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Disappointing fourth-quarter earnings are scaring a lot of investors, but there are plenty of reasons to stay long with Pfizer (NYSE-PFE).
Revenue was down 3.54% operationally last year for the New York-based drugmaker, but because of cost cutting, its net income was $16.273B, a 45.91% increase over its net income for 2018. The stock price took a hit this past summer when its planned spinoff later this year with its Upjohn division was announced, but the move will allow it to concentrate on some of its newer, more profitable drugs while retaining a recent growth in biopharma sales.
Biggest areas of concern
Viagra, the erectile dysfunction drug and nerve-pain blocker Lyrica have been huge money makers for Pfizer, but both saw big declines last year and those trends will only accelerate because of competing generic drugs. Enbrel, an anti-inflammatory drug, is also expected to see big drops because of competition.
The spinoff will mean that Pfizer will see a drop in profits from the off-patent drugs that will now be connected with the Upjohn-Mylan deal, a new company to be called Viatris.
The 2020 presidential election could bring strong headwinds to the pharmaceutical industry because of the heightened look at drug prices and Pfizer would not be immune from those questions.
Better numbers on the horizon
While generics cut into the company’s profits from nerve-pain drug Lyrica, it is seeing increased sales from breast cancer drug Ibrance, kidney cancer drug Inlyta, blood-thinner Eliquis, rheumatoid arthritis drug Xeljanz and Vyndaqel, which treats a rare heart condition.
There also are several drugs in Pfizer’s pipeline, including 26 in Phase 3 trials, that can be chalked up to the company’s increased spending on research and development. It spent $2.8 billion on R&D in the fourth quarter, a rise of 15% from the same period last year.
Abrocitinib, which treats atopic dermatitis, has had promising trials, as had Prevnar 20, considered a step up from Pfizer’s Prevnar 13, which treats the pneumococcal virus. The company also has an ulcerative colitis drug, PF-06480605, in the works.
The biggest growth last year in sales for Pfizer was in its oncology division with an operational growth of 23% worldwide. Not all of those drugs will pan out, but the reward is great for those that do.
Strength of the brand
Like other pharmaceutical giants, such as Merck and Johnson & Johnson, Pfizer has strong brand-name recognition and a diversified product line that will allow it to continue to grow. The company’s sheer size gives it an economy in scale and the ability to react to market conditions. It has been around since 1849 and it has continued to adapt. One example is its purchase last year of Array BioPharma, which will help Pfizer’s focus on oncology drugs.
Instead of worrying about generics, Pfizer saw a 19% year-over-year growth from biosimilars, low-price copies of biologic drugs and has more cancer-battling biologics coming this year.
The last few years, the company has had to weather the impact of expiring patents, but that trend should slow the next few years. The company appears optimistic, saying it expects 8% operational growth in 2020.
At its current price, it’s a good buy. It’s price-to-earnings ratio is 13.29 and it has a solid quarterly dividend of 0.38, which is nearly four times what it was a decade ago.
jimhalley 