a trial with chemo-eligible patients that will most likely result in Padcev plus Keytruda becoming the first chemo-free treatment option for new bladder cancer patients, regardless of their chemotherapy eligibility. We should find out on or before the FDA's proposed action date scheduled for May 9, 2024.
Seagen's therapies are expected to contribute $3.1 billion in sales for Pfizer next year. With a first-line label expansion, though, Padcev sales alone could exceed this figure in 2025. Five years from now, I expect annual contributions from Seagen to equal roughly one-fifth of its purchase price. That's not a bad deal.
Is Pfizer a buy, sell, or hold now?
There aren't many companies with a global salesforce that can make the most of a merger with Seagen. Even fewer can scrape together $43 billion in cash to make it happen. Assuming the FDA expands Padcev plus Keytruda's approved indications to include all first-line bladder cancer patients, the deal should work out well for investors over the long run.
Moreover, Pfizer doesn't necessarily need to merge with Seagen to achieve growth. It has several growth drivers right now, including Vyndaqel, a rare disease drug with sales that jumped 47% year over year to an annualized $3.6 billion in the third quarter.
Soaring COVID-related sales caused Pfizer stock to rise too far ahead of itself in 2022. After its recent drop, though, it's been trading at a very reasonable valuation. At recent prices, the stock is trading for just 12.2 times the midpoint of management's adjusted earnings guidance range for next year.
Selling Pfizer following its recent beating looks like the wrong move. Holding shares already in your portfolio and averaging down by buying some more on the dip is probably the right move. Significant earnings growth on the back of Vyndaqel and Padcev should keep its bottom line moving in the right direction for the foreseeable future. Plus, the stock offers a 6.3% dividend yield that you get to keep even if its price unexpectedly tanks.
