We will likely lower the pharma giant’s fair value estimate slightly, but we still see shares of the wide-moat firm as attractive today.
By Damien Conover, CFA | 10-31-16 | 11:19 AM | Email Article

In tandem with  Pfizer’s third-quarter results that ran slightly below both our and consensus expectations, the company announced the discontinuation of cholesterol-lowering drug bococizumab, which will likely lead to a minor fair value decline. However, we still view the stock as undervalued with a strong position in currently marketed drugs, manageable patent losses, and several solid pipeline drugs that help reinforce our wide moat rating, as well.

Damien Conover, CFA, is director of healthcare equity research and equity strategy for Morningstar.

While the loss of bococizumab will weigh on Pfizer’s long-term growth rate, the remaining pipeline offers several important new blockbusters. We had projected peak annual sales for bococizumab approaching $2 billion. Remaining key late-stage pipeline drugs include diabetes drug ertugliflozin, cancer treatment avelumab and a pain drug tanezumab, all of which carry peak sales potential over $1 billion annually. Additionally, mid-stage cancer drug 4-1BB offers Pfizer a potential combination pathway to gain market share in the large immuno oncology market. Nevertheless, the loss of bococizumab will likely increase the need for Pfizer to acquire late-stage pipeline drugs such as the recent acquisition of Anacor to gain late-stage atopic dermatitis drug crisaborole, which holds peak annual sales potential over $1 billion.

Turning to the quarter, strong cancer drug sales offset generic competition on older drugs, leading to 3% operational growth excluding acquisitions, and we expect growth will continue in 2017. While growth of breast cancer drug Ibrance is slowing sequentially in the U.S., we expect the European launch will drive sales potential of over $5 billion by 2018, and we expect Ibrance’s first-mover advantage and strong efficacy will mitigate new competitive threats from Novartis and Eli Lilly. With decelerating generic competition and likely European sales growth for the Prevnar vaccine in the adult patient population, we expect sales growth over 3% in 2017 (excluding acquisitions).

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Damien Conover, CFA does not own shares in any of the securities mentioned above. Find out about Morningstar's editorial policies.
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