COVID Vaccine Sales Help Pfizer Post Massive Q4 Growth

Buoyed by COVID-19 vaccine sales, Pfizer (PFE) reported fourth-quarter sales growth of just over 100%, but overall results were slightly lower than we expected. We don’t expect any major changes to our fair value estimate based on the minor underperformance. We view Pfizer as slightly overvalued, with the market likely extrapolating strong COVID vaccine and treatment sales too far into the future. Nevertheless, the windfall from COVID vaccine (Comirnaty) and treatment (Paxlovid) sales should help Pfizer redeploy capital to support the next generation of drug development, a key pillar of its wide moat.

Excluding COVID-related products, total sales fell 2% in the quarter, partly due to fewer selling days in the quarter and the timing of Prevnar vaccine purchases, two items that should normalize and put the firm back on the path to growth above 6% in 2022. We expect this steady growth of non-COVID products to continue over the next five years, as Pfizer doesn’t face major patent losses until 2028 (cardiovascular drug Eliquis and cancer drug Ibrance). However, we expect a high degree of sales volatility when including COVID-related products, which we expect will generate over $60 billion in 2022 but fall to close to $5 billion by 2025. We expect increased near-term utilization of COVID vaccines will reduce the demand for these vaccines and treatments over the long term.

Pfizer is actively redeploying cash flows to the pipeline to strengthen its long-term outlook. However, most of the innovation being developed is in the early- to mid-stage pipeline, where not enough data has been generated to support a high probability of success on these drugs yet. We expect pivotal data from the early-stage pipeline to emerge over the next three years. In late-stage and recently launched drugs, we are most bullish on atopic dermatitis drug Cibinqo (approved by the Food and Drug Administration in January) and vaccines in C. difficile and respiratory syncytial virus (pivotal data in 2022).