Pfizer – Not Keeping Up With The Competition

PFE - Pfizer

Pfizer is a global biopharmaceutical giant dealing in the manufacture and development of healthcare products. It is one of the largest global pharmaceutical companies with more than $50 billion in revenues. The company has a presence across major therapeutic areas including Oncology, Inflammation & Immunology, Vaccines, Internal Medicine, and Rare Disease. It reached more than half a billion patients around the world last year.

Founded in 1849, Pfizer has come a long way to become a leading healthcare company with 49 manufacturing sites and sales in more than 125 countries. The U.S. accounted for 46% of Pfizer’s total sales in 2019. Pfizer’s vast distribution network enables it to provide more than 40 billion doses in just one year. The company has a wide portfolio of medicines, vaccines, and consumer healthcare products and is known for popular drugs like Prevnar among others.

The company’s business can be divided into three distinct business segments – Pfizer Biopharmaceuticals which accounts for 76% of 2019 revenues, Upjohn (~20%), and Consumer Healthcare (~4%). The majority of Pfizer’s revenues come from the manufacture and sale of biopharmaceutical products. 

Investment Data

Revenue Growth & Market Exposure

Pfizer is known for its consistent and reliable supply of high-quality medicines. Few of its blockbuster products are Prevnar, Lyrica, Ibrance, Eliquis, etc. Its long history in the healthcare industry has helped it develop strong ties with other large pharma companies and develop iconic products. 

Pfizer is constantly researching and developing medicines and vaccines to address the unmet needs of its patients. Extensive patent portfolio, huge R&D facilities, strong technical expertise, and strict government regulations are strong competitive advantages for Pfizer. The company is also growing its presence in emerging markets. Investment in Sterile Injectable business and portfolio of potential biosimilar candidates also act as key growth drivers for the company. Pfizer received 10 regulatory approvals for new drugs/ indications and made good progress on many of its key R&D pipeline products in clinical studies, in the last year. It spent $8 billion on R&D activities in 2019. Pfizer has increased its projected R&D expenses for FY2020 by $500 million for COVID-19 research. The company is partnering with other industry leaders to develop a potential treatment for COVID-19. BioNTech and Pfizer are already working jointly to bring the vaccine to market worldwide. Pfizer is preparing for large-scale production of an experimental vaccine to prevent COVID-19 by the end of 2020. Pfizer is also offering its clinical and regulatory experience to small biotech companies working on promising COVID-19 therapies.

The revenue for Upjohn business declined by 37% to $2 billion, as anticipated. Post the Upjohn- Mylan transaction, Pfizer is expected to become a science-based company with a strong focus on innovation and should generate revenue growth of at least 6% CAGR through 2025 along with improving EPS. Pfizer’s Biopharmaceuticals Group witnessed a 12% operational revenue growth, while its oncology business also gained by 25% YoY, in the latest quarter. Global revenue from its sterile injectable portfolio also grew by 15%. 

Pfizer’s quarterly revenue was impacted as a result of the loss-of-exclusivity of Lyrica in the U.S., lower sales of Lipitor and Norvasc in China, and the completion of JV with GSK. It does not report revenues for its consumer healthcare business anymore. Eliquis, Vyndaqel/Vyndamax, Ibrance and Inlyta, and Xtandi continue to be key growth drivers. Xtandi is the market leader with a 38% market share in total prescriptions in advanced prostate cancer. Pfizer’s share of the global revenue increased by 29% to $1.3 billion, as a result of increased adoption in non-valvular atrial fibrillation as well as oral anticoagulant market share gains. However, Pfizer is also facing headwinds in the form of a drop in new patient starts due to reduced clinic visits, lower diagnostic testing, and elective surgeries now.

Pfizer’s manufacturing sites and distribution channels have remained operational, without major supply disruptions so far. The company, however, felt the impact of COVID-19 in physician-administered diagnostic tests, while hospital business units and sterile injectable products gained. The company has guided its FY2020 revenue to range between $48.5-$50.5 billion.

Dividends

Pfizer is a Dividend Starter. The company had announced a dividend cut back in 2009. Since then, it has paid uninterrupted dividends for ten years in a row, prior to which it had continuously paid dividends since 1988. It paid $2 billion in dividends in the last quarter and nearly $17 billion were returned to shareholders in the last year.

Pfizer currently sports a reasonable payout ratio of 54% and pays ~80% of its free cash flow as dividends. The second-quarter 2020 cash dividend will be the 326th consecutive quarterly dividend paid by Pfizer. It has an annual average dividend yield of 4.08% and last raised its payout by 5.5%. Given its dividend growth of 7%+ CAGR over the past five years and growing global demand for healthcare and biosimilars, the company is poised to comfortably raise its payout in the low single-digit range. Pfizer is a shareholder-friendly company and the management has reiterated its capital allocation plan to remain the same after the Mylan spin-off. Pfizer shareholders will receive shares in Viatris, the new entity created by the merger of Upjohn and Mylan. Shareholders will receive dividend payments from Pfizer as well as from Viatris. Pfizer received a 32% equity stake in the Consumer Healthcare JV with GSK.

Pfizer’s significant cash flow supports capital deployments within the business and friendly shareholder returns. Its earnings have grown at an impressive rate of 18% CAGR in the last three years. The company continues to make steady progress on its next wave of pipeline assets and on strategic acquisitions. Pfizer is focusing on business development initiatives through smaller acquisition and licensing opportunities for mid-stage compounds. Its diversified product portfolio consisting of drugs for new patient starts, maintenance drugs, vaccinations and self-injectables should greatly support any temporary revenue declines at these critical times. The company makes for a stable and quality dividend-paying stock given its recession-proof business. 

Competition

Pfizer competes with leading global medical companies. It faces competition from generic pharmaceuticals and biosimilars. Pfizer suffers from intense price competition from generic forms of the product. The biopharmaceutical industry is highly competitive and regulated. Some of the leading industry names are Abbott Laboratories, Eli Lily, Roche Inc., Novartis, Merck & Co, AbbVie Inc, AstraZeneca, etc. Pfizer’s biggest concern is the loss of patent protections in 2026 and beyond. The company, however, is trying to mitigate its effects by focusing on strengthening its pipeline and making strategic acquisitions. 

PFE vs Drug Manufacturers

Bottom Line

Pfizer’s product portfolio of oral and self-injected medicines and its specialty pharmacy channels are huge advantages in the current scenario. The demand for its medicines and vaccines also remains strong. Its investment in potential treatments and a vaccine for COVID-19 will continue throughout 2020 and act as a strong tailwind for growth. The company stands a good chance to gain from its innovation streak and an impressive pipeline of products. Pfizer’s growth in emerging markets and in biosimilars also positions it well for future growth.

PFE vs INDICES

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DISCLAIMER: Please note that this blog post represents my opinion and not an advice/recommendation. I am not a financial adviser, I am not qualified to give financial advice. Before you buy any stocks/funds consult with a qualified financial planner. Make your investment decisions at your own risk – see my full disclaimer for more details.
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