Analyst Note
| Damien Conover |Pfizer reported solid fourth-quarter results but provided lower-than-expected guidance for 2023. We don’t expect any major changes to our Pfizer fair value estimate, and the stock looks undervalued, especially with the recent weak stock performance that doesn’t appear to be fully reflecting the firm’s long-term outlook.
The poor 2023 outlook is largely due to falling COVID-19 product sales (Comirnaty vaccine and Paxlovid treatment) along with heavy investments into research and development as well as marketing. While the magnitude of the investments is surprising, the investments should help Pfizer prepare for the major patent losses between 2025 and 2028 (including immunology drug Xeljanz, cardiology drug Eliquis, rare disease drug Vyndaqel, and cancer drugs Ibrance, Xtandi, and Inlyta, totaling close to $18 billion in 2022). While we expect some pressure over this period, Pfizer is preparing well to largely avoid any major earnings declines, which gives us confidence in its wide moat.
Pfizer’s 2023 guidance includes $13.5 billion in Comirnaty sales and $8 billion of Paxlovid sales, which seems reasonable, with higher prices partially offsetting high channel supply and falling demand. Importantly, Pfizer expects COVID-19 revenue to increase in 2024 and beyond. While 2024 COVID-19 product sales should benefit from lower supplies in the channel relative to 2023, we are skeptical that growth beyond 2024 will occur as the pandemic fades. If these products can grow over the long term, we believe there is further upside to our valuation.
Several recently launched drugs and pipeline drugs are poised to support long-term cash flows. The launch of the next generation pneumococcal vaccine Prevnar 20 is progressing well. We are also bullish on the outlook for migraine drug Nurtec (acquired through Biohaven). In the pipeline, Pfizer's RSV vaccine, cancer drug elranatamab, and immunology drugs Cibinqo, ritlecitinib, and etrasimod all look poised to become blockbusters.