We think the market continues to underappreciate both Pfizer’s pipeline and recently launched drugs.
By Damien Conover, CFA | 08-01-17 | 10:00 AM | Email Article

 Pfizer reported second-quarter results that were largely in line with both our and consensus expectations, and we don’t expect any major changes to our $37 fair value estimate. We continue to view the stock as undervalued, with the investment community underappreciating both Pfizer’s pipeline and recently launched drugs, including cancer drug Ibrance. Additionally, Pfizer’s wide moat looks secure, buoyed by a very diverse drug portfolio with strong pricing power.

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

In the quarter, total sales were operationally flat, as increased generic competition offset new product growth, and while we expect this trend will continue through 2017, Pfizer should return to growth in 2018. We expect the strong growth from Ibrance (up 67%) will continue, led by gains outside the U.S., where the drug generates only 15% of the current sales. While competition is increasing from Novartis and Eli Lilly, we believe the drug’s first-mover advantage will solidify its market leadership. Additionally, we expect positive data in the adjuvant setting in 2020 will strengthen the long-term outlook for the drug. Beyond Ibrance, the growth outlook is solid for cardiovascular drug Eliquis (up 52%) based on a leading efficacy and side effect profile. These two drugs represented over 10% of Pfizer’s current sales and have patent protection through 2023, possibly longer.

While the pipeline is not as strong as the firm needs to generate robust growth, new drugs are developing and should help offset patent losses and support total sales growth of 3% in 2018. Cancer drug Bavencio, pain drug tanezumab, and diabetes drug ertugliflozin appear to hold the most potential. Also, while the generic headwinds will remain steady in 2018, the headwinds for vaccine Prevnar 13 (Pfizer’s largest product) should dissipate in 2018 as the firm annualizes the recent bolus of sales into the U.S. adult patient population and more adult sales demand comes on line internationally.

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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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