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Pfizer - guidance intact as COVID sales drive 29% revenue fall

Pfizer's first-quarter revenue fell 29% to $18.3bn, driven largely by expected decreases in sales of COVID-19 vaccinations.

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Pfizer's first-quarter revenue fell 29% to $18.3bn, driven largely by expected decreases in sales of COVID-19 vaccinations. Excluding total COVID-19 revenue of $7.1bn, revenues from operations were up by 5%.

Net income fell in line with revenues, from $7.9bn to $5.5bn.

Full-year guidance remains unchanged with revenues expected to fall by 29% to 33%, and underlying earnings per share's expected to decline by 48% to 51%.

Excluding COVID-19 products, Pfizer expects 7% to 9% growth in revenues from operations. Pfizer is expecting an 'unprecedented' number of launches in new products and disease areas, 'most of which are expected to occur in the second half of 2023'.

No shares were repurchased in the period. The first quarter dividend, paid in March, was up 2.5% to $0.41 per share.

The shares were up 0.9% in pre-market trading.

View the latest Pfizer share price and how to deal

Our view

Pfizer is one of the world's largest Pharmaceutical companies. It's well known for its erectile dysfunction treatment Viagra, and more recently for being the first to market in developed countries with COVID-19 vaccine, Comirnaty, that it co-developed with BioNTech. This helped generate bumper profits and cash flows over the last couple of years.

Pfizer's largely been using the windfall to invest in the future, driving a step change in research & development spending. That's just as well because 2023 sales of COVID-19 medicines are expected to fall around 60%, after making up over half of 2022 revenues.

Further ahead there are other threats to revenues as some key blockbuster medicines, approach the so-called patent cliff. Between 2025 and 2030, Pfizer is facing loss of exclusivity over several key products which together account for around $17bn of revenue. As a case in point, sales of Viagra fell by over 75% in the 7 years following loss of exclusivity outside of the United States.

Pfizer's banking on its ambitious research program and continuing acquisition spree to make a big impact on revenues by the end of the decade. One example is the recently completed acquisition of Global Blood Therapeutics which pioneered Oxbryta, a novel treatment for Sickle Cell Disease.

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 in the crossfire of US politicians.

Pfizer's expected to more than double net debt to about $25bn this year, reflecting the reduction in profitability and continued high levels of research spend. At under 2 times forecasted cash profits it's still not too much of a worry.

However, that's likely to jump further on the closure of Pfizer's proposed $43bn acquisition of cancer specialist Seagen. That's assuming the deal's approved by the competition authorities, which is by no means certain. Pfizer thinks Seagen can more than quadruple 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 being paid will be worth it.

We think that Pfizer's strong record of commercialising blockbuster therapies make it worthy of consideration as part of a diversified portfolio. At 11 times forward earnings, it's trading at the lower end of its peer group. This reflects the sizeable chunk of revenues that need to be filled as COVID revenues fall, which we see as the key risk to be aware of.

Environmental, social and governance (ESG) risk

Product governance is a primary driver of ESG risk for this sector, with safety and marketing of medicines the key focus. Access to medicines and their affordability, as well as business ethics concerning intellectual property rights, ethical clinical research and price collusion are other topical issues. Labour relations and Bribery and Corruption are also material ESG risks.

According to Sustainalytics, Pfizer's overall management of material ESG issues is strong, but we have some concerns. 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.

ESG data sourced from Sustainalytics

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Pfizer key facts

All ratios are sourced from Refinitiv. 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.

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.

This article is not advice or a recommendation to buy, sell or hold any investment. No view is given on the present or future value or price of any investment, and investors should form their own view on any proposed investment. This article has not been prepared in accordance with legal requirements designed to promote the independence of investment research and is considered a marketing communication. Non-independent research is not subject to FCA rules prohibiting dealing ahead of research, however HL has put controls in place (including dealing restrictions, physical and information barriers) to manage potential conflicts of interest presented by such dealing. Please see our full non-independent research disclosure for more information.

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Written by
Derren Nathan
Derren Nathan
Head of Equity Research

Derren leads our Equity Research team with more than 15 years of experience in his field. Thriving in a passionate environment, Derren finds motivation in intellectual challenges and exploring diverse ideas within his writing.

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Article history
Published: 2nd May 2023