Hello, Reader.
There’s an old adage that claims, “A leopard can’t change its spots.”
As an apex – and apparently stubborn – predator, the big cat also shares some characteristics with the pharmaceutical giant Pfizer Inc. (PFE). They’re both at the top of their respective food chains and surrounded by cutthroat competition.
However, Pfizer is a leopard that can change its spots.
Despite facing declining revenue after demand dwindles for its COVID-related treatments, the company remains a confident contender in the race to reshape healthcare. And some of its most recent actions show how Pfizer doing just that.
This Monday, Pfizer announced its plans to reduce its 32% stake in Haleon PLC (HLN), the Sensodyne toothpaste manufacturer, to 24%, selling around $2.5 billion in shares. This move is the first time that Pfizer has sold down its stake in HLN. So, consider spots changed.
This offloading of a consumer product is a direct result of Pfizer’s active biotech acquisitions. The company is making room for reinvention, and the offloading of Sensodyne will help reduce its debt after its $43 billion purchase of Seagen Inc., a pioneer in antibody-drug conjugates (ADCs) to treat cancer.
In today’s Smart Money, let’s examine Pfizer’s attempts to stay ahead of the curve in the dynamic biotech landscape.
And I’ll let you know whether these bold investments (and a little AI on top) are starting to offer an outstanding risk/reward proposition – or not…
The Grandaddy of U.S. Drug Companies
This pharma pioneer is proving its ability to change its spots. But before we get more into that, let’s first take a look at where those spots came from…
Pfizer traces its history back to 1849. That’s when two recent German immigrants, Charles Pfizer and Charles Erhart, teamed up to start a new business in Brooklyn, New York.
Relying on Pfizer’s skills as a chemist and Erhart’s training as a confectioner, the pair produced the company’s first product, a palatable antiparasitic drug called Sanonin, made to taste like toffee.
Since then, Pfizer has developed or acquired a long list of blockbuster medicines and healthcare products – everything from Terramycin, the first purely synthesized, broad-spectrum antibiotic, to ChapStick to Advil to Viagra.
Most recently, Pfizer co-developed and marketed the leading COVID vaccine, followed up by the market-leading COVID treatment. Those achievements produced a doubling in annual sales from less than $50 billion in 2021 to a record-high $101 billion 2022.
But now that the pandemic is fading into the history books, Pfizer’s annual COVID-related drug sales have atrophied from a peak of about $60 billion to less than $13 billion… and falling.
Meanwhile, no major revenues from new-to-market drugs have rushed in to fill the void. That’s why the stock has been falling, and why Wall Street has been turning the cold shoulder.
But Pfizer has weathered numerous boom-bust episodes in the past. And it is preparing to repeat that accomplishment – both by making those targeted acquisitions we talked about earlier… and by applying artificial intelligence across its drug-development programs.
How AI Is Changing This Leopard’s Spots
The company is an adopter of Google Cloud’s new AI-powered Target and Lead Identification Suite. That tech platform enables “in silico” drug design (i.e., drug development that takes place on computers, rather than in a lab). Because in-silico analyses operate more rapidly than traditional lab work, researchers can quickly discover high-quality drug candidates and test them cost-effectively.
Pfizer also struck a multiyear strategic collaboration one year ago with Tempus, a leader in artificial intelligence and precision medicine. Pfizer expects this collaboration to advance its oncology drug development in two key ways…
- Gather insights from Tempus’s multimodal data that will inform novel drug discovery and development in oncology. In other words, help Pfizer identify potential therapies “from scratch.”
- Accelerate the development of Pfizer’s in-house oncology portfolio by using Tempus’s AI-enabled platform, including its clinical trial matching program that rapidly activates studies for patients in communities across the country.
In addition to these AI initiatives, Pfizer has been actively acquiring biotech companies that could benefit from enhanced AI capabilities. During the last two years, Pfizer has spent $60 billion to acquire four companies, including the blockbuster $43 billion purchase of Seagen, as I mentioned before. Its drug technology treats a broad range of cancers by precisely targeting and killing cancers cells, while also limiting undesirable “off-target” toxicities.
With the addition of Seagen’s four breakthrough oncology drugs – Adcetris for Hodgkin’s lymphoma, Padcev for bladder cancer, Tivdak for cervical cancer, and Tukysa for breast cancer – Pfizer’s industry-leading oncology portfolio now includes over 25 approved medicines across more than 40 indications.
The Seagen acquisition also doubles the size of Pfizer’s oncology pipeline to 60 programs spanning multiple modalities, including ADCs, small molecules, bispecific antibodies, and other immunotherapies. Including this oncology pipeline, Pfizer is advancing 112 drugs through clinical trials, 31 of which are in Phase III trials.
Pfizer has high hopes for several of these medicines and believes they could achieve blockbuster status. For example, Pfizer’s Elranatamab, a recently approved drug that treats an incurable type of blood cancer. It could become a “mega blockbuster,” says Chris Boshoff, chief development officer of Pfizer’s oncology and rare disease unit.
To be sure, Pfizer will need more than a couple blockbusters to compensate for the $20 billion in annual revenue that will disappear over the next four years, as six of its major drugs lose patent protection.
But Pfizer’s growing roster of drug programs, accelerated by its AI collaborations, could produce a surprising string of commercial successes over the coming years. And yet, the stock is priced for continuing disappointment.
It is trading for just 12 times this year’s estimated earnings and yielding a hefty 6.1%. At that low valuation, PFE offers an outstanding risk/reward proposition.
How to Benefit From the AI Explosion
As the healthcare industry braces for an AI-driven future, Pfizer is positioning itself, once again, as the biopharma industry’s top apex predator.
But as healthcare enters the “Age of AI,” no major drug company wants to be left behind. So, industry-wide AI adoption is set to explode over the next two years.
The fact is that the healthcare AI market is expected to soar nearly 10 times from 2022 to 2029.
And 10X gains are what I’m shooting for, too, as we move into this next phase of the AI Revolution.
That’s why I’m issuing an AI Code Red.
Because AI is about to change everything… and while that may happen in ways that are downright scary, there are also aspects that will greatly improve our lives.
So, to prepare for what’s coming – and to learn how you can benefit from the AI Revolution – click here for all the details.
Regards,
Eric Fry
P.S. There’s about to be a lot of opportunity out there beyond the Magnificent 7…
InvestorPlace analyst Luke Lango calls this the the “Great Broadening.” And one particular industry stands out as a key player.
Join Luke Lango next Wednesday, March 27, at 8 p.m. Eastern to find out about this latest chance at wealth.
