No one can predict the future, but it’s not hard to imagine rising pharmaceutical sales. In 2022, prescription drug spending in the US increased by more than 8% to $406 billion. It’s a lot, but still less than a third of the amount taken up by US hospitals.
It may not feel like it when you pay the bill, but prescription drugs give healthcare systems a huge return on their investment. With this in mind, it’s no wonder billionaires are buying up shares of one of America’s largest pharmaceutical companies, Pfizer(NYSE:PFE).
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In the third quarter, Jeff Yass and the Susquehanna fund he manages increased their stake in Pfizer to 10.3 million shares. Igor Tulchinsky has more than doubled the size of WorldQuant Millennium Advisors’ stake in Pfizer by purchasing 1.2 million shares.
Tulchinsky and Yass make a lot of bets every quarter, and many of them don’t pan out. Before we blindly follow these billionaires, let’s take a look at some of the reasons why Pfizer’s stock price is down about 49% since the end of 2022.
Pfizer shares are under pressure as the company approaches a number of patent cliffs. The most important patent protects Eliquis, a drug with which it markets in collaboration Bristol Myers Squibbexpires in 2026.
Sales of next-generation blood thinners are still increasing and are responsible for approximately 9% of total sales. Pfizer has reached a settlement with several drugmakers that will delay the launch of generic versions of Eliquis until April 1, 2028. In the meantime, it could lose exclusivity for Ibrance in the US market in 2027.
Ibrance sales are responsible for about 6% of total revenue, and the loss of exclusivity is only part of the problem. The blockbuster breast cancer treatment is already losing market share to similar drugs Novartis And Eli Lilly, called Kisqali and Verzenio respectively. These competitors’ sales improved, but Ibrance’s third-quarter sales fell 10% year over year.
Pfizer’s prostate cancer treatment, Xtandi, received approval to treat patients with early-stage prostate cancer in 2023. Third-quarter revenue shot up 28% to $561 million, but those gains could evaporate within a few years. The key US patent protecting Xtandi’s exclusivity expires in 2027.
Drug patents do not last very long compared to other forms of intellectual property. Big pharmaceutical companies like Pfizer are constantly funneling profits from their current blockbusters into next-generation products.
For example, Pfizer acquired Biohaven and its migraine headache drug Nurtec for about $11.6 billion in 2022. Third-quarter sales rose 45% year-over-year to $1.3 billion year-over-year because it is the only approved treatment to both prevent migraines and stop the headaches after they have healed. prevent.
According to Pfizer, 85% of doctors who prescribe migraine treatments for the first time choose Nurtec.
Padcev, a drug acquired by Pfizer in 2023, is part of the only chemo-free treatment for bladder cancer patients recently diagnosed with advanced-stage tumors. The combination of Padcev and Keytruda is now the most commonly prescribed treatment for these patients. Third-quarter revenue rose to $1.6 billion annually and could reach $5 billion within a few years.
Pfizer has increased its dividend payout for 15 years in a row, but you don’t need another increase to get a ton of passive income from the stock. At recent prices it offers a huge yield of 6.4%.
Investors can reasonably look forward to another dividend increase in December. Management expects adjusted earnings this year to be between $2.75 and $2.95 per share. That’s more than enough to raise a dividend payment of $1.68 per share annually.
Pfizer’s shares have been trading at the relatively low price of just 9.2 times adjusted 2024 earnings estimates. At this low valuation, the stock could deliver market gains even if earnings rise very slowly over the next few years.
Losing exclusivity for Eliquis, Ibrance and Xtandi will be painful, but these patent losses are unlikely to prevent Pfizer from growing earnings and dividend payments in the long term. In this case, following the lead of billionaires could be a smart move.
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Cory Renauer has no positions in any of the stocks mentioned. The Motley Fool holds positions in and recommends Bristol Myers Squibb and Pfizer. The Motley Fool has a disclosure policy.
Billionaires are buying up defeated Pfizer shares. Should you follow their example? was originally published by The Motley Fool
