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Pfizer: More than COVID-19 vaccines

Opdateret: 27. jan.


Pfizer had a great year in 2021 and 2022 due to their COVID-19 vaccine called COMIRNATY. In this analysis, you will see some numbers that demonstrate the significant impact of the years 2021 and 2022 on Pfizer. The question is whether it is too late to invest in Pfizer or if there is more growth ahead.


This is not a financial advice. I am not a financial advisor and I only do these post in order to do my own analysis and elaborate about my decisions, especially for my copiers and followers. If you consider investing in any of the ideas I present, you should do your own research or contact a professional financial advisor, as all investing comes with a risk of losing money. You are also more than welcome to copy me.


Since I have attended the workshop with Phil Town, I have decided to change the layout of my analyses a bit. I will do some more calculations and also briefly go through why the company has meaning to me. If you want to read more about how I evaluate a company, please go to "MY STRATEGY" on my website.


For full disclosure, I should mention that at the time of writing, I do not own any shares in Pfizer. I have plenty of experience with pharmaceuticals though. In my copytrading portfolio, I own AbbVie, Sage Therapeutics, and Royalty Pharma. If you would like to view or copy my portfolio, you can find instructions on how to do so here. I also own shares of Novo Nordisk outside of my copytrading portfolio. AbbVie is one of my larger positions, and Pfizer's drug called "ABRILADA" is a biosimilar of AbbVie's bestselling drug "HUMIRA". I mentioned the connection between AbbVie and Pfizer to provide full disclosure. As always, I will keep this analysis unbiased. If you want to buy shares or fractional shares in Pfizer, you can do so et eToro.



Pfizer is an American multinational biopharmaceutical company that was founded in 1849. It is one of the largest pharmaceutical companies in the world (the second largest) and is located in New York, USA. They focus on six different therapeutic areas: Internal Medicine, Oncology, Hospital, Vaccines, Inflammation and Immunology, and Rare Disease.

As with all other pharmaceutical companies, it is not difficult to determine a moat for Pfizer. All pharmaceutical companies, including Pfizer, have a secret moat due to their patents. Meaning that once you invest in pharmaceuticals,you need to stay updated on their therapies and patents. In 2022, Pfizer generated most of their revenue from their Covid-19 vaccine, Comirnaty, which brought in $37.806 million. Their Covid-19 pill, Paxlovid, generated $18.933 million in revenue during the same year. Excluding their Covid-19 portfolio, Pfizer's top-selling drugs in 2022 were Prevnar (both Prevnar 13 and Prevnar 20), which generated $6.337 million in revenue, Ibrance with $5.120 million in revenue, Eliquis with $6.480 million in revenue, Xeljanz with $1.796 million in revenue, and Vyndaqel/Vyndamax with $2.447 million.All of these drugs have patents that will expire between 2025 and 2027, with the exception of Vyndaqel/Vyndamax, which will expire in 2024. However, they have applied for a patent term extension on Vyndaqel/Vyndamax until 2028, which is currently pending.

Their CEO is Albert Bourla. He first joined Pfizer in 1993 and held various positions within the company before assumingthe role of CEO in 2019. He is educated as a veterinarian, with a Ph.D. in Reproductive Biotechnology. He is known as a proven and trusted leader who has worked his way up in Pfizer by consistently delivering excellent results. Like his predecessor, he believes that delivering value to shareholders is a marathon and not a sprint, and his goal is to achieve a 6% compound annual growth rate (CAGR) until 2025. However, he has previously stated that he was frustrated with the performance of Pfizer stock, as he believes they deserve more credit. He was the man behind the spin-off of their large Upjohn generic business, which, together with Mylan, created Viatris. The reason is that he wanted to transform Pfizer from a diversified pharmaceutical conglomerate into a science innovation business. As an investor in the pharmaceutical industry, I personally appreciate his perspective on the sector. He has previously stated, "The biggest misconception aboutthe pharma business model is that what benefits shareholders is detrimental to patients." "In fact, the reverse is true." All in all, I believe Albert Bourla has demonstrated exceptional leadership during the pandemic as the first company to develop a Covid-19 vaccine. Personally, I appreciate the transformation of Pfizer into a science innovation business.

I believe that Pfizer has a strong secret moat. And I really like the management too. Now let us investigate the numbers to see if Pfizer lives up to our requirements for a strong moat. In case you want an explanation about what the numbers are, you can have a look at "MY STRATEGY" on the website.


The first number I investigate is the return on invested capital, also known as ROIC. We would like to see 10 years of history, with all the numbers being above 10% in each year. Pfizer had some underwhelming years, but these were all before 2017. Pfizer had another underwhelming year in 2020, possibly due to the pandemic. 2021 and 2022 were great years, mainly due to their Covid-19 portfolio. As we go through the numbers, you will see that these two years are often outliers. Nevertheless, Pfizer's ROIC is acceptable without being impressive, which means that the ROIC doesn't discourage me from investing in Pfizer, but it doesn't attract me either.



The following numbers represent the book value + dividend. In my previous format, this was referred to as the equity growth rate. It was the most important of the four growth rates I used in my analyses, which is why I will continue to use it in the future. As you are accustomed to seeing numbers in percentage form, I have decided to provide both the actualnumbers and the percentage growth year over year. The numbers are not impressive. The book value + dividend havedecreased almost every year since 2012. As we saw when looking at ROIC, 2021 and 2022 have been great years for Pfizer. The question is whether that will signify a new beginning or not. Another noteworthy point is that Albert Bourla was able to slightly increase the numbers from 2019, when he assumed the position, to 2020, which is a positive outcome.



Finally, we will investigate the free cash flow. In short, free cash flow refers to the cash that a company generates after covering its operating expenses and capital expenditures. Levered free cash flow is the amount of money a company has remaining after paying all of its financial obligations. I use the margin to provide a clearer understanding. Free cash flow yield refers to the amount of free cash flow per share that a company is projected to generate in relation to its market value per share. While it is encouraging to see that the numbers are positive in all years, it is concerning that the numbers have declined since 2013 and beyond. It is commendable to note that under Albert Bourla's leadership, Pfizer successfully increased its free cash flow from 2019 to 2020. As expected, 2021 and 2022 were outliers compared to the other years due to the Covid-19 pandemic. The levered free cash flow margin has consistently been high, while the free cash flow yield reached its highest point in 2022, the highest in the last 10 years.



Another important aspect to consider is the level of debt, and it is crucial to determine whether a business has a manageable debt that can be repaid within a period of 3 years. We do this by dividing the total long-term debt by earnings. Doing the calculation on Pfizer, I can see that Pfizer has 1,02 years of earnings in debt, which is acceptable. Hence, debt does not prevent me from investing in Pfizer.



Based on my findings so far, Pfizer has its ups and downs. All investments come with risks, and Pfizer is also facing some risks. One risk that always comes with pharmaceutical companies is lower drug pricing. There are two different acts that have been introduced to Congress that should result in lowering drug prices. One is the Reduced Costs and Continued Cures Act, and the other is the Lower Drug Costs Now Act. Both were introduced in 2021, but neither of them has passed the House yet. Hence, it is too early to know if any of them will eventually pass in Congress and what consequences theywill have. However, it shows that there is political interest in lowering drug prices. Lower drug prices mean lower profits. Another risk when investing in a pharmaceutical company is the expiration of patents for their therapies. Right now, Pfizer still has plenty of years left on the patent for their most sold drugs and could further apply for patent term extensions. However, patents will eventually expire, which is why you need to be aware of this if you are investing in pharmaceutical companies. Covid-19 Vaccine. 38% of Pfizer's revenue in 2022 came from COMIRNATY. Pfizer currently holds a 64% global market share in providing Covid-19 vaccines. You might wonder why this poses a risk. There are two reasons for that. First, I suppose that Covid-19 will disappear at some point, and hopefully, we won't need boosters every year. Once it does, thedemand will drop. Secondly, the competition in delivering Covid-19 vaccines is intensifying. We see alternatives that are cheaper and easier to handle, such as the one from Novavax, which is a protein adjuvant vaccine, not an mRNA vaccine like Pfizer's. It means it can be stored in a refrigerator, which makes it easier to distribute. It is also cheaper. There are also vaccine candidates in development that utilize alternative technologies. My personal favorite is a vaccine from a Danish company called Bavarian Nordic that utilizes cVLP technology. This technology is already widely used, but it does require a longer development time. If Bavarian Nordic succeeds with their cVLP vaccine, it should provide longer-lastingprotection compared to mRNA vaccines. Additionally, it can be stored in a refrigerator. If we no longer need vaccines or if better and cheaper vaccines are developed, it will significantly impact Pfizer's revenue.


There are also potential opportunities for Pfizer. One way to mitigate the risks is by managing their pipeline, similar toother pharmaceuticals, Pfizer has a lot of interesting drugs in their extensive pipeline, which consists of 89 potential drugs (27 in Phase 1, 25 in Phase 2, 27 in Phase 3, and 10 in registration). I cannot go through all 95 drugs in their pipeline, but one that I believe is particularly interesting is called ARV-471. It is a treatment for patients with locally advanced ER+/HER- breast cancer, which accounts for approximately 80% of all breast cancers. So far, in the preclinical trials and the phase 1 trials, the combination of ARV-471 and Ibrance has shown promising results. It could end up being great news not only for Pfizer but also for everyone suffering from breast cancer around the world. Another interesting aspect of their pipeline is the development of a Lyme disease vaccine, which is currently the only candidate in clinical development. It is estimated that 476.000 Americans are diagnosed and treated for Lyme disease each year, which means there is great potential for a vaccine. The Lyme disease vaccine is currently in phase 3 and has shown some promising results. They are also developing an mRNA flu vaccine, which Pfizer believes could be superior to existing flu vaccines. It could be another potential growth story for Pfizer, as it would be used year after year with a few modifications. One therapy that was approved in 2022 is "CIBINQO". It is a treatment for atopic dermatitis, and management expectsthat it will eventually generate $3 billion Finally, management is very bullish on "PAXLOVID," which is better known as the Covid-19 pill. Management mentioned that in 2022, they estimated that there were 110 million Covid-19 infections worldwide, excluding China. Out of those, 12% (14 million) were treated with oral therapy, and Paxlovid held a 90% market share. Management expects that infections will increase in 2023 and beyond due to reduced vaccination rates. Management expects to begin selling Paxlovid in the second half of 2023. It could become a multibillion-dollar business to replace the vaccine.



All right, we have gone through the numbers, potential and risk regarding Pfizer, and now it is time for us to calculate a price for Pfizer. In order to calculate price, we will need the numbers that I have explained in the "MY STRATEGY" section of the website, as I do not want to go through the whole calculation here. I chose to use an EPS of 5,47 (which is the number for 2022). I have chosen an estimated future EPS growth rate of 6%,which is the growth rate mentioned by Albert Bourla until 2025. The estimated future PE is 12, which is twice the growth rate. This is because the historical PE for Pfizer has been higher. Additionally, we have already set the minimum acceptable return rate at 15%. Doing the calculations, we come up with the sticker price (some call it fair value or intrinsic value) of $29,06, and we want to have a margin of safety of 50%, so we will divide it by 2. This means that we want to buy Pfizer at a price of $14,53 (or lower, obviously) if we use the Margin of Safety price.


Our second way to calculate a buy price is the Ten Cap price, which is also explained at "MY STRATEGY". To do so, we need some numbers from their financial statements, keep in mind that all numbers are in millions. The operating cash flow last year was 29.267. The capital expenditures were 3.236. I tried to look through their annualreport to see how much of the capital expenditures were used for maintenance. I couldn't find it, but as a rule of thumb, you can expect 70% of the capital expenditures to be used for maintenance. This means that we will use 2.265,2 in ourfurther calculations. The tax provision was 3.328. We have 5.616 outstanding shares. Hence, the calculation will be likethis: (29.267 - 2.265,2 + 3.328) / 5.616 x 10 = $54,00 in Ten Cap price.


The last calculation is the Payback Time. I also described in "MY STRATEGY". With Pfizer's Free Cash Flow Per Share at 4,64 and a growth rate of 6%, if you want your purchase back in 8 years, the Payback Time price is $48,68.


I believe that Pfizer is an interesting company with good management. Pfizer has had outstanding years in 2021 and 2022due to their COVID-19 vaccine. The question is whether this is sustainable and if PAXLOVID will take over, and for how long PAXLOVID will be necessary. The uncertainty surrounding the global Covid-19 situation is something you will need to consider if you decide to invest in Pfizer. If we exclude Covid-19 related treatments, I believe there are still some interesting things about Pfizer. I'm particularly intrigued by their biosimilar business, which I didn't mention in the analysis. I especially appreciate their focus on oncology biosimilars because it is the treatment area with the highest profitmargins. And while Covid-19 treatments hopefully won't be needed forever, they will generate a lot of cash for Pfizer to invest in their business. Personally, there are other companies in the industry that I prefer. If you are considering investingin Pfizer, it is important to acknowledge that the Ten Cap price and Payback Time price are both calculated based on an exceptional year. Nevertheless, if you anticipate a prolonged duration for Covid-19 and have confidence in Pfizer's abilityto utilize the funds generated from the pandemic to enhance their business, I believe that investing in Pfizer at around $35-40 could prove to be a sound long-term investment.


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I hope that you enjoyed my analysis. Unfortunately, I cannot do a post of all the companies I analyze. I am available to copy but if you do your own trades, you can follow me on Twitter instead, as I tweet when I buy or sell anything.


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