This year has not been good for stocks so far. And although many drug companies avoid sell-offs, Pfizer (PFE 0.34%) is not one of them. The pharma giant is performing more or less in line with the broader market year. Fortunately, Pfizer’s recent quarterly update showed some pretty encouraging signs.
However, there is cause for concern about the future of the healthcare company. Let’s look at one earnings-related reason Pfizer might be a buy — and one why it might not be.
Reason for buying: The COVID-19 portfolio is performing well
Pfizer has made a fortune over the years thanks to its work related to the coronavirus. The company has benefited greatly from this to this day. In the second quarter, the drugmaker’s revenue on an operating basis rose 53% year over year to $27.7 billion. According to management, Pfizer posted its biggest-ever quarterly revenue during that period, and that’s primarily due to its COVID-19 offering.
Sales of Pfizer’s Comirnati coronavirus vaccine hit $8.8 billion, up 20% from the prior-year period. The company’s coronavirus therapy, Paxlovid, posted sales of $8.1 billion (year-over-year comparison does not apply here as it was approved in December). Paxlovid and Comirnaty alone accounted for more than half of Pfizer’s total sales.
Reason for selling: The rest of Pfizer’s lineup isn’t that impressive
While Pfizer’s coronavirus offering is unstoppable right now, the rest of the company’s portfolio is less impressive. In the second quarter, the drugmaker’s non-coronavirus-related revenue rose 1% year over year. Pfizer’s lineup faces a number of issues, including headwinds related to Xeljanz, an immunology drug. Xeljanz belongs to a class of drugs known as JAK inhibitors.
Last year, Pfizer released data from a post-marketing study that found Xeljanz was associated with higher rates of cardiovascular events and cancer than TNF inhibitors, a class of drugs that includes: AbbVieIt’s Humira.
The results of this study and the decision by regulators to add warnings about these risks to the label of Xeljanz (and other JAK inhibitors) are hampering drug development. In the second quarter, Xeljanz’s revenue fell 24% year over year to $430 million. Sales of the immunosuppressant Enbrel also declined 10% year over year to $257 million, possibly due to stiff competition, a factor that also impacted first-quarter sales.
Pfizer has a solid cast that isn’t related to the coronavirus, including Eliquis. In the second quarter, anticoagulant sales rose 23% year over year to $1.7 billion. But overall, the company is barely managing to grow its sales outside of its coronavirus lineup. This could become an issue if sales of its COVID-19 products fall sharply after this year.
Is Pfizer Stock a Buy?
In my opinion, the market still underestimates Pfizer. First, the company will continue to benefit from Paxlovid and Comirnaty. COVID-19 will (unfortunately) not suddenly lift itself from the air after this year. Even if demand for products that prevent or treat diseases wanes, Paxlovid and Comirnaty can still make significant contributions to Pfizer’s sales.
Second, while the rest of the lineup isn’t impressive, it’s something drug companies sometimes have to grapple with due to increased competition, patent rock, or other factors. But drugmakers don’t typically have the advantage of growing their sales at the rate that Pfizer is growing when they face such headwinds.
The decisive factor is whether the company in question can deal with these issues. A solid pipeline and plenty of money for research and development support — and Pfizer has both. The company’s cash on hand increased as a result of its success in the coronavirus market.
Pfizer has been active in the acquisitions and plans to continue down this path. This will help strengthen the already solid pipeline of over 90 clinical trials. Pfizer expects to receive 15 new approvals over the next 18 months. Something can go wrong with some of its current programs. But the company has the tools to launch several new potential blockbusters over the next five years. Therefore, investors should buy the company’s shares during the downturn.