Pfizer (NYSE: PFE) underperformed the S&P 500 in 2020. And in 2019. And in 2017. And in 2016. You probably noticed that I skipped 2018 – it was the only year in the last five when the big drugmaker managed to beat the broad market index. If it were the best way to predict future returns looking at historical returns, Pfizer’s prospects would not be so good.
However, there is a reason why the investment world includes so many disclaimers that warn that “past performance may not be a sign of future performance.” Things are changing. This is especially true in cases where a company’s underlying dynamics are shifted as much as Pfizers’. So what are the prospects for Pfizer shares? Probably much better than it has been in recent years.
PICTURE SOURCE: MOVIE PICTURES.
Better days ahead
A major reason to be more optimistic about Pfizer is that growth is no longer being dragged down by a catalog of older drugs with declining sales. In particular, Lyrica, whose patent expired in 2019, had become an albatross around the company’s neck.
But now Lyrica and a basket of Pfizer’s older drugs belong Viatris. The new company was formed in November through the merger of Mylan with Pfizer’s Upjohn unit, which was home to its older products.
With the Viatris agreement behind it, Pfizer expects to deliver risk-adjusted revenue growth of at least 6% annually over the next many years. The company looks for adjusted earnings per. Stock to grow by at least 10% annually over the same period.
But there is even better news: These projections do not include the effect of Comirnaty, the COVID-19 vaccine it developed in partnership with BioNTech. Pfizer CFO Frank D’Amelio said during the company’s 4th quarter conference call that the vaccine should generate sales of about $ 15 billion this year. However, this estimate was based solely on its then current delivery agreements.
Since then, the U.S. government has increased its order for Comirnaty by 100 million doses. It looks like there will be several major tenders. Pfizer shares the 50-50 gross profit of the vaccine with BioNTech. However, the major drugmaker is poised to receive a huge boost to its top and bottom lines this year from its COVID-19 vaccine.
A few concerns
So will everything be sunshine and praise for Pfizer in the future? Of course not. There are a few areas of concern to the company and its shareholders.
Pfizer had hoped that blockbuster breast cancer drug Ibrance would gain regulatory approval as an adjuvant treatment for use in patients with early breast cancer. After two clinical trial errors last year, it will not happen.
Autoimmune disease drug Xeljanz is ranked among Pfizer’s best drugs in recent years. But in January, the company announced results from a post-marketing safety study that was very disappointing. Study participants taking Xeljanz had significantly higher rates of cardiovascular events and cancer than those receiving TNF inhibitors. (The most popular drugs in this class include Humira and Enbrel.)
It is too early to know exactly what the impact of Xeljanz’s flop in the safety investigation will be. Sales growth for the drug may not be as strong as previously expected.
Perhaps the biggest question mark for Pfizer, however, is how long the sleeper train associated with Comirnaty will last. If COVID-19 vaccines provide protection against infection for two or more years, Pfizer’s annual revenue going forward will not be as high as it will be this year. The company may also face intensifying competition from other vaccines, as more are approved and when total production increases.
So what does all this great mean pharmaceutical stock over the next five to ten years? My prediction is that the Pfizer stock will be well positioned to generate higher overall returns than the S&P 500.
I believe that Comirnaty will remain a major money developer for years and that other key drugs in Pfizer’s range, including blood-thinning Eliquis and transthyretin-mediated amyloidosis drug Vyndaqel, will continue to deliver solid sales growth.
I’m also looking for good news from Pfizer’s pipeline. The company achieved an overall clinical trial end-to-end success rate (which measures the percentage of its new molecular entities that successfully passed clinical trials and won regulatory approval) of 21% over the past five years. This rate increased the industry average by 8%.
Of course, the total return includes dividends. I have no doubt that Pfizer’s dividends will remain one of the most attractive in the healthcare sector.
Pfizer does not generate the kind of impressive growth that aggressive investors are looking for. However, I think the stock will be a winning choice for conservative investors.
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