Pharmaceutical behemoth Pfizer (PFE -0.81%) has been one of the biggest winners in the Covid outbreak, as the first to enter the market with its vaccine in December 2020 and pill treatment in December 2021. Revenues have soared and look to remain strong through 2022. But the impressive growth of the past two years leaves Pfizer with the challenge of quickly generating new sources of revenue as pandemic sales tail off.
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Converting cash into products
Outside of the Covid space, Pfizer sells a number of megablockbusters such as blood thinner Eliquis, breast cancer drug Ibrance, pneumonia vaccine Prevnar, and arthritis treatment Xeljanz. The company also sees higher growth coming from blockbuster drugs Vyndaqel for cardiovascular disease and Inlyta and Xtandi for cancer treatments. This growth will be complemented by a robust pipeline of internal products, with 10 products filed for approval and 27 products in Phase 3 trials at the beginning of 2022. But with a pile of cash on the balance sheet from Covid sales, Pfizer is also positioned to enhance this pipeline through acquisitions.
In May, Pfizer announced an agreement to acquire Biohaven’s pipeline of migraine treatments, which includes #1 prescribed migraine tablets Nurtec ODT, a nasal spray under FDA review, and five pre-clinical programs. The $11.6 billion dollar cash deal is Pfizer’s largest since its 2016 purchase of cancer drugmaker Medivation for $14 billion.
Pfizer also completed the acquisition of Arena Pharmaceuticals for $6.7 billion in March to add a range of immuno-inflammatory treatments to its pipeline. Top candidate etrasimod has potential for both gastrointestinal and dermatologic indications. After announcing positive results for all primary and key secondary endpoints in two Phase 3 trials for inflammatory bowel disease, Pfizer plans to initiate regulatory filings later this year.
These deals add to its late 2021 purchase of Trillium for $2.2 billion, which brings a pipeline of treatments for hematological cancers and solid tumors. The purchase of ReViral’s candidates for Respiratory Syncytial Virus for $525 million is also in the works.
Outlook for Covid products
Pfizer’s vaccine Comirnaty and antiviral treatment Paxlovid are the most widely administered Covid therapies. More than one million Paxlovid courses have been taken within the US to date, and the pill’s effectiveness and the convenience of the oral administration makes it a preferred treatment. Contributing to its prospects in an endemic Covid scenario, Pfizer claims that the oral antiviral works against new strains and anecdotes suggest it may help treatment of long Covid. But recent reports of viral rebound following treatment may dampen enthusiasm.
On the other hand, demand for the vaccine is almost certain to fall after 2022. Much of the population has already been vaccinated, and new options continue to enter the market. Last week, manufacturer Serum Institute of India announced that it will destroy 200 million doses due to global oversupply. Even if Pfizer gains FDA approval for children under five in June, vaccination rates for children are relatively low and this new population segment seems unlikely to dramatically boost sales.
The outlook for 2022 remains strong, and Pfizer forecasts sales of $32 billion for Comirnaty and $22 billion for Paxlovid. But the prospects in 2023 and beyond are highly uncertain.
Upcoming revenue shortfall
Pfizer’s challenge going forward is to maintain sales even as demand falls for Covid products. Excluding Covid, the 6% year-over-year sales growth in 2021 was decent but not remarkable, and first quarter sales growth of 2% was even lower. These numbers are far below the tens of billions needed to cover the upcoming decline in Covid product sales.
If Pfizer cannot maintain its current revenue stream, it quickly starts to look overvalued. Pfizer’s current P/E of 12.0 might look cheap at first glance, but it is based upon the company’s full revenue, which was $81.3 billion in 2021. Excluding Covid sales, 2021 revenue was only $45.2 billion, less than pharmaceutical peers Merck’s (MRK -1.15%) $54.0 billion or Bristol Myers Squibb’s (BMY -0.62%) $47.0 billion. Yet at its current stock price, the company is valued well above both of these peers, almost one-quarter above Merck and almost double Bristol Myers Squibb.
Recent acquisitions do make solid strides towards bridging uncertainties around Covid revenue, but more is needed to fully cover the gap. Fortunately Pfizer still has cash. Look for Pfizer to actively pursue other large acquisitions to secure future revenue.
