probably did more than any other company to help the world normalize from the pandemic, and it reaped a financial windfall from its twin Covid-19 franchise—the top-selling vaccine and the leading treatment, Paxlovid.
The world, however, has stopped worrying about Covid—and Pfizer (ticker: PFE) is paying the price. The sales of its two Covid blockbusters may decline over 60% in 2023, after generating a combined $57 billion in revenue during 2022. And there is considerable uncertainty about demand for both in the coming years.
Pfizer stock, too, has fallen out of favor, along with other Covid plays. At $44, it’s down 15% this year, making it one of the worst performers in the
index. And it’s 30% below its late 2021 peak, badly trailing the rest of the drug group.
Now looks like the time to buy the stock. Pfizer trades for 13 times projected 2023 earnings and yields 3.7%, more than double the S&P’s dividend rate. The payout, backed by ample earnings and one of the industry’s best balance sheets, looks very safe.
Pfizer is one of the drug group’s bargains, although that view is not widely held. Of the 24 analysts covering the stock, 15 rate it Hold, according to Bloomberg, and there is more debate around Pfizer than about most of its peers. Investors are divided on the outlook for the Covid franchise and Pfizer’s drug pipeline.
There are also some who think Pfizer should be buying back stock—the company stopped repurchasing shares in the second quarter of 2022. It’s possible that its recent struggles could attract an activist investor, who would argue that it should do just that, given the depressed share price. An activist also could press the company to curb its research and development expenditures, which are set to rise more than 10% this year, and to spend less on deals.
But Pfizer’s pipeline might be stronger than it’s given credit for—and pipelines are what drive drug stocks. “The pipeline could surprise on the upside,” says Louise Chen of Cantor Fitzgerald, who has a Buy rating on the stock, with a $75 price target, one of the highest on the Street. That’s the company line as well. “We’re coming off a record year in 2022 and the best times for Pfizer are ahead of us,” says David Denton, the pharmaceutical manufacturer’s chief financial officer.
First, Pfizer needs to get through 2023. While 2022 was incredibly strong—revenue surged to $100 billion, from $42 billion in 2020, and earnings hit a record $6.58 a share—this is a reset year.
As part of its fourth-quarter profit release this past week, Pfizer offered guidance well below Wall Street forecasts. It sees a 30% drop in revenue, to about $69 billion, and a 50% decline in earnings per share to a midpoint of $3.35. That guidance was $1 a share below the consensus estimate, though Pfizer shares were little changed in the wake of the report, a sign that many investors had anticipated the lackluster forecast. (Despite Pfizer’s guidance, the 2023 analysts’ consensus is still nearly $4 a share.)
Much of the disappointing guidance owed to weakness in Pfizer’s Covid business. The company projected that sales of Comirnaty, the vaccine developed with partner
(BNTX), would fall to $13.5 billion in 2023 from $37.8 billion last year, and that Paxlovid sales would drop to $8 billion from $18.9 billion. The U.S. and other countries have big stockpiles of the Pfizer vaccine that were booked as revenue in 2022, and it may take until midyear to work through them. The same is true for Paxlovid.
But Pfizer is confident that there’s still a future for its Covid franchise. The company sees 24% of Americans, or 79 million, getting a Covid vaccine in 2023 as the U.S. moves to annual boosters, down from 31%, or 104 million, in 2022. It also expects to maintain its 64% vaccine market share.
Pfizer could be too optimistic. There is a growing indifference to Covid, as cases remain depressed nationwide. Reflecting the more blasé attitude, masking has become rarer, even in places such as New York City, where it once was common. Hardly anyone was masked at a recent Saturday night performance at the Metropolitan Opera, which required the audience to wear masks and show proof of vaccination as recently as last year.
Pfizer’s optimism stems, in part, from the prospect of a combined flu/Covid vaccine that it’s developing using mRNA technology. The drugmaker sees 82 million Americans getting a Covid vaccine in 2024, rising to 132 million in 2026, by which time it hopes to have the two-disease vaccine on the market.
“Imagine in , that you walk into the pharmacy and you ask for your flu shot,” Pfizer CEO Albert Bourla tells Barron’s. “And they will offer you, ‘Do you want the stand-alone flu, or do you want to do the shot together with Covid?.’ I think a very big part of [that group] will say, ‘Give me both.’ “
And with the government out of the Covid business, Pfizer will be able to charge more for its vaccines. It has talked about getting $110 to $130 for each dose in the commercial market, up from about $30 under government contracts. The company sees Covid revenue bottoming in 2023.
|Company / Ticker||Recent Price||52-Week Change||Market Value (bil)||2022 EPS||2023E EPS||2022 P/E||2023E P/E||Dividend Yield||Net Debt (bil)|
|Pfizer / PFE||$44.34||-17.7%||$249||$6.58||$3.94||6.7||11.3||3.7%||$0.5|
|AbbVie / ABBV||144.84||4.5||256||13.59*||11.51||10.7*||12.6||4.1||57.7|
|Bristol Myers Squibb / BMY||72.77||12.3||155||7.70||7.94||9.5||9.2||3.1||30.1|
|Eli Lilly / LLY||330.70||31.8||314||7.94||8.48||41.6||39.0||1.4||13.1|
|Merck / MRK||103.46||26.2||262||7.48||7.25||13.8||14.3||2.8||19.2|
E=estimate. *AbbVie 2022 EPS and P/E are estimates.
Sources: Bloomberg; FactSet
Pfizer, however, really wants to shift the discussion away from Covid and to the rest of its business. It projects that non-Covid revenue will rise 6% annually through 2025 and then increase at 6% or better each year through 2030, to at least $70 billion.
It’s rare for a company to issue financial guidance for seven years, but Bourla thinks enough of the pipeline to do it, and he wants to boost Pfizer’s credence within the investment community. It’s a gutsy move. The big drugmaker faces one of the industry’s bigger patent cliffs from 2025 to 2028, when drugs with $17 billion in annual sales will lose protection from generic competition. Among them: Eliquis and Ibrance, best-selling medications for, respectively, strokes and breast cancer.
Pfizer is seeking to fill that void with acquisitions, including three deals—for Arena Pharmaceuticals, Biohaven Pharmaceuticals, and Global Blood Therapies—that it made in 2022 for a combined $26 billion. Those transactions gave Pfizer promising drugs for migraines, ulcerative colitis, and sickle-cell anemia. Pfizer expects these and future acquisitions to be generating $25 billion in annual revenue by 2030. Marshall Gordon, a senior healthcare analyst at ClearBridge Investments, says he has been “pretty impressed” by the deals.
Pfizer also sees at least $20 billion in 2030 sales from its internal pipeline. Key launches there include vaccines for the respiratory syncytial virus, or RSV, meningitis, and the flu, and drugs to treat atopic dermatitis and multiple myeloma, a blood cancer. Bourla also has high hopes for an oral diabetes and weight-loss product known as GLP-1 that is now in clinical trials and could generate yearly sales of $10 billion, Pfizer says. Similar drugs from
(LLY) have generated lots of excitement, but they are injected.
Pfizer is investing heavily in research and marketing to support its pipeline and to launch new products. R&D spending is expected to rise 13%, to about $13 billion, this year, one of the industry’s highest totals. In January, Bourla said that the coming year and a half would be “the most important 18 months in the history of Pfizer,” due to a slew of drug introductions.
Wall Street doesn’t have as much confidence in the pipeline, which is more of a show-me story than those of some rivals. One skeptic is UBS analyst Colin Bristow, who recently downgraded Pfizer to Neutral from Buy, in part because he thinks less of what’s coming than the company does.
That skepticism would be deserved for the old Pfizer, known more for having a powerhouse sales force and for making big deals, such as the purchases of Wyeth and Pharmacia, than for being a drug innovator. But times have changed.
Before the Covid vaccine, Pfizer’s pipeline was “struggling,” says Goldman Sachs analyst Chris Shibutani. That’s no longer the case. “The breadth and depth of the pipeline is underappreciated,” says Shibutani, who has a Buy rating and $62 price target, nearly 41% above Friday’s close. He says the stock is inexpensive, trading for 11 times his 2024 earnings estimate of about $4 a share.
Steve Galbraith, the chief investment officer of Kindred Capital in Darien, Conn., credits Bourla, who became CEO in 2019, with re-energizing the company. “Management has completely pivoted the culture back toward science,” he says.
A focus on science doesn’t preclude share repurchases, even if Denton, the CFO, said on the company’s earnings conference call that buybacks are “not high on the priority list.” Pfizer has used its Covid windfall to pay down debt and make acquisitions, but it still has the balance sheet to buy back stock.
|Covid Franchise||2022 Sales (bil)||2023E Sales (bil)|
|Comirnaty (covid-19 vaccine)||$37.8||$13.5|
|Pfizer Pipeline Key Products||Est. Peak Annual Sales (bil)|
|GLP-1 (diabetes, weight loss)||$10.0|
|Elranatamab (multiple myeloma)||4.0|
|RSV Vaccine (respiratory virus)||3.6|
|mRNA flu vaccine||2.1|
|Etrasimod (ulcerative colitis)||2.0|
|Oxbryta (sickle cell anemia)||1.8|
Sources: Goldman Sachs; company reports
Pfizer shares are almost back to where they stood prior to the pandemic’s start in 2019, and Galbraith says the company’s enterprise value—equity value plus net debt—is lower now because its net debt has gone from $40 billion to less than $1 billion. The market value is now around $250 billion. Pfizer could easily take on debt, if needed, to repurchase shares. “They can very clearly do it all—invest in R&D, M&A, and buy stock,” he says.
But should they do it all? Bourla says that Pfizer remains on the hunt for acquisitions. In fact, the company figures that it’s only 40% on the way to meeting its goal of $25 billion in 2030 revenue from acquired drugs. With biotech companies getting more expensive, Pfizer could spend another $50 billion to try to hit that target.
Galbraith says investors rightly ask whether it makes sense for Pfizer to be buying companies at prices that can run at 10 times revenue or more, when its own stock trades for just four times sales.
Joe Rosenberg, a private investor who retired at the end of 2018 as chief investment strategist at the conglomerate Loews, faults Pfizer for not buying back stock and says it needs to be more disciplined about research and development, and acquisitions. He thinks an activist could target the company.
ClearBridge’s Gordon, conversely, is dubious that Pfizer needs an activist. He gives management high marks for the Covid vaccine and Paxlovid and for “rejuvenating the spirit of the company.” He argues that the broad Pfizer pipeline is “not reflected in the stock’s valuation in a major way.”
Whether an activist surfaces or not, Pfizer stock looks inexpensive, and investors get a safe yield of almost 4% while they wait for an underappreciated drug pipeline to develop.
Pfizer is an “iconic, blue-chip company,” says Goldman’s Shibutani. It looks ready to remind investors of that fact.
Write to Andrew Bary at firstname.lastname@example.org