I can sum up Pfizer's (PFE +0.52%) stock performance over the last couple of years in one word (and only three letters): ugh. Shares of the big drugmaker have plunged more than 50% since the high set in late 2022.
Pfizer's revenue and earnings are sinking like a brick. Big hurdles for the company lie ahead. All in all, this big pharma stock might look like one that investors won't want to touch with a 10-foot pole.
However, I'm actually bullish about Pfizer over the long term. Here's why it's a much better stock than you might think.
NYSE: PFE
Key Data Points
Gloom and despair
Let me first acknowledge that there are some valid reasons behind the gloom and despair hanging over Pfizer like a dark cloud. We can't ignore the hard fact that the company's once high-flying COVID-19 franchise has been largely grounded.
Pfizer expects combined sales of COVID-19 vaccine Comirnaty and oral antiviral pill Paxlovid to be around $8 billion in 2024. The two products generated combined sales of $37.8 billion in 2022 and in the ballpark of $12.5 billion in 2023.
The company also faces patent expirations before the end of the decade for several of its top-selling products. How big of a problem does this present to Pfizer? Just look at the following table:
| Product | Patent Expiration Year | 2022 Sales |
|---|---|---|
| Eliquis | 2026 | $6.5 billion |
| Ibrance |
2027 (U.S.) 2028 (E.U.) | $5.1 billion |
| Inlyta | 2025 | $1 billion |
| Prevnar 13 | 2026 (U.S.) | $6.3 billion |
| Vyndaqel/Vyndamax/Vynmac |
2024 or 2028 (U.S., pending patent term extension) 2026 (E.U.) | $2.4 billion |
| Xalkori | 2029 | $455 million |
| Xtandi | 2027 | $1.2 billion |
Data source: Pfizer 10-K.
The sales for these products won't evaporate overnight once their patents expire. Overall, though, Pfizer expects that the loss of exclusivity for its products losing patent protection in the coming years will reduce annual revenue by roughly $17 billion by 2030. With this looming loss of revenue combined with sinking demand for COVID-19 products, it's understandable why many might think that Pfizer faces almost insurmountable challenges.
Pfizer's brighter future (according to Pfizer)
Despite all this bad news, I believe Pfizer will have a much brighter future. The company's management certainly thinks so.
Pfizer CEO Albert Bourla mentioned at the JPMorgan Healthcare Conference a few weeks ago that the company expects the utilization of its COVID-19 products to be similar in 2024 to the levels in 2023. However, Pfizer's guidance for this year is more conservative. It seems quite possible that 2024 will be a trough year for the drugmaker's COVID-19 sales.
Bourla also noted that Pfizer is developing a combination COVID/flu vaccine. He thinks the combo vaccine could have an especially big opportunity with younger people. This demographic group currently has a very low immunization rate for COVID-19.
What about the negative revenue impact from products losing exclusivity over the next few years? Those patent expirations aren't coming as a surprise to Pfizer. The company has been executing its strategy to address the problem for quite a while now. It has invested heavily in research and development and spent billions of dollars on business development deals.
Data source: Pfizer investor presentations. Chart by author. LOE = loss of exclusivity.
As the chart above shows, the company thinks that by 2030, it will more than offset its lost revenue from products losing exclusivity through new product launches/new indications for existing products and new business development deals. As a result, it looks for a non-COVID revenue compound annual growth rate of close to 10% between 2025 and 2030.
Can investors believe the company's projections?
Former President Ronald Reagan liked to use an old Russian proverb when talking about negotiations with the Soviet Union: "Trust but verify." That's pretty good advice for investors to follow when evaluating projections made by companies' management teams. Are Pfizer's projections of a brighter future believable? I think so.
It makes sense to me that 2024 could be a trough year for Pfizer's COVID-19 revenue. Much of the uncertainty is now gone. The company has already transitioned from governments in the U.S. and some other countries buying COVID-19 vaccines to a commercial business. Pfizer is also moving past the overstocking issues experienced in 2023.
Is Bourla right that the younger demographic could be a big opportunity for Pfizer's COVID-flu combo vaccine? I'd say it's a definite maybe. Younger people are more likely to get a flu vaccine. For the same co-pay, they could potentially receive one injection that protects against flu and COVID-19. I suspect that Pfizer will, at minimum, receive a moderate sales boost from its combo vaccine.
Pfizer's opportunities to generate $45 billion in new revenue by 2030 also look realistic from my view. The company has already launched several new products that should help significantly, notably including multiple myeloma drug Elrexflo and respiratory syncytial virus (RSV) vaccine Abrysvo.
The drugmaker's business development deals have already bolstered its product lineup and pipeline as well. For example, Pfizer's acquisition of Biohaven gave it up-and-coming migraine drugs Nurtec and Zavzpret. Its recent purchase of Seagen added four approved cancer therapies and a promising pipeline.
The main reason I like Pfizer right now
Pfizer's valuation doesn't reflect this brighter outlook. Shares currently trade at a forward price-to-sales ratio of around 2.7 based on the midpoint of its 2024 guidance range. That's lower than any of Pfizer's peers.
Now for the kicker. Even if we backed every penny of COVID-19 revenue out of the equation, Pfizer's forward price-to-sales multiple would still be well below any of the other big pharma stocks. Of course, Pfizer will almost certainly continue to make a boatload of money from its COVID-19 products, even if the revenue is much lower than in the past.
Most investors appear to be looking only at Pfizer's short-term picture, which is admittedly dismal. However, the company's long-term prospects are actually quite good. Sure, it will take a few years for Pfizer's growth to fully kick in. However, the big drugmaker will pay you handsomely to wait, with a dividend yield of close to 6%.
I stated at the outset that I could sum up Pfizer's stock performance over the last couple of years with one word (ugh). I think I can also use just one word with three letters to sum up the investment opportunity this stock presents. That word is "wow."
