Pfizer has appeal for patient investors

Shares of pharmaceutical giant Pfizer Inc. (NYSE:PFE) have hit new 52-week lows and are bumping along at levels not seen for 15 years.

At the current price of US $22.44, Pfizer’s shares are 64% below their high of $62 in December 2021 when demand for its Covid-19 vaccine peaked. By the end of that year, Pfizer had manufactured over 3 billion doses of the drug which went a long way to taming the global spread of the disease.

The achievement has been forgotten as pandemic fears have receded, along with demand for boosters. The shares have been on a long slide with many concerns including few signs the $35 billion takeover of Seagen Inc. – paid for with its Covid windfall – is paying off. Seagen captures cancer drug developments using an innovative antibody-drug conjugate (ADC) technology. It delivers drugs to tumors with minimal damage to healthy tissues around them.
Pfizer’s ho-hum performance has sparked a proxy fight with activist investor Starboard Value. Starboard has criticized Pfizer CEO Albert Bourla, arguing Bourla overpaid for Seagen and other acquisitions worth about $70 billion.

For now that fight is on hold, but US regulators are looking at a claim that Pfizer delayed announcing the success of its COVID shot until after the 2020 election. US president Donald Trump has claimed Pfizer sat on the positive results of trials, which would have reassured voters as they headed to the polls. Pfizer says the rumor is untrue.

In the last two weeks the Trump administration began cutting jobs at US public-health agencies with the impact pronounced at the Food and Drug Administration. The drug industry relies on the FDA to approve and regulate its drugs.  

And then there are tariffs. Tariffs are coming on imported ingredients used to make drugs. Since multinationals have production facilities in many countries, this would increase manufacturing costs, disrupt supply chains, and potentially lead to higher drug prices. By how much is unknown. For many drugs ingredients are a small part of their overall cost.

That’s quite a bucketful but are things really that bad? Pfizer is one of the world’s largest pharmaceutical companies with an array of leading products and a strong pipeline. Its 2024 revenue was $63.6 billion, 7% higher than a year earlier. Net profit of $8.03 billion was 279% higher.

Here are some reasons to be optimistic:

Rising dividend: The stock is down, but dividends (and yield) are up. The company’s confidence is such that it increased its dividend by 2% with the March payment. It rose 1 cent to $0.43 per share quarterly. It is the 16^th consecutive year of increase.  At the current price the shares yield 7.85%.   

A Promising Pipeline: It is working on 60 drugs to treat cancer using Seagen’s therapies and overall has 100 drugs under development.

Seagen’s most promising drug is Adcetris used to treat Hodgkin lymphoma, a cancer that attacks the immune system. It works by delivering a drug directly to cancer cells, minimizing damage around them. It is expected to generate $1.9 billion in sales in 2025 and grow at a 9% annual rate.

Best Sellers: Its top-selling brands include Eliquisan an anticoagulant used to prevent blood clots with $11.5 billion in annual revenue. Prevnar, a vaccine which targets infections such as pneumonia and meningitis has $6.2 billion in revenue. Comirnaty, the Covid vaccine developed in partnership with BioNTech brought in $5.4 billion. Its cardiovascular drug Vyndaqel is a potential game-changer in the rare-disease arena.  

 Cost Cutting: In response to activist pressure, Pfizer has streamlined operations. It had cut $4 billion in costs by the end of 2024 with another $1.5 billion by 2027. It recently sold its last stake in Haleon plc, a joint venture with GSK. This raised $3.24 billion which will be used to pay down debt.

R&D spending: Pfizer spends a high 17% of annual revenue on research and development (R&D). In 2024, this came to $10.8 billion. R&D is a hidden asset that leads to new products. Costs are written off immediately, but the benefits are long term.  

Patience:  Yale University management school professor Jeffrey Sonnenfeld argued recently that Pfizer is on track and what’s required is patience. He believes its stock price is not its value and it is too early to judge recent acquisitions. The value of those deals lies in the R&D pipeline of the companies it acquired and it will take years for many of them to mature.  

Morningstar Research analyst Karen Andersen said in a recent note that Pfizer’s foundation is solid with strong cash flow generated from a basket of diverse drugs.  She sees value as $42 per share, not $22.

She says Pfizer’s size and R&D spending give it significant competitive advantages. This heft, combined with a broad portfolio of patent-protected drugs has helped build a wide moat around its business. She believes that Pfizer is launching several potential blockbusters in cancer and immunology and in the meantime, it has few drugs facing patent challenges.

Pfizer has continued to reward investors with dividend increases. It is now in a position to reward them with a rising share price.  The tariff may cause its shares to fall further, but the biggest potential is on the upside.

This article appeared in a recent issue of the Income Investor.  For information on how to reprint this article please view this page.