Company Reports

We are holding firm to our fair value for Pfizer following the firm’s oncology research and development presentation that showed a strong lineup of new potential blockbusters. The wide breadth of Pfizer’s cancer drug pipeline reinforces our undervalued view of the stock, as the market appears to underappreciate the company’s pipeline. The strong pipeline also reinforces Pfizer’s wide moat rating.

Pfizer reported fourth-quarter earnings ahead of our expectations, largely due to lower-than-expected research and development spending. However, we don’t expect this will continue, so there is no major impact to our fair value estimate. We view the stock as undervalued, with the market likely not fully appreciating the cost-cutting program, recently launched drugs, and the potential of Pfizer’s pipeline, which are key factors that support its moat.

We are lowering our Pfizer fair value estimate to $42 from $47 largely based on Pfizer’s lower-than-expected 2024 guidance. Following the close of the Seagen acquisition, Pfizer provided 2024 guidance that included COVID-19 product guidance of $8 billion, which was $5 billion lower than our expectation. Also, Pfizer acknowledged the firm would be unlikely to hit the previous 6% growth-rate guidance from 2020 to 2025 (excluding COVID-19 products sales). Despite the falling outlook, the firm reiterated support for the dividend, which we believe is secure and will likely support the stock valuation.

Pfizer's foundation remains solid, based on strong cash flows generated from a basket of diverse drugs. The company's large size confers significant competitive advantages in developing new drugs. This unmatched heft, combined with a broad portfolio of patent-protected drugs, has helped Pfizer build a wide economic moat around its business.

We are lowering our Pfizer fair value estimate to $47 per share from $48 based on the disappointing phase 2 obesity study with danuglipron. We believe the unfavorable side effect profile (up to 73% rate of nausea) shown in the study would make the drug less competitive. While Pfizer is still evaluating the drug by formulating the dosing for once daily instead of twice daily, it will not move the drug forward into phase 3 development at the twice-daily dose. Given the setback, we believe the probability of success for the drug is lower, and we have significantly lowered our assumed peak annual sales potential from over $3 billion to less than $1 billion.

Pfizer's foundation remains solid, based on strong cash flows generated from a basket of diverse drugs. The company's large size confers significant competitive advantages in developing new drugs. This unmatched heft, combined with a broad portfolio of patent-protected drugs, has helped Pfizer build a wide economic moat around its business.

Pfizer reported third-quarter results largely in line with our expectations, and we are not making any changes to our fair value estimate. Results largely tracked Pfizer’s recently updated 2023 guidance that includes a major step down in COVID-19 vaccine (Comirnaty) and treatment (Paxlovid) sales. With the stock’s pull back from the peak of the pandemic, we believe the market is underappreciating the tail potential of Pfizer’s COVID-19 sales and next-generation drugs.

We are maintaining our $48 fair value estimate for Pfizer following the company’s reduced 2023 guidance for COVID-19 product sales and cost-cutting plans. While the updated COVID-19 outlook is lower than our projections, we had already projected COVID-19 product sales below management’s previous guidance. In tandem with the lowered COVID-19 outlook, Pfizer announced a cost-reduction plan to lower operating expenses by $3.5 billion annually, which helps to mitigate the lower COVID-19 sales projections. We believe the market was likely already expecting lower COVID-19 sales guidance, as we had, but the magnitude of the cost reduction program is a positive surprise. Pfizer’s ability to cut costs and adapt to demand while supporting strong margins helps to reinforce the company’s wide moat.

As part of the Inflation Reduction Act, the U.S. Department of Health and Human Services on Aug. 29 announced the first 10 drugs selected for mandated 2026 Medicare price negotiations. This doesn’t have a major impact on our valuations or moat ratings for the biopharma industry. The 10 drugs have been on the market for a prolonged period (seven years for small-molecule drugs and 11 years for biologics) and were selected based on the largest gross (before discounts) spending in Medicare Part D.

Pfizer's foundation remains solid, based on strong cash flows generated from a basket of diverse drugs. The company's large size confers significant competitive advantages in developing new drugs. This unmatched heft, combined with a broad portfolio of patent-protected drugs, has helped Pfizer build a wide economic moat around its business.

Pfizer reported mixed second-quarter results that fell below our projections, but we don't expect a major change to the firm's fair value estimate. The lower-than-expected sales from COVID-19 vaccine Comirnaty and COVID-19 treatment Paxlovid still have the potential to rebound later in the year during the typically more robust fall respiratory season. Pfizer has contingency plans ready to significantly cut costs if the COVID-19-related sales don't improve in the third quarter. We project Pfizer COVID-19 sales above consensus expectations but are below management's implied long-term run rate. We think the new formulation of Comirnaty will support a more immediate rebasing of pricing close to $70 postpandemic (including rebates) from a close to $20 pandemic price. The price increase should help buoy Comirnaty sales, but we still expect the vaccine's sales to fall by over 60% in 2023.

The approval of Novo Nordisk's GLP-1 agonist Wegovy in 2021 has led to a demand surge for the active ingredient semaglutide in various forms, including diabetes drug Ozempic. Eli Lilly's approved diabetes drug Mounjaro is poised to generate even stronger weight loss and to launch in obesity around the end of 2023. We think Novo and Lilly will continue to lead the obesity market over the next 10 years, with incremental innovation in this rapidly expanding market that will support their wide moats. We assume Novo Nordisk's Wegovy, higher-dose oral and injectable semaglutide, and novel GLP-1/amylin cagrisema will support more than 35% share in 2032. Eli Lilly is likely to remain Novo's chief competitor, driven by potential launches of Mounjaro in obesity as well as an oral GLP-1 and a novel triple agonist in 2025, resulting in a 40% share by 2032. We think Amgen, Pfizer, and other biopharma firms could begin to launch their own GLP-1-based obesity drugs as early as 2025, with these new players growing to roughly one quarter of the market by 2032.

Pfizer published solid and detailed phase 2 data on diabetes and weight loss drug danuglipron largely in line with our expectations. We don’t expect any major changes to our fair value estimate or moat rating based on the data. If a larger phase 3 program continues to support a robust efficacy impact, we would likely increase Pfizer’s fair value estimate. Nevertheless, the data is a reminder that Pfizer has the potential to launch competitive drugs into a class that is currently dominated by Novo Nordisk and Eli Lilly. We believe Pfizer’s potential in this class is likely underappreciated and could be disruptive if it posts strong phase 3 data.

Pfizer reported first-quarter results ahead of our projections, largely driven by higher-than-expected COVID-19 product sales. While sales of COVID vaccine Comirnaty fell to $3.1 billion, this was above our $2.2 billion estimate, and COVID treatment Paxlovid generated $4.1 billion, well ahead of our $1.6 billion estimate. We had expected a greater work-down in the high levels of inventory for both products. We are not making any major changes to our fair value estimate, as our projected 2023 COVID product sales are still tracking to a 50%-plus decline as the pandemic eases, followed by expected stable demand for several years. However, management appears to be guiding to much higher Comirnaty and Paxlovid sales in 2024 and beyond. While we view the stock as already undervalued, if management achieves its longer-term COVID sales projection, further upside to our valuation is likely.

Pfizer’s announced acquisition of Seagen doesn’t have a major impact on our fair value estimate or wide moat rating for the pharma giant. We continue to view Pfizer as undervalued, with the market not fully appreciating the firm’s ability to offset major patent losses over the next five years. While we don’t see the Seagen deal as creating value, we believe it will help the market get more comfortable with Pfizer working through major patent losses on several drugs, including cardiovascular drug Eliquis, oncology drug Ibrance, and rare-disease drug Vyndaqel between 2027 and 2028. We don’t see any major antitrust issues and expect the deal to close in late 2023 or early 2024, in line with management guidance.

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.

Pfizer hosted an investor event focused on near-term pipeline launches, and while we tweaked the Pfizer valuation model, we are not making any changes to our fair value estimate. The event tackled a key concern around Pfizer’s growth potential between 2025 and 2030 due to major patent losses in this period, including immunology drug Xeljanz, cardiology drug Eliquis, and cancer drug Ibrance, collectively totaling close to $14 billion in 2021 sales. While we believe Pfizer remains well-positioned to offset these patent losses with next-generation pipeline drugs (a core element of the firm’s wide moat), we are skeptical of management’s 2030 guidance.

Pfizer reported solid third-quarter results ahead of our expectations, but we don’t expect any major changes to our fair value estimate, as part of the strength stemmed from better-than-expected COVID-19 vaccine (Comirnaty) sales that will likely fade quickly in 2023. Nevertheless, the massive bolus of COVID-19-related sales (Comirnaty and COVID-19 treatment Paxlovid) generated almost $12 billion in the quarter, enabling Pfizer to redeploy capital toward the pipeline and acquisitions targeting innovative drugs (Biohaven and Global Blood Therapeutics), which should help support the firm’s wide moat. While we expect a major decline in COVID-19 sales due to the pandemic receding (even with the U.S. price increase on Comirnaty as the vaccine shifts to private payer markets from government pay), the recent increase in pipeline investments should help mitigate Pfizer’s expected patent headwinds that increase in 2028.

Pfizer's foundation remains solid, based on strong cash flows generated from a basket of diverse drugs. The company's large size confers significant competitive advantages in developing new drugs. This unmatched heft, combined with a broad portfolio of patent-protected drugs, has helped Pfizer build a wide economic moat around its business.

After taking a closer look at what we consider the three key elements of the Inflation Reduction Act that will affect the biopharma industry over the next decade, we're reducing our fair value estimates for 17 of the biggest biopharma names in Morningstar's coverage by an average of 2%. We think the step-down in U.S. branded drug sales from capping Medicare price increases to inflation (fully rolled out in 2023), redesigning Medicare Part D (beginning in 2025), and Medicare negotiation (beginning in 2026 for small molecules) will result in a 3% reduction in total sales for these firms by 2031, with firm-level reductions depending on the firm's reliance on the U.S. market, proportion of the portfolio targeting seniors, history of price increases, and relative size of its small molecule and biologics portfolios (as biologics are immune from Medicare negotiation for 13 years instead of nine). Our estimates factor in some ability for the industry to either benefit from certain changes (like potential increased prescription fill rates in Part D with lower out-of-pocket costs) or compensate for headwinds (like responding to inflation caps on price increases with higher launch prices). Overall, we think the effect of the Inflation Reduction Act is manageable for the industry, and we see the competitive advantages and economic moats of these firms remaining intact.