Pfizer’s third-quarter revenue grew 32% to $17.7bn, well ahead of market expectations. The positive surprise was driven by sales of COVID products (Paxlovid and Comirnaty), including a one-off adjustment for Paxlovid sales to the US government.
Excluding these two COVID products, revenue grew 14% to $13.6bn, helped by the Seagen acquisition and strong demand for the Vyndaqel family of anti-inflammatory medicines.
Pfizer saw “significant” free cash flow in the period, helped by robust cash generation from operations and around $3.5bn of net proceeds from the sale of its Haleon stake.
Full-year revenue guidance has been raised by $1.5bn at the midpoint, to a range of $61.0-64.0bn. Underlying earnings per share guidance has been raised by 11.8% at the midpoint, to $2.75-2.95.
The shares rose 1.4% in pre-market trading.
Our view
Pfizer’s full-year outlook received an unexpected boost from sales of its COVID related medicines in the third quarter. That’s a nice to have but can also disappear as quickly as it re-appeared. So it’s important to focus on the wider portfolio. There’s been some impressive growth across the portfolio but also some disappointments.
Another successful quarter of Research & Development delivery paints an improving picture for product launches and the growth outlook for some existing products. But there remains significant execution risk to overcome before a turnround can be declared. Further wins in the clinic will also be needed to mitigate the so-called patent cliff. Between 2025 and 2030, the company is facing the loss of exclusivity over several key products which account for around $17bn of revenue.
Pfizer's banking on its ambitious research program to make a big impact on revenue by the end of the decade. However, we caution that there remain significant hurdles to success, including take up by patients and regulatory approvals. Pfizer's R&D hit rate is higher than most. Still, only about 1 in 5 make it from pre-clinical research all the way through to regulatory approval.
Another risk is legislative action on drug pricing, which remains firmly under the microscope of US politicians. In particular, one of Pfizer's biggest sellers, the blood thinner Eliquis, was one of the first drugs to be subject to price negotiations with the US Department of Health following new legislation. It’s now seen its maximum price slashed to under half of the suggested retail price.
The acquisition of Seagen saw net debt skyrocket to around $59bn last year. At under 3x forecasted underlying cash profit, it’s not too terrifying, but if there are any negative earnings surprises, the 5.9% prospective dividend yield could come under pressure. Of course, no payouts are assured.
In the short term, the deal won't be earnings enhancing. But it doubles the size of the development pipeline in cancer, with the focus shifting to novel medicines with the potential to replace chemotherapy in some tumour types. Pfizer thinks it can more than quadruple Seagen’s revenues to over $10bn by 2030, but that's not without the usual risks of drug development. It will be a while yet before we find out if the hefty premium paid has been worth it.
Pfizer's got a strong record of commercialising blockbuster therapies. And at 10.2 times forward earnings, it's trading at a significant discount to the sector. But for that gap to close, investors need convincing that the company can reduce its reliance on COVID related sales and pull harder on growth levers as exclusivity on certain products disappears. There’s some solid progress being made but investor sentiment is likely to remain sensitive to hiccups along the way.
Environmental, social and governance (ESG) risk
The pharmaceuticals sector is relatively high-risk in terms of ESG. Product governance, particularly with safety and marketing, and affordable access to treatment are the key risk drivers. Labour relations, business ethics and bribery and corruption are also contributors to ESG risk.
According to Sustainalytics Pfizer's overall management of material ESG issues is strong. Board-level oversight is in place and there are adequate policies and programmes on bribery, corruption and whistleblowing. Implementation could be an issue, though, given it's being investigated by the SEC and Department of Justice regarding bribery allegations. Pfizer was recognised by the Access to Medicine Index for its value-based healthcare initiatives, but disclosure of list and net price changes in the US has deteriorated over the past few years. The group's transparent with its trial data, but falls short of best practice in other areas of product governance.
Pfizer key facts
All ratios are sourced from Refinitiv, based on previous day’s closing values. Please remember yields are variable and not a reliable indicator of future income. Keep in mind key figures shouldn’t be looked at on their own – it’s important to understand the big picture.
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