If you follow stock news, chances are you have a lot of stories to tell Pfizer (NYSE: PFE) the past three months. Pfizer is one of a number of companies racing to develop a safe and effective vaccine against COVID-19, the new coronavirus that has killed more than 780,000 people worldwide, including more than 170,000 Americans. Among about 30 companies running, Pfizer is widely regarded as one of the leaders of the package.
Pfizer investors have been on a fast track lately, especially since the company launched its COVID-19 efforts. Shares of the $ 213 billion market cap company are down about 2% compared to an increase of 5.08% for the S&P 500 years to date. With that said, Pfizer has a lot going for it in addition to its new coronavirus programs. Let’s take a closer look at the various aspects of Pfizer’s business and see if the business is a good buy with or without the success of its fax candidate.
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A promise COVID-19 program
Pfizer collaborated with German biotech BioNTech (NASDAQ: BNTX) develop a vaccine for the new coronavirus. The partners began phase 1/2 clinical trials for at least four candidates in April. Two of these experimental vaccines, BNT162b1 and BNT162b2, appeared to be the most promising of the bundle, and the US Food and Drug Administration (FDA) both issued a Fast Track designation in July.
Pfizer and BioNTech chose to move only BNT162b2 in phase 2/3 trials on July 27. The companies opted for BNT162b2 over BNT162b1 because the former triggered a T-cell immune response, while the latter only produced an antibody response. T cells are white blood cells that bind to and instruct virus-infected cells to self-destroy. A T-cell immune response provides longer lasting immunity than an anti-anti-response alone, meaning that recipients of vaccines over time required fewer doses to protect against COVID-19. BNT162b2 also showed a favorable overall tolerability profile compared to BNT162b1. Patients receiving the BNT162b2 option had fewer adverse side effects over a relatively short period of one to two days.
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This Phase 2/3 study will enroll up to 30,000 participants aged 18 to 65 years. The trial has two primary endpoints: To prevent patients still infected with the SARS-CoV-2 virus from contracting the disease and to prevent the contraction of COVID-19 regardless of whether participants were previously infected by the virus. Pfizer’s plan is to have up to 100 million doses of the vaccine ready by the end of this year and 1.3 billion by the end of 2021. Market entry is subject to regulatory approval, but management feels it confidence in their current path to earning an FDA Authorization for Emergency Use. This could happen as soon as October.
In July, Pfizer and BioNTech signed an agreement with the US government to supply 100 million doses of its vaccine for $ 1.95 billion with the option to add an additional 500 million doses. The companies have penned similar deals with the governments of the United Kingdom, Canada and Japan. If their candidate proves safe and effective in final phases, then these bulk sales can be very lucrative for Pfizer and BioNTech.
Make room for new pharmaceuticals
In the second quarter ending June 28, Pfizer’s revenue fell 9% to $ 11.8 billion from Q2 2019. Pfizer’s net revenue also fell 32% to $ 3.4 billion. However, these results are less frightening than they appear for two main reasons.
First, Pfizer moved its consumer care segment, which offers over-the-counter (OTC) products such as pain killers and vitamins, into a joint venture with GlaxoSmithKline (NYSE: GSK) in August 2019. This new entity is called GSK Consumer Healthcare, of which Pfizer has a 32% stake and GlaxoSmithKline holds a 68% majority. With the leading market share in the US and the second leading market share in China – the two largest OTC markets in the world – GSK Consumer Healthcare is now the largest OTC company worldwide. Without the negative impact of this deal on revenue, Pfizer’s sales would have fallen by only 3% in the second quarter.
Second, Pfizer is in the process of spinning its off-patent medicine unit, Upjohn Mylan (NASDAQ: MYL), a Netherlands-based pharmaceutical company. This step away from generic drug production and distribution will also allow Pfizer to focus on its more profitable biopharma business. Pfizer’s biopharma segment reported $ 9.8 billion in revenue, a 4% year-on-year increase, in the second quarter. Meanwhile, sales of its Upjohn division fell 31% to $ 2 billion. Pfizer expects to complete the merger, which was originally delayed due to the coronavirus pandemic, at the end of the year.
Several of Pfizer’s products performed well in the second quarter. Sales of anticoagulant Eliquis increased by 17% year-over-year to $ 1.3 billion. Revenue from cancer drug Ibrance grew by 7% to $ 1.3 billion. Eliquis and Ibrance are Pfizer’s best-selling products, and it helps keep the company’s biopharma revenue alive over the course of some other drugs that have lost steam. Pfizer has conducted dozens of ongoing clinical trials, including 23 Phase 3 studies on potential therapies for a range of oncological, immunological and rare diseases. Pfizer will be able to add more revenue streams to its biopharma business if it meets the appropriate regulatory requirements for these candidates.
Why you should consider buying
Pfizer is one of the frontrunners in the hunt for a COVID-19 fax, and if its efforts unfold, the company will profitably benefit. In addition to its new vaccine candidate, Pfizer has partnered with blockbuster drugs such as Ibrance and Eliquis and is developing pipeline candidates that will complement its lineup along the way. Pfizer has begun to focus its business on biopharmaceuticals by removing its Upjohn unit, which had a negative impact on the bottom line, and spinning its consumer care segment into an upcoming new venture with GlaxoSmithKline last year.
With a clear focus on its biopharma business and proven success of drugs like Eliquis and Ibrance, the company could grow its revenue and profits on a decent clip, regardless of whether it benefits from COVID-19 fax efforts. As an added perk, Pfizer currently offers a dividend yield of 3.9% – compared to an average of 1.8% for the S&P 500 – and a reasonable payout ratio of 65.2%. The pharma company has increased its dividends by 35.7% over the past five years, making it a good option for investors looking for additional income. For all these reasons, I believe that Pfizer is a pharma stock that is worth buying and holding for a long time today.
