Source: PaxForex Premium Analytics Portal, Fundamental Insight
Investors have been injecting an incredible amount of money into promising biotechnology last year, and it started even before the coronavirus pandemic further accelerated the trend. This capital doesn't go straight into the big pharmaceutical companies, but it will eventually be reflected in Pfizer's bottom line.
Over the next five years, investors can expect to see many more new drug approvals coming out of Pfizer's portfolio than they are used to. That's why the recent frenzy over biotech startups makes Pfizer a good company to buy now and hold for the long term.
First, note the capital inflows.
New biotech companies have been coming to market at a frequency of about once a week for the past few years, and many of them are thriving. The number of publicly traded biotech companies with a market capitalization of more than $200 million has more than doubled in the past five years to 727 at the end of 2020.
Coronavirus accelerated capital inflows into early-stage biotech companies in 2020. That means there are many more lucrative co-development deals ahead than anyone could have imagined just 12 months ago.
During a recent conference, Pfizer CEO Albert Burla told investors that the company would focus on first-in-class candidates that have already been tested in humans. Each step in drug development costs exponentially more than the previous one, and finding a partner like Pfizer to help with the heavy lifting is almost always the best option.
So why choose Pfizer?
Clinical-stage biotech companies with compelling evidence of efficacy have plenty of potential partners to choose from. And Pfizer's recent successes have put it in an admirably strong negotiating position.
Until early 2020, BioNTech had never conducted a large phase III trial, applied for a new drug, or produced anything large-scale. Last March, the company signed an agreement with Pfizer to co-develop a successful vaccine, COVID-19, which is already expected to bring the partners about $14 billion this year.
Pfizer's achievement in partnering with BioNTech appears to be improving Pfizer's ability to attract lucrative deals. In December, Myovant Sciences selected Pfizer to co-develop and commercialize relugolix, a first-in-class drug recently approved by the U.S. Food and Drug Administration to treat patients with advanced prostate cancer. Relugolix is also under review by the FDA as a potential new drug for the treatment of uterine fibroids.
In addition to its recent success with BioNTech, Pfizer is successfully marketing a prostate cancer pill called Xtandi in collaboration with Astellas. With that in mind, Myovant Sciences has accepted an upfront payment of only $650 million and an additional $3.6 billion that will not clear on the account if Pfizer fails to provide more promotion for Relugolix than it has already done.
Let's turn to the numbers.
Before accounting for contributions from coronavirus vaccine sales, Pfizer expects sales revenue to grow at least 6% annually through 2026. The company expects even higher year-over-year numbers, and profits could grow by double-digit percentages.
Earlier this year, Pfizer scaled back its portfolio of older, aftermarket exclusives and merged it with Mylan to create Viatris. Pfizer will get about $12 billion from Viatris this year, in addition to operating cash flow, which last year was about $10 billion to $11 billion. That gives Pfizer enough money to support a stream of co-development deals over the next few years while increasing dividend payments.
Pfizer is likely to do well in its double-digit growth estimate, but the stock price has been down slightly because investors are concerned that the expiration of patents on today's drugs will prevent Pfizer from growing at more than a snail's pace after 2026. The mountains of financial resources and skilled teams of professionals to bring in an unprecedented number of new partnerships, however, suggest that this stock could rise substantially in the long run.
Provided that the price is below 38.10, follow these recommendations:
- Time frame: D1
- Recommendation: short position
- Entry point: 36.50
- Take Profit 1: 34.90
- Take Profit 2: 34.00
In case of breakout of the level 38.10, follow the recommendations below:
- Time frame: D1
- Recommendation: long position
- Entry point: 38.10
- Take Profit 1: 39.46
- Take Profit 2: 40.50