Pfizer is no stranger to the world of products losing revenue over time and needing to be replaced with new ones.
American pharmaceuticals giant Pfizer (NYSE: PFE) delivered one of the first COVID-19 vaccines to receive both emergency use authorization and overall FDA approval in the United States. That success made it a popular stock during the height of the pandemic, though its shares have since come back down to Earth.
Yet it’s the fact that its shares are down so far from their pandemic-induced high that makes Pfizer worthy of consideration as a potential bargain stock today. While existing shareholders may be upset with their losses, those with cash looking to invest have a chance to buy the company at around ten times its anticipated 2024 earnings. On top of that reasonable forward valuation, Pfizer offers investors a juicy yield near 4.5%, and it has been regularly increasing that payment for over a decade.
So - why are its shares down so far?
With such a strong foundation in place, it raises a key question on why Pfizer’s shares are down so far from their recent high. On that front, the fact that it benefitted so strongly from its COVID-19 vaccines is playing a huge role. For instance, although the company expects to earn $3.49 per share in 2024 , in 2022, it earned $5.59 per share.
Now that COVID-19 is no longer a global health emergency, Pfizer simply doesn’t have the benefit of nearly universal uptake on its vaccines to sustain its former earnings rate. Investors love to see growth and are frequently willing to pay a premium for that growth. A decline of more than $2 per share over the course of two years does not look like growth.
In addition, although the COVID pandemic was a very rapid example of how the pharmaceutical business operates, the fact that Pfizer’s revenue and earnings potential is at risk is nothing new. Pfizer operates as a research pharmaceuticals company, with over 25,000 of its people focused on finding the next big treatment.
It focuses so much on research because it has to. Its products can generally only add significant amounts of value for a limited amount of time before their patents expire and they become susceptible to generic competition. Generally speaking, pharmaceutical patents last 20 years from the drug’s invention, with the practical length of its life even less, due to the pre-launch safety and efficacy tests needed before launch.
That means that Pfizer always needs to be innovating to keep its revenue stream alive. The surge and decline in revenues associated with its COVID vaccine simply acted like a sped up version of its ordinary revenue cycle.
What comes next?
On that front, as of May 2, 2023, Pfizer had 101 potential products in its pipeline. Of those products, 12 were in the “registration” phase, which means they have completed their expected testing and are actively requesting authorization to officially launch to the market. That leaves 89 products earlier in their testing cycle, with 38 in Phase 1, 28 in Phase 2, and 23 in Phase 3 testing.
There are never any guarantees that any product will be a success. Still, the fact that Pfizer has a robust and balanced pipeline gives it good odds of being able to keep its overall business strong, even as its existing products lose their patent protection over time.
People will always get sick, and there’s always going to be a need for new medications as bacteria and viruses evolve defenses to existing treatments . As a result, it is incredibly likely that there will continue to be a need for new and better treatments for illnesses over time. While Pfizer’s existing arsenal will eventually lose patent protection, its strong research and development arm provides good reason to believe the business can continue to thrive over time.
Put it all together, and Pfizer looks like a company with solid longer term prospects whose short-term pain just may have made it available at a decent value.
At the time of publication, Chuck Saletta did not own shares on any company mentioned in this article.
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