Pfizer: Some Near Term Challenges May Mute Positive Triggers

by Trefis Team
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The impact of Pfizer‘s (NYSE:PFE) second quarter results on the company’s stock was barely noticeable, and this has almost become a norm. The company’s stock has remained largely rangebound for the last five years despite Pfizer showing a rebound in revenue. This is likely because the market has priced in the impact of the patent cliff on Pfizer’s business, and the near-term growth prospects haven’t offset that fully. This is a fairly reasonable assessment. Consider: Pfizer’s top line grew by nearly 8% in 2016, but may not even manage to register around 1% growth this year assuming it does well in the second half. The company’s revenue declined nearly 2% in the first half, thanks to weakness in Prevnar and Enbrel. In the next five years as well, we expect minimal organic growth because of strong headwinds the company faces with off-patent drugs. At this point, it is difficult to see what can meaningfully move Pfizer’s stock upwards, as complex opposing forces of new approvals and legacy declines are likely to keep organic growth at bay in the near term.

Our price estimate of $35.50 for Pfizer is slightly above the market.

Pfizer’s pneumococcal vaccine Prevnar accounted for nearly $6.25 billion in revenue in 2015. At that point, the broader expectation was that the vaccine’s sales would continue to grow. However, a slowdown in adoption has raised questions over its addressable market. Sales fell to $5.7 billion in 2016, and that trend has continued this year as well. Pfizer stated that it continues to face issues regarding recommendations and associated reimbursement in key European countries.

We had earlier believed that Pfizer’s generics unit, which was strengthened with the addition of the biosimilar pipeline of Hospira, could be a key growth driver going forward. However, we had to scale back our expectations considering how Inflectra (a biosimilar to Remicade) has fared in the U.S. Pfizer mentioned that it is experiencing challenges with national commercial payers, which haven’t given substantial coverage to Inflectra despite its lower price. It appears that physicians are reluctant to switch as well.

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