What To Expect From Pfizer In The Post-COVID-19 Era (NYSE:PFE)

Pfizer (NYSE:NYSE:PFE) is without doubt one of the largest pharmaceutical corporations on this planet, specializing within the growth and manufacture of medicines for the therapy of a variety of illnesses, equivalent to cardiovascular illnesses, most cancers, and autoimmune illnesses, and a vaccine portfolio for the prevention of influenza, COVID-19 and different viruses.

In This fall 2022, the corporate’s income was $24.29 billion, up 1.9% from the final three months of 2021, regardless of a major lower in individuals’s want to vaccinate in opposition to COVID-19. Total, Pfizer’s administration achieved the monetary outcomes introduced within the steering revealed within the third quarter, displaying an all-time file in income of $100.33 billion and greater than $31 billion in web revenue. The corporate’s EBITDA margin of 43.9% for 2022 continues to develop yearly, outperforming business mastodons equivalent to Merck (MRK), Novartis (NVS), and Roche Holding (OTCQX:RHHBY) (OTCQX:RHHBF).

This text will current the elements that make the corporate a gorgeous asset for dividend traders and the dangers that anybody contemplating Pfizer as a long-term funding ought to concentrate on.

Conducting an aggressive M&A coverage

For the reason that starting of 2021, the corporate’s administration has pursued an aggressive M&A coverage, which has not been noticed for a few years. The explanation for that is the necessity to rejuvenate the drug portfolio earlier than a lot of them lose exclusivity within the coming years. As well as, the multi-billion greenback web revenue generated from the sale of COVID-19 merchandise permits Pfizer’s Board of Administrators to purchase out corporations whose product candidates have important aggressive benefits when it comes to efficacy and security profile.

The full quantity spent on acquisitions of the 5 pharmaceutical corporations is $26.485 billion. Regardless of the spectacular quantity, the corporate’s complete debt continues to say no year-on-year and stood at $39,377 million on the finish of 2022. Furthermore, the entire debt/EBITDA ratio fell under 1x and thus could point out the absence of great monetary dangers related to debt servicing. In consequence, in This fall 2022, Moody’s upgraded Pfizer’s long-term debt ranking from A2 to A1 and upgraded its long-term debt outlook to secure. Additionally, S&P International Rankings (SPGI) maintains the corporate’s long-term debt outlook as secure from This fall 2020. Total, enhancing the credit standing reduces the corporate’s vulnerability to continued Fed tightening and boosts investor confidence in Pfizer as it might meet its debt obligations.

Returning to the dialogue of the offers made, we want to spotlight the $5.4 billion acquisition of International Blood Therapeutics, which has expanded Pfizer’s presence in sickle cell illness. The corporate estimates the mixed peak gross sales of acquired medicines and candidate merchandise may generate over $3 billion. For instance, International Blood Therapeutics has developed Oxbryta (voxelotor), which is authorized within the US, the European Union, and different international locations. The mechanism of motion of this drug relies on reversible binding to hemoglobin (HB) to extend the affinity of oxygen for this metalloprotein. Because of the motion of Oxbryta, the polymerization of Hemoglobin C is prevented, finally resulting in a discount within the crescent of purple blood cells answerable for offering oxygen to human tissues and organs.

Voxelotor gross sales continued to develop yr on yr and had been $73 million in This fall 2022. With Pfizer’s huge expertise in uncommon hematology and important monetary capability to allow aggressive advertising, we imagine Oxbryta’s CAGR shall be 25% from 2023 to 2027.

As well as, on October 3, 2022, Pfizer accomplished the $11.6 billion acquisition of Biohaven Pharmaceutical, which provides to one of many leaders within the pharmaceutical business a portfolio of calcitonin gene-related peptides able to successfully combating migraines that have an effect on greater than a billion individuals yearly worldwide.

Along with a number of product candidates in medical trials, Pfizer has acquired Nurtec ODT/Vydura, which is a drugs for the acute therapy of migraine and the preventive therapy of episodic migraine. Nurtec ODT/Vydura gross sales had been $213 million in This fall 2022, up 12.1% year-over-year.

Contemplating the colossal migraine therapeutic market, the drug’s excessive efficacy, and the oral route, we estimate that Nurtec ODT/Vydura could have a CAGR of 15% by 2027.

Paxlovid is a frontrunner within the COVID-19 therapeutics market

Paxlovid (nirmatrelvir/ritonavir), a drugs that not solely saves the lives of lots of of 1000’s of COVID-19 sufferers worldwide however whose gross sales generated 18.9% of Pfizer’s complete income in 2022, performs an important position within the growth of the corporate. In the meanwhile, the next monoclonal antibodies as AstraZeneca’s tixagevimab/cilgavimab, Eli Lilly’s bebtelovimab (LLY), GSK/Vir Biotechnology’s sotrovimab (GSK) (VIR), Eli Lilly’s bamlanivimab/etesevimab, REGEN-COV Regeneron’s (REGN) usually are not efficient as a therapy and safety in opposition to COVID-19 as a consequence of full or partial resistance to subvariants of Omicron, which finally led to the withdrawal of their emergency use authorizations in the USA.

In consequence, solely Pfizer’s medication, Gilead Sciences’ Veklury (GILD), and Merck’s Lagevrio are broadly used as remedies for a illness whose outbreaks are occurring in numerous elements of the world as a result of fast mutation of the virus. Paxlovid gross sales amounted to $1,834 million in This fall 2022, displaying a major improve in comparison with the earlier yr. The lower in gross sales of this medication within the final three months of 2022 in comparison with the earlier quarter was primarily as a result of decline within the variety of circumstances of COVID-19 worldwide.

Alternatively, within the first two months of the primary quarter of 2023, the variety of circumstances of COVID-19 in the USA exceeded by 11% in comparison with the primary two months of the fourth quarter of 2022. Contemplating that Paxlovid continues to take care of excessive effectivity within the combat in opposition to new virus variants and its comparatively low worth, these elements favorably have an effect on the expansion within the share of nirmatrelvir/ritonavir programs that had been distributed in the USA by HHS. In current months, the share of distributed Paxlovid has persistently exceeded 90% and solely sometimes fell to 70.8% as a consequence of AstraZeneca’s tixagevimab/cilgavimab. With AstraZeneca’s drug withdrawn from the market in Q1 2023, we imagine there is no such thing as a barrier to Pfizer’s drug persevering with to dominate the multi-billion greenback COVID-19 therapeutics market.

Alternatively, after the tip of the wave of coronavirus circumstances in December 2022, when 500,000 sufferers had been registered each week, the state of affairs is at the moment stabilizing. We analyzed the expansion and decline traits within the variety of circumstances of COVID-19 over the previous yr and a half. We famous that the interval between the peaks of coronavirus waves ranges from 140 days to 176 days, that’s, on common, each 159 days, a brand new wave of incidence begins in the USA. Consequently, in response to our mannequin, a pointy improve within the variety of circumstances of COVID-19 will happen in June-July 2023, creating further demand for Paxlovid.

Pfizer administration predicts that gross sales of this drug will quantity to $8 billion. Nonetheless, we imagine that this conservative estimate and our gross sales mannequin for Paxlovid shall be within the vary of $9.8 billion to $10.5 billion.

Excessive dividend yield and the share repurchase program

The implementation of an abnormally aggressive M&A and R&D coverage over the previous two years and elevated competitors amongst producers of anti-cancer therapies had a minimal impact on Pfizer’s margins. Consequently, this has contributed to a constant improve within the firm’s dividend yield over the previous 12 years. On condition that for the first quarter of 2023, dividend funds amounted to $0.41 per share, we imagine in sustaining this worth for the remaining three quarters of 2023, and consequently, for the present yr, Pfizer traders ought to obtain dividends of $1.64 per share, up 2.5% from a yr earlier. As well as, the dividend payout ratio is 24.32%. The comparatively low worth of this monetary indicator demonstrates the potential of persevering with the coverage of accelerating dividend funds within the coming years, which, given the present worth of the corporate’s shares of $40.5, is an attractive second for long-term traders.

Pfizer’s present dividend yield of 4.04% shouldn’t be solely considerably greater than the most important pharmaceutical corporations however outperforms different sector leaders equivalent to Procter & Gamble (PG) and Coca-Cola (KO).

Along with dividends, Pfizer additionally has one of the vital efficient instruments to enhance the corporate’s funding attractiveness, and it’s the share repurchase program. Nonetheless, Albert Bourla, as CEO of the corporate, has not engaged in an energetic share buyback coverage for the reason that onset of COVID-19. One attainable cause for this could possibly be the necessity to rejuvenate the portfolio of authorized medication and to increase the corporate’s presence in therapeutic areas with excessive unmet medical must offset the decline in income from COVID-19 merchandise and people whose exclusivity will finish within the subsequent 5 years. In 2022, Pfizer purchased again two billion {dollars} of shares, breaking a two-year pattern of inactivity.

As of December 31, 2022, the remaining quantity below Pfizer’s share buyback program was $3.3 billion. Nonetheless, in our estimation, the corporate’s administration won’t use this cash till the share worth falls under $36 per share, which is a powerful assist degree when it comes to technical evaluation.

Dangers

Lack of exclusivity of Pfizer merchandise

Earlier than discussing the impression of the tip of exclusivity for a number of of Pfizer’s important medication, it must be famous that this refers back to the expiration of patents that defend the unique proper of a pharmaceutical firm to fabricate and subsequently commercialize a branded drug that it owns. In different phrases, when patents expire, pharmaceutical corporations can produce generic variations of the branded drug, resulting in extra competitors and decrease affected person prices as healthcare suppliers search to maneuver sufferers to cheaper generics. However on the similar time, the impression of the lack of exclusivity of a selected drug on the corporate’s monetary place may be totally different and is determined by the share of its gross sales in complete income, the extent of competitors from generic producers, and the presence of next-generation medicines within the firm’s portfolio that may substitute an out of date product. Considered one of Pfizer’s methods to mitigate the impression of the lack of exclusivity is to pursue an energetic R&D coverage to diversify its product portfolio and improve income within the firm’s favorable COVID-19 period. The desk under highlights the important thing six medicines, whose mixed gross sales account for 23.1% and whose generic variations are anticipated to be available on the market earlier than 2028.

In the meanwhile, there’s a lower in gross sales of COVID-19 merchandise and, consequently, stress on the corporate from numerous monetary establishments is growing since it isn’t totally clear with what particular medication Pfizer administration will be capable of offset the lack of exclusivity of such blockbusters as Ibrance, Prevnar 13 / Prevenar 13 and Eliquis, commercialized in partnership with Bristol-Myers Squibb (BMY).

Acquisition of Seagen

In response to the Wall Avenue Journal, Pfizer’s administration is in talks to accumulate Seagen (SGEN) to increase the corporate’s portfolio with promising cancer-fighting medicines. A number of product candidates are in part 3 medical trials, and consequently, if the first and secondary endpoints are reached, there’s a excessive likelihood that the FDA and EMA will approve their use, which might dramatically improve the corporate’s income within the medium time period.

As of March 3, 2023, Seagen’s capitalization was $33.86 billion, and on condition that the corporate refused to promote itself to Merck for $40 billion, within the present circumstances, there’s a excessive likelihood of two outcomes. The primary of those, which we estimate is unlikely, is the acquisition of Seagen’s total portfolio of medicines for greater than $40 billion to influence the corporate’s administration and key traders to finish the deal. And the second, which is extra probably, is the exclusion of Padcev from the settlement to keep away from further investigations from the antitrust authorities and scale back the prevalence of a battle with Merck, a accomplice of Seagen. In response to our estimates, if the deal to accumulate Seagne goes by as a part of the second consequence, then its quantity may attain $32-33 billion.

On condition that Seagen continues to be a loss-making firm, its acquisition may negatively have an effect on Pfizer’s EPS within the subsequent 5-6 quarters and scale back its monetary flexibility within the post-COVID-19 period. Furthermore, complete debt may additionally rise above $55 billion as a result of must finance this large acquisition. In consequence, this may occasionally result in a refusal to extend dividend funds in 2024-2025, which can additionally lower the funding attractiveness of Pfizer on the a part of dividend traders. Consequently, we count on the corporate’s share worth to drop to $36 within the brief time period on this case.

Conclusion

Pfizer is the world’s main pharmaceutical company, based in 1849 and specializing within the manufacture and sale of medicines for the therapy of varied illnesses, together with cardiovascular, oncological, and autoimmune illnesses. The corporate additionally has a group of vaccines that defend in opposition to the flu, COVID-19, and different viruses, which have been important to attaining file income, working revenue, and different monetary indicators for 2022.

Since 2021, the corporate’s administration has been pursuing an aggressive M&A coverage that has not been seen in a few years, because of the sale of COVID-19 merchandise, which introduced tens of billions of web earnings to Pfizer in current quarters. The ensuing earnings are successfully transformed not solely into accelerating their developments but in addition by buying corporations whose medicines have important aggressive benefits over these at the moment thought of gold requirements in numerous therapeutic areas. As well as, rejuvenating the corporate’s product portfolio reduces the danger of a considerable drop in income as a result of lack of exclusivity of a number of blockbusters within the subsequent six years.

Regardless of the excessive dividend yield and margins of the enterprise, and an intensive pipeline of product candidates, long-term traders must take into consideration the dangers not solely described on this article however the tense state of affairs round Ukraine and the continued improve within the Fed rate of interest, which may result in a short-term lower within the firm’s share worth to $36. Nonetheless, regardless of them, we imagine Pfizer is considerably undervalued among the many pharmaceutical corporations within the S&P 500 (NYSEARCA:SPY) and could possibly be a superb candidate for dividend traders.

Editor’s Word: This text discusses a number of securities that don’t commerce on a significant U.S. change. Please concentrate on the dangers related to these shares.