Pfizer (NYSE: PFE) stock has enjoyed an uptrend that started in late April. With an upcoming quarterly dividend of 36 cents, giving Pfizer stock a yield of 3.3%, PFE stock price may rise more in the near future.
Pfizer’s $11.4 billion acquisition of Array BioPharma (NASDAQ: ARRY) could be a positive, near-term and long-term catalyst for Pfizer stock. The price tag of the deal looks relatively small. I used the word “relatively” because of AbbVie’s (NYSE: ABBV) subsequent, monstrous, $63 billion acquisition of Allergan (NYSE: AGN). Pfizer’s more manageable deal strengthens Pfizer’s biopharmaceutical unit and will accelerate the company’s growth over the long-term.
Pfizer’s Acquisition
Array may boost Pfizer stock by providing PFE with BRAF/MEK inhibitors, a potential first-in-class therapy for patients suffering from BRAF-mutant metastatic colorectal cancer. According to the National Institute of Health, the BRAF gene “provides instructions for making a protein that helps transmit chemical signals from outside the cell to the cell’s nucleus.”
Overall. Pfizer currently has 44 oncology projects in its pipeline. Of these. 12 are in Phase 3 and five have already been approved and are in the process of being registered. The pipeline includes biologics, small molecules, immunotherapies, and biosimilars.
Source: Pfizer
Pfizer has many different types of approaches it uses to target various types of tumors. Array primarily uses combination therapies. Its BRAFTOVI and MEKTOVI treatments have been approved for treating metastatic melanoma. Array is conducting over 30 clinical trials of its solid tumor treatments. Among its tumor treatments being tested is its BRAF-mutant metastatic colorectal cancer (mCRC) drug.
In May, Array reported statistically significant improvements of the subjects being treated in a Phase 3 trial of its mCRC treatment. According to the data, the treatment reduced the risk of death of the patients taking it by 48%, compared to those in the control group.
Array’s Addressable Market
Colorectal cancer is the third most common type of cancer in the U.S. In 2018, around 140,250 patients were diagnosed with cancer of the colon or rectum. BRAF mutations occur in about 15% of the cases. So, Array may potentially treat over 21,000 patients annually. Nearly one-third of those diagnosed with cancer of the colon or rectum, or 50,000 people, die each year, according to estimates.
But the owners of Pfizer stock barely reacted when PFE announced the Array deal. Compared to the $245 billion market cap of Pfuzer stock, the $11.4 billion acquisition is small. Nonetheless, the pipeline of cancer drugs that Pfizer acquired through the transaction could meaningfully boost Pfizer’s top line, lifting Pfizer stock in the process. Moreover, developing cancer drugs is typically expensive and requires lots of capital. So the acquisition will save PFE time and money and, under Pfizer’s control, the acquired unit will have more resources and cash that it can use to develop its drugs. The acquisition is expected to start increasing Pfizer’s earnings per share in 2022.
Analysts Are Mildly Upbeat on Pfizer Stock
Wall Street analysts are mildly bullish on PFE stock. The eight analysts covering PFE stock have an average price target on the shares of $47.14, according to Tipranks. That’s about 8.5% above PFE stock price. With the 3.32% dividend yield of Pfizer stock, the total return of PFE stock, judging by the average price target, is expected to be about 12%.
The Bottom Line on Pfizer Stock
Pfizer stock trades at price-earnings multiples that are below those of some of its peers, as shown in this P/E Multiples financial model. Additionally, in the next three years, the company is expected to deliver strong growth. Yet investors have been slow to recognize its potential.
Moreover, by adding Array to its portfolio, PFE has greatly improved its pipeline while further distinguishing the company from other drug makers. Income and value investors should consider Pfizer stock as a core, long-term pharmaceutical holding.
As of this writing, the author owns shares of AbbVie.
