Pfizer Inc. (PFE, Financial) is one of the largest companies in the pharmaceutical industry and a leader in the fight against COVID-19.
The company's products are used to help prevent infection from viruses and treat various types of cancer, cardiovascular, immunological, neurological diseases, and more. However, of Pfizer's four segments, Primary Care continues to be the largest contributor to its revenue. This category includes a portfolio of medicines approved by regulators, including preventing serious blood clots, treating migraine and menopause symptoms, and vaccines to combat bacteria and viruses such as COVID-19, Neisseria meningitidis serogroup B, and respiratory syncytial virus.
Author's elaboration, based on 10-Q
Investment thesis
Pfizer has been going through some of the toughest times in its history in recent months. The key reasons for the decline in its share price include weaker demand for its COVID-19 products and growing concerns among investors about whether its management can offset the potential decrease in its revenue after losing exclusivity on some of its blockbusters, such as Xeljanz, Eliquis, and Ibrance.
Author's elaboration, based on 10-K
Stabilization of demand for COVID-19 products
Sales of Comirnaty totaled $1.31 billion for the three months ended October 1, 2023, down sharply year over year primarily due to rising public concern about its effectiveness against new variants of COVID-19. However, if you look at the dynamics of its sales in the last two quarters, the situation begins to inspire optimism. At the same time, we believe that an increase in the price of Comirnaty in 2023 will positively affect the company's margins not only in the current year but also in the next.
Author's elaboration, based on quarterly securities reports
Additionally, sales of Paxlovid, used to treat COVID-19, were $202 million in the third quarter of 2023, an increase of 41.3% from the previous quarter. We expect demand for it to remain stable in the fourth quarter due in part to its continued efficacy against new COVID-19 variants and the lack of a significant decline in the number of hospitalizations due to the virus.
Centers for Disease Control and Prevention
Pfizer management pursues an aggressive M&A policy
Multi-billion dollar sales of Paxlovid and Comirnaty between 2021 and 2022 allowed Pfizer management to acquire pharmaceutical companies whose product candidates and drugs are highly effective and have other competitive advantages in the industry and, as a result, are able to return the company to the path of growth and prosperity.
Author's elaboration, based on quarterly securities reports
First, sales of Oxbryta developed by Global Blood Therapeutics amounted to $85 million in the third quarter of 2023, an increase of 10.4% from the previous quarter. This medicine was approved by the FDA in 2019 and the EMA in 2022 and, since then, has continued to actively increase its share in the global sickle cell disease treatment market, thanks in part to Pfizer's extensive experience in rare hematology.
Author's elaboration, based on quarterly securities reports
Second, Pfizer's acquisition of Biohaven Pharmaceutical opened access to a multibillion-dollar migraine drugs market. This deal expanded Pfizer's portfolio of products to include Nurtec ODT/Vydura (rimegepant), which received its first FDA approval only in 2020. The drug is used to prevent episodic migraines and treat acute migraines and generated $233 million for Pfizer in the three months ended October 1. We expect rimegepant's sales growth rate to improve in the coming quarters since its first launch in Europe occurred only in the second half of 2022, it has an acceptable safety profile and is highly effective in the fight against widespread neurological disease.
Third, in mid-March 2023, the company announced the acquisition of Seagen, one of the leaders in the global antibody drug conjugates market. In addition to its broad pipeline of product candidates targeting multiple types of cancer, the deal will expand Pfizer's oncology division to include four drugs: Adcetris (brentuximab vedotin), Padcev (enfortumab vedotin-ejfv), Tukysa (tucatinib) and Tivdak (tisotumab vedotin-tftv).
Author's elaboration, based on quarterly securities reports
So, Padcev sales totaled $200 million in the third quarter of 2023, up 90.5% year-over-year, primarily due to its FDA approval in April of this year for treating certain patients with locally advanced or metastatic urothelial cancer.
In conclusion, we would like to note that Aamir Malik stated the following at the Truist Securities BioPharma Symposium, which was held on November 9, 2023.
Two, let's successfully close out the Seagen transaction, which we are confident that we'll be in a position to do by the end of this year or early next year and then continue to be very mindful about where we deploy dollars to achieve that rest of that $5 billion contribution in 2030 revenues.
As a result, if the deal is completed, it will not only strengthen Pfizer's position in the global oncology drugs market but will also rejuvenate its portfolio of experimental drugs and reduce the financial risks of reduced demand for its COVID-19 products.
Pfizer's extremely high dividend yield in the healthcare sector
In addition to the two investment theses discussed earlier in the article, we expect the company's management to continue increasing dividend payments year after year. So, its current dividend yield exceeds 5.5%, which is significantly higher than the average value of the healthcare sector. Ultimately, this is one of the key factors that makes Pfizer an attractive asset for long-term investors.
Author's elaboration, based on Seeking Alpha
Pfizer's Q3 2023 financial results and outlook for 2023
On October 31, 2023, Pfizer released its financial report for the third quarter of 2023, which showed mixed results. The company's revenue was approximately $13.23 billion, down 41.56% from the third quarter of 2022, primarily due to lower demand for its COVID-19 vaccine and slight declines in sales of Ibrance and Inflectra.
On the other hand, Pfizer's EPS beat analysts' consensus estimates in ten of the last ten quarters, which is one factor indicating that financial market participants continue to be conservative about its prospects.
Author's elaboration, based on Seeking Alpha
Pfizer is expected to release its financial report for the fourth quarter of 2023 on February 1, 2024. According to Seeking Alpha, its revenue for the quarter is anticipated to be $13.65-$14.78 billion, up 5.8% from analysts' expectations for the previous quarter.
Besides, according to our model, the company's total revenue will be above the median of this range and reach $14.45 billion. We expect Pfizer's quarterly revenue increase to be driven primarily by growing demand for its products such as Aromasin, Abrysvo, Vyndaqel, Lorbrena, and Zavicefta.
Author's elaboration, based on Seeking Alpha
Pfizer's operating income margin was -62.32% for the three months ended October 1, 2023, down sharply from the prior year. The main reason was the non-cash charge of $5.6 billion for COVID-19-related product inventory write-offs. In addition, the company's management disclosed in its 10-Q filing that it reversed approximately $4.2 billion in non-cash revenue due to the return of millions of treatment courses of Paxlovid in the fourth quarter of 2023.
As a result, we expect Pfizer's operating income margin to reach 11.1% in 2023. At the same time, this financial indicator will increase to 24.6% in 2024 due to the expansion of the labels of its oncology products, increased prices for its medicines and vaccines, improved demand for Ngenla, which was developed jointly with Opko Health (OPK, Financial), and the weakening of the US dollar relative to other global currencies.
Author's elaboration, based on Seeking Alpha
According to Seeking Alpha, Pfizer's fourth-quarter EPS is expected to be -$0.28 to $0.28, a significant increase from the consensus estimate for the third quarter of 2023. Meanwhile, given the updated adjusted diluted EPS guidance for 2023 of $1.45-$1.65 and our expectations for Pfizer's product sales, we anticipate its EPS to reach $0.1.
Conclusion
Pfizer is one of the largest companies in the pharmaceutical industry and a leader in the fight against COVID-19.
We believe the company's crucial financial risks are its significant rise in total debt to $64.13 billion at the end of 2023, declining sales of its COVID-19 products, and the loss of exclusivity for some of its blockbusters over the next five years. Due to these factors, the share price has declined by more than 40% over the past 12 months.
Author's elaboration, based on Seeking Alpha
On the other hand, Pfizer's share price has reached multi-year lows, which we estimate represents an opportunity for long-term investors, especially given its dividend yield of over 5.5%. Additionally, growing demand for its drugs such as Aromasin, Abrysvo, Vyndaqel, and Lorbrena and an active M&A policy, which has allowed the company to expand its portfolio of experimental medicines significantly, are among the investment theses that make Pfizeran attractive asset for conservative investors.
We continue our analytics coverage of Pfizer with an "outperform" rating for the next 12 months.
