Via a partnership with BioNTech (NASDAQ:BNTX), Dow component Pfizer (NYSE:PFE) is entering the novel coronavirus treatment fray, but unless success on this front is immediately available, it’s going to take more than hope to lift PFE stock.
As a host of small-cap biotechnology names and large-cap Gilead (NASDAQ:GILD) are proving, developing a workable treatment for the new virus, particularly under the time constraints frontline healthcare workers, patients and investors are demanding, is difficult. This is a competition with plenty of players, some credible, but none of which are proving all that successful to this point.
Said another way, don’t buy Pfizer simply because its working on a coronavirus therapy. There are other reasons to consider the lagging, blue-chip pharmaceuticals name, meaning if the BioNTech partnership pays off and a legitimate Covid-19 treatment is discovered, that’s icing on the cake for patient investors.
Pipeline Matters
As has been widely noted in investment circles over the course of the Covid-19 crisis, one of the primary risks associated with companies in this space is whether or not they’re one-trick ponies, meaning are they solely reliant on bringing to market a coronavirus treatment. Just look at how Gilead, a company with a robust pipeline, was treated by markets on the bad remdesivir news.
Fortunately, Pfizer has a diverse pipeline. That doesn’t mean a Gildead-esque fate awaits Pfizer if it can’t produce a viable Covid-19 therapy, but for long-term investors, it’s vital to buy a pharmaceuticals company that has multiple irons in the fire.
Earlier this month, Pfizer and fellow Dow component Merck (NYSE:MRK) announced the submission of Phase III data for its Javelin Bladder 100 study for a treatment known as Bavencio.
“BAVENCIO is the first immunotherapy to demonstrate a statistically significant improvement in overall survival in a Phase III clinical trial in the first-line setting for patients with locally advanced or metastatic urothelial carcinoma,” according to a statement issued by the companies.
Pfizer’s Braftovi, a metastatic colorectal cancer (mCRC) treatment, is also making progress and that’s significant because mCRC is a potentially lucrative market.
“Pfizer has nabbed FDA approval for the Braftovi-Erbitux duo in some patients with metastatic BRAF-mutated colon cancer who have already been treated with chemotherapy,” reports FiercePharma. “The approval was based on results from a trial called Beacon, in which the combination of Braftovi and Erbitux boosted overall survival to 8.4 months from 5.4 months for patients on chemo alone. The response rate for patients who received the duo was 20%, versus 2% for those treated with chemo.”
Bottom Line on PFE Stock
Beyond the pipeline, Pfizer has $9.83 billion in cash on hand, a favorable trait at a time when the strength, or lack thereof, of companies’ balance sheets are taking on increased importance. Beyond the cosmetics of that cash hoard, the capital gives Pfizer flexibility to potentially acquire a smaller, more nimble biotechnology company on the other side of the coronavirus pandemic.
Additionally, it implies that the dividend (Pfizer yields 4.14%) is sustainable for this year, if not ready for a modest increase.
“Beyond capital appreciation, we view the dividends of the group to be secure, with an average payout ratio of close to 50%, giving firms room to adapt to near-term coronavirus pressures,” said Morningstar of pharmaceuticals industry payouts.
The pipeline and cash remain compelling reasons to consider Pfizer, particularly for investors that are willing to stick with a name that’s been under-performing for a couple of years.
“The company’s large size confers significant competitive advantages in developing new drugs,” according to Morningstar. “This unmatched heft, combined with a broad portfolio of patent-protected drugs, has helped Pfizer build a wide economic moat around its business.”
Todd Shriber has been an InvestorPlace contributor since 2014. As of this writing, he did not hold a position in any of the aforementioned securities.