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Pfizer’s Path to Recovery: A Detailed Analysis of the Pharmaceutical Giant



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The Downturn After COVID-19


Pfizer (NYSE: PFE) has been a pivotal player in the pharmaceutical industry, especially recognized for its groundbreaking COVID-19 vaccines and treatments. However, the past year has been challenging for the company as it faced a significant decline in revenue and earnings due to a decreasing demand for its COVID-19 products. Despite these setbacks, there are compelling reasons to believe that Pfizer is well-positioned for a rebound, and several firms and investors are buying up shares such as Berkshire Hathaway. This article will delve into the factors that make Pfizer a strong candidate for long-term investment, supported by its recent achievements, strategic acquisitions, and promising pipeline.




The Reason for The Decline


In 2023, Pfizer encountered a sharp decline in revenue, primarily driven by reduced demand for its COVID-19 vaccine, called Comirnaty, and its antiviral treatment, named Paxlovid. This downturn led to a significant drop in Pfizer's stock price, reflecting investor concerns about the company's future profitability without the extraordinary revenue from its pandemic-related products.


Pfizer's revenue from Comirnaty plummeted by 70%, while Paxlovid saw a staggering 93% drop. These figures were far more severe than anticipated, causing multiple downward revisions of the company's earnings outlook and a substantial sell-off of the stock. From a high of around $58 in December, 2021, Pfizer's stock price fell to a low of approximately $25, before starting a recovery to its current level of about $28.


Reasons to Invest in Pfizer Stock


Despite these challenges, Pfizer remains a formidable force in the pharmaceutical industry with several factors indicating its potential for recovery and growth.


1. Impressive String of Approvals:

In 2023, Pfizer achieved an unprecedented number of approvals from the U.S. Food and Drug Administration (FDA), securing seven new drug approvals.

This achievement is notable not only because it exceeds Pfizer's typical annual average of one or two approvals but also because no other drugmaker matched this level of success, with the next highest being only three approvals. This string of approvals represents almost 11% of all FDA approvals in 2023, highlighting Pfizer's innovative capabilities and the effective use of its resources amassed during the pandemic.


The new drugs approved by the FDA in 2023 include:

● Litfulo – for alopecia areata

● Ngenla – for growth hormone deficiency

● Elrexfio – for multiple myeloma

● Velsipity – for ulcerative colitis

● Paxlovid – for COVID-19

● Abrysvo – for respiratory syncytial virus (RSV)

● Zavzpretfor – migraine


2. Strategic Acquisition of Seagen:

One of the most significant moves Pfizer made in the past year was the acquisition of Seagen, a specialist in cancer therapies, for $43 billion. Seagen's extensive pipeline of cancer treatments and innovative approach will bolster Pfizer's oncology portfolio, which the company plans to expand significantly in the coming years. Pfizer's CEO, Albert Bourla, emphasized the strategic importance of maintaining Seagen's innovative capabilities within Pfizer's broader framework to maximize potential.


3. Economies of Scale and Cost-Cutting Initiatives:

Pfizer's massive size offers operational advantages, including cost efficiencies and a highly skilled sales force. The company is on track to achieve $4 billion in cost reductions by the end of 2024, which should enhance its operating margins and overall financial health. These strategic initiatives may not be fully appreciated by the market yet but are crucial for long-term profitability.


4. Growth in Non-COVID Product Portfolio:

In the first quarter of 2024, Pfizer reported an 11% operational sales growth in its non-COVID product portfolio. This growth was significantly bolstered by the Seagen acquisition and indicates that Pfizer can sustain its revenue growth through its diversified portfolio. The company expects mid-single-digit growth through 2025 before facing patent expirations.


5. Promising Pipeline and Focus on Oncology:

Pfizer has a robust pipeline of drugs in various stages of development. Notably, its phase 3 trial for the breast cancer drug atirmociclib offers a significant opportunity to strengthen its oncology presence. With plans to increase the number of blockbuster cancer drugs to over eight by 2030, Pfizer's focus on oncology is a strategic move, given the high pricing power and favorable reimbursement status of cancer treatments.


6. Strong Performance of Key Drugs:

Several of Pfizer's key drugs continue to perform well and are expected to maintain their market positions despite increasing competition. These include:

● Vyndaqel – for cardiomyopathy, with sales skyrocketing by 66% to $1.14 billion in Q1 2024.

● Eliquis – a cardiovascular drug co-developed with Bristol Myers Squibb, which continues to gain market share.

● Prevnar -- a pneumococcal vaccine, which remains a significant revenue driver.


7. Attractive Valuation and Dividend Yield:

Pfizer's stock is currently trading at around 11 times forward earnings, which is significantly lower than its big-pharma peers' average of 17. This low valuation, combined with a high dividend yield of 5.74%, provides a compelling case for income-seeking investors and those looking for undervalued opportunities. The fair value of the stock analyst believes to be $80.61 dollars that is 64.5% under valued at the current price of $28.64. This is most certainly going to be a long term play as big pharma is slow moving with approvals with a estimated growth rate this year of about 11% but in the long term to possibly reach the $80 level.




Recent Developments and Approvals


Pfizer's recent product approvals further strengthen its market position. These approvals, alongside Pfizer's ongoing efforts in the RSV vaccine market and its recent advancements in cancer therapies, position the company well for future growth. These include:

● Tivdak – an antibody-drug conjugate for cervical cancer, acquired through the Seagen deal.

● Beqvez – a gene therapy for hemophilia B, priced at $3.5 million for a one-time treatment.

● Emblaveo – approved by European regulators for treating drug-resistant bacterial infections.

● Abrysvo – an RSV vaccine with proven effectiveness against both RSV A and B across two seasons.


Technical Analysis and Health Outlook

From a technical perspective, Pfizer's stock shows signs of a potential rebound. The stock's price is currently above its 20-day moving average, indicating bullish momentum. Additionally, the Relative Strength Index (RSI) is above 70, suggesting strong buying pressure. The trading volume at the $27-$27.5 range indicates a shift to more bullish investors, which could support further price increases.


Right now the Company still remains unprofitable with a negative net operating margin of -0.52% losing $288 million last quarter despite having a sustainable cash flow of $5.11 billion, with a healthy gross margin that the company is slowly reaching the milestone of net profit. Lastly although it has been reduced it still is considered to be high with a debt to equity ratio of 75.5%, this makes it harder for the company to pay off their debts however according to EBIT their debts, including the interest payments should be well covered with 3.6x.



Ending on The Risks and Considerations


While Pfizer has strong growth prospects, it faces inherent risks in drug development, including high failure rates in clinical trials and lengthy approval processes. Patent expirations also pose a challenge, potentially leading to revenue erosion from generic competition. Additionally, the future of Pfizer's COVID-19 products remains uncertain, which could impact revenue projections.


Despite these risks, Pfizer's current low valuation and high dividend yield provide a buffer against potential downsides. The company's strategic focus on high-growth areas like oncology and its commitment to cost-cutting initiatives further enhance its investment appeal.

Pfizer is at a pivotal point, transitioning from the extraordinary gains of the pandemic to a more balanced, long-term growth strategy. The company's impressive string of FDA approvals, strategic acquisitions, and robust pipeline underscore its potential for recovery and growth. Which gives a high potential for obtaining the goal and projection to become the most diversified pharma company on the market. While challenges remain, Pfizer's valuation and dividend yield offer attractive entry points for investors. Those willing to hold Pfizer shares for the long term are likely to be rewarded as the company continues to innovate and expand its market presence.


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