VALUATION HIGHLIGHTS

1. Primary Care constitutes 46% of the Trefis price estimate for Pfizer's stock.
2. Hospital constitutes 37% of the Trefis price estimate for Pfizer's stock.
3. Oncology constitutes 15% of the Trefis price estimate for Pfizer's stock.

WHAT HAS CHANGED?

PFE Stock Performance

PFE stock has seen a decline of 15% from levels of $35 in early January 2021 to around $30 now (late February 2024), vs. an increase of about 35% for the S&P 500 over this roughly 3-year period.

However, the decrease in PFE stock has been far from consistent. Returns for the stock were 60% in 2021, -13% in 2022, and -44% in 2023. In comparison, returns for the S&P 500 have been 27% in 2021, -19% in 2022, and 24% in 2023 - indicating that PFE underperformed the S&P in 2023.

Q4 2023 Performance

Pfizer's top line plunged 41% y-o-y to $14.2 billion due to a tough comparison with the prior-year quarter, which benefited from very high demand for its Covid-19 vaccine and antiviral drug. Excluding the Covid-19 products, sales were up 8%. Pfizer's adjusted net loss of $593 million in Q4 2023 reflected a significant fall from its $6.6 billion profit figure in the prior-year quarter. For the full year 2024, the company expects revenue to be in the range of $58.5 billion and $61.5 billion, and its adjusted earnings per share to be in range of $2.05 and $2.25.

Pfizer Acquires Seagen

Pfizer, on March 13, 2023, announced that it will acquire Seagen for $43 billion ($229 per share), reflecting a premium of 32% at the closing price of $173 on Friday, March 10, 2023. This acquisition was completed in December 2023. This appears to be a great move for Pfizer, given that it is seeing a significant drop in sales from its Covid-19 products. Also, some of its drugs will lose market exclusivity over the coming years. Seagen's revenues are expected to top $3 billion in 2024, and it has a promising deep oncology pipeline. Seagen's sales are estimated to top $10 billion by 2030.

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 over 2x to around $60 in December 2021, primarily due to its Covid-19 vaccine sales. However, it has declined since then to around $30 now (through late February 2024). This can be attributed to a significant decline in its Covid-19 product sales.

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 secured regulatory approvals for this pill, and it garnered $19 billion in sales 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 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 $38 billion in 2022, while the Covid-19 vaccine revenue is expected to drop to $13.5 billion in 2023.

Biosimilars Growth

Previously, the 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-after Covid-19 vaccine in the world, and the company garnered $38 billion from this vaccine in 2022, compared to the $6.5 billion it garnered from its total vaccines portfolio in 2020. While we estimate the sales to decline in 2023, as the demand for the Covid-19 vaccine subsides, 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 2030, 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. Primary Care, 2. Specialty Care, 3. Oncology, and 4. Pfizer CentreOne.

SOURCES OF VALUE

The biggest contribution to the value of the stock comes from the Primary Care segment, accounting for over half of Pfizer's value, in our view.

KEY TRENDS

Coronavirus Impact

The 2020 coronavirus crisis impacted pharmaceutical companies on two fronts, 1. supply chain disruptions and 2. direct sales due to the postponement of minor health-related issues and surgeries. While Pfizer saw strong demand for its Covid-19 vaccine, the sales of its other pharmaceutical drugs were 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 impacted not only 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, referred to as the 'Pharmerging' economies, has the capability and technical prowess to manufacture 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, the 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 the 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.