VALUATION HIGHLIGHTS

1. Oncology constitutes 30% of the Trefis price estimate for Pfizer's stock.
2. Vaccines constitute 22% of the Trefis price estimate for Pfizer's stock.
3. Hospital constitutes 19% of the Trefis price estimate for Pfizer's stock.

WHAT HAS CHANGED?

Coronavirus Crisis Impact On Pfizer's Stock

Pfizer lost more than 28% – dropping from $39 at the beginning of 2020 to around $28 in late March 2020 – then spiked 68% to around $47 now (through Nov 2, 2022). That means it is well above the pre-pandemic levels.

Why? While the Covid-19 outbreak and associated lockdowns resulted in an uncertain outlook for the broader markets, the multi-billion-dollar Fed stimulus announced in late March 2020 helped the markets stage a strong recovery.

Pfizer, in particular, has benefited from its vaccine and antiviral pill for Covid-19. In fact, the company garnered sales of over $36 billion (from the Covid-19 vaccine) in 2021, significantly bolstering the company's earnings growth. This has aided its stock price appreciation.

Pfizer's Covid-19 Oral Pill

Pfizer's Covid-19 pill cuts the risk of hospitalization or death by 89% in high-risk adults who’ve been exposed to the Covid-19 virus. The company has secured regulatory approvals for this pill, and it estimates the sales to be over $22 billion in 2022.

Pfizer's Covid-19 Vaccine

Pfizer and its German partner BioNTech currently produce one of the most sought-after Covid-19 vaccines. Pfizer CEO Albert Bourla has said that people who receive Covid-19 vaccines will likely require booster shots within a year and potentially require an annual shot thereafter, much like seasonal flu shots, to protect against the virus as it evolves. This should be positive for Covid vaccine makers as they could likely see some level of recurring revenues from what initially appeared like a one-off vaccine product.

Pfizer is also looking to expand its vaccine business following the pandemic, extending its use of the gene-based mRNA technology, which has proved highly effective in the Covid-19 vaccines.

The European Union is also looking to secure more doses from Pfizer/BioNTech. The AstraZeneca and J&J vaccines are being investigated for extremely rare but potentially deadly side effects of blood clots.

Pfizer garnered over $36 billion in Covid-19 vaccine sales in 2021, and it expects $34 billion in 2022, while the Covid-19 vaccine revenue is expected to drop in 2023.

Q3 2022 Performance

Pfizer's top line contracted 6% y-o-y to $22.6 billion, primarily due to a tough comparison with the prior-year quarter, which benefited from very high demand for its Covid-19 vaccine. Pfizer’s adjusted net income of $10.1 billion in Q3 2022 reflected a significant 40% rise from its $7.3 billion figure in the prior-year quarter, led by around 1,500 bps net margin expansion. For the full year 2022, the company reaffirmed its outlook, and it now expects revenue to be over $100 billion and earnings to be $6.45 at the mid-point of its range.

Biosimilars Growth

Previously, Food & Drug Administration (FDA) did not have a process to grant approvals for biosimilars. However, the recent approval of biosimilars in Europe and the FDA approvals of biosimilars in the U.S. is likely to pave the way for further drugs. Pfizer has received FDA approvals for multiple biosimilars, including ones for blockbuster drugs, Humira, Rituxan, Avastin, and Herceptin, among others. This will likely result in strong sales growth over the coming years.

Consumer Healthcare Business Merger

GlaxoSmithKline and Pfizer have merged their consumer healthcare divisions in a joint venture. Pfizer owns a 32% stake in the new entity. The deal was closed in 2019, and the new entity will command a share of over 7% in the over-the-counter market.

POTENTIAL UPSIDE & DOWNSIDE TO TREFIS PRICE

Key drivers of Pfizer's value that present opportunities for upside or downside to the current Trefis price estimate for Pfizer:

More Than Expected Biosimilar Success

• Vaccines Revenue: Pfizer's Covid-19 vaccine has been a game-changer for the company. It is the most sought Covid-19 vaccine in the world, and the company estimates 2022 sales of $34 billion from this vaccine, compared to the $6.5 billion it garnered from its total vaccines portfolio in 2020. While we estimate the sales to decline from 2023, as the demand for the Covid-19 vaccine subsidies, the company's focus on developing new vaccines may result in higher vaccine revenue going forward. If the company is able to garner an incremental $5 billion in vaccine sales by the end of our review period in 2028, it will imply a 10% upside to our Trefis price estimate for Pfizer.

Solid Phase 3 Pipeline

Pfizer's pipeline is reasonably strong. The phase 3 oncology pipeline has several new drugs with a combined peak sales estimate of over $10 billion. Our valuation reflects probability-adjusted revenues assuming a 50% probability of phase 3 drugs reaching the commercial launch stage. However, if all phase 3 drugs are approved within the next 3 years, it could imply over a 10% upside to our price estimate.

BUSINESS SUMMARY

Pfizer is the world's biggest pharmaceutical company in terms of revenue. In October 2009, Pfizer completed the acquisition of pharmaceutical giant Wyeth for $68 billion and went on to acquire Hospira in 2015, which positions it strongly in the sterile injectables and biosimilars market.

The company reports its results primarily in the following segments: 1. Vaccines, 2. Oncology, 3. Internal Medicine, 4. Hospital, 5. Inflammation & Immunology, and 6. Rare Diseases & Others

SOURCES OF VALUE

The biggest contribution to the value of the stock comes from the Oncology segment, accounting for over a quarter of Pfizer's value, in our view.

A big chunk of Pfizer's revenues comes from this segment

The oncology revenue for Pfizer stood at $12.3 billion in 2021, accounting for nearly 15% of Pfizer's overall revenues. This can be attributed to the company's fast-growing Ibrance sales in the breast cancer market.

KEY TRENDS

Coronavirus Impact

The current coronavirus crisis has impacted pharmaceutical companies on two fronts, 1. supply chain disruptions and 2. direct sales due to postponement of minor health-related issues and surgeries. While Pfizer is seeing strong demand for its Covid-19 vaccine, the sales of its other pharmaceutical drugs have been impacted in 2020.

Consumer Healthcare Business Merger

GlaxoSmithKline and Pfizer have merged their consumer healthcare divisions in a joint venture. Pfizer owns a 32% stake in the new entity. The deal closed in H2 2019, and the new entity commands a share of over 7% in the over-the-counter market.

Loss of Patents Impacting Sales

In the last few years, several blockbuster drugs have lost patent exclusivity, including Lipitor. This has not only impacted Pfizer but the pharmaceutical industry as a whole. As a result, Pfizer and other firms will need to focus on growing areas of immunology and oncology.

Growing Threat of Generic Products

The fast-growing pharma market in emerging economies or referred to as the 'Pharmerging' economies have the capability and technical prowess in manufacturing generic versions of blockbuster drugs. These generic drugs are often sold at prices that are substantially cheaper than their branded counterparts, thereby severely affecting big pharma's ability to generate profits in the long run.

Biosimilars Gaining Traction

Previously, Food & Drug Administration (FDA) did not have a process to grant approvals for Biosimilars. However, the recent approval of biosimilars in Europe and the FDA approval of the first biosimilar in the U.S. is likely to pave way for further approvals. Pfizer is focusing on developing biosimilars and its acquisition of Hospira will bolster that effort.

Globalization of Healthcare Reforms

Governments around the world are trying to rein in fiscal spending in order to manage their budget deficits. Since healthcare costs are one of the biggest components of any national budget, it is obvious that increased healthcare legislation and reforms around the world will hurt revenues for the entire pharmaceutical sector.