Pfizer Inc (PFE) Com Stk USD0.05 (CDI)

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Pfizer’s fourth quarter revenue of $17.8bn came in ahead of market expectations. Excluding COVID medicines sales grew by 11%. This also included a $0.9bn contribution from legacy products relating to the Seagen acquisition which completed two weeks prior to the end of the same period in the prior year.

Underlying net profit rose from $0.6bn to $3.6bn reflecting a shift in mix towards higher margin products and prudent cost control.

Over the full-year Pfizer paid out total dividends of $1.68 per share up from $1.64.

Full year guidance was re-iterated for 2025, with a revenue range of $61-$64bn.

The shares were up 2.1% in pre-market.

Our view

Pfizer finished 2024 on a strong footing. There was no upgrade to the 2025 outlook but that’s not too surprising given there’s still a heavy chunk of revenue coming from unpredictable sales of COVID medicines.

Turning to the wider portfolio, there’s plenty of potential clinical catalysts in 2025 including up to four new product approvals. But as with all drug development there remains significant execution risk. There’s also some scepticism around Pfizer’s efforts to enter the lucrative anti-obesity market.

Further wins in the clinic will also be needed to mitigate the so-called patent cliff. Between 2026 and 2028, the company is facing the loss of exclusivity over several key products which account for around $17.5bn of revenue.

Pfizer's banking on its ambitious research program to make a big impact on revenue by the end of the decade. While Pfizer's R&D hit rate is higher than most, even regulatory approval doesn’t guarantee commercial success, with factors such as patient uptake also being factored into the equation.

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. That’s forecast to fall to around 2x cash profit by the end of 2025 so it’s not, it’s not too terrifying. But if there are any negative earnings surprises, the 6.5% 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 there’s some solid progress being made. At 8.9 times forward earnings, it's trading at a significant discount to the sector. 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.

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.

This article is original Hargreaves Lansdown content, published by Hargreaves Lansdown. It was correct as at the date of publication, and our views may have changed since then. Unless otherwise stated estimates, including prospective yields, are a consensus of analyst forecasts provided by Refinitiv. These estimates are not a reliable indicator of future performance. Yields are variable and not guaranteed. Investments rise and fall in value so investors could make a loss.

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