Pfizer Reports Robust Q3

Pfizer (PFE) reported strong third-quarter results ahead of our expectations, and we've raised our fair value estimate to $44 per share from $42 based on the strong outperformance. While COVID-19 vaccine Comirnaty drove the majority of the outperformance, the underlying business is performing well. This is important as we are less bullish on the long-term prospects of Comirnaty, particularly as more COVID vaccines enter the market and the pandemic fades due to increasing vaccination rates. While the amazing success of Comirnaty reinforces our wide moat rating, we believe Pfizer’s valuation and moat are more dependent on the remaining portfolio.

In the quarter, total sales grew 7% excluding Comirnaty. We expect this annual growth rate to largely hold over the next five years as the firm faces limited patent losses and launches several new drugs. We expect continued strong growth from cardiovascular drugs Eliquis (up 19% in the quarter) and Vyndamax (up 42%) based on leading efficacy. Additionally, based on leading valent coverage (and no need for follow-up dosing), we expect next-generation pneumococcal vaccine Prevnar 20 to maintain Pfizer's key franchise despite new competition from Merck. The Food and Drug Administration's recent negative stance on side effects for the JAK inhibitor class will likely create some pressure on immunology drug Xeljanz and pipeline drugs Cibinqo and ritlecitinib, but we believe this pressure is manageable and the drugs still hold significant potential, especially in refractory settings.

Including Comirnaty, total sales increased 130%, but we expect Comirnaty sales to fall off significantly in 2023 and 2024. We still project sales of over $30 billion in 2022 as vaccination rates increase and pediatric vaccines and adult boosters roll out globally. By 2023, we expect more limited demand largely from vulnerable populations (elderly and kids) as well as increased competition, resulting in annual sales falling to close to $2 billion by 2024.