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Morningstar | PFE Updated Forecasts and Estimates from 07 May 2019

Pfizer reported first-quarter results largely in line with our expectations, and we don't expect any changes to our fair value estimate. We continue to view Pfizer as undervalued, with the investment community not likely appreciating Pfizer's strong pipeline. The well-positioned pipeline along with a solid portfolio of currently marketed drugs reinforces our wide moat rating.

In the quarter, total sales increased 5% with strong growth from the majority of recently launched drugs offsetting largely flat growth from the mature products division. Excluding neurology drug Lyrica, Pfizer's top three products (cardiovascular drug Eliquis, cancer drug Ibrance, and pneumococcal vaccine Prevnar 13) all posted double-digit growth, and we expect continued robust growth for Eliquis and Ibrance as they take share from older and less effective drugs. We expect more mild growth from Prevnar 13 going forward, but we don't project major share loss to Merck's competitive pipeline vaccine, which provides close to 15% more coverage of pneumococcal strains, as Pfizer is developing a next-generation vaccine (Prevnar 20) with close to 30% more coverage than Prevnar 13. We expect this increased coverage will make Prevnar 20 the best choice, and Pfizer's currently entrenched position along with strong patents that might preclude Merck from launching its vaccine should strengthen Pfizer's long-term prospects in this vaccine franchise.

Turning to the pipeline, Pfizer is well positioned to launch new drugs to offset the diminishing patent loss headwinds over the next five years. While the U.S. patent loss on Lyrica will slow growth in 2019, Pfizer faces fewer patent losses in subsequent years. Also, Pfizer's pipeline strength has improved over the last three years, setting up accelerating growth over the next several years.

In the pipeline, we project blockbuster sales for rare-disease drug tafamidis and two JAK immunology drugs. Pfizer's midstage pipeline is increasingly strong with drugs targeting cancer, immunology, rare diseases, and metabolic areas. However, recent long-term data on pain drug tanezumab highlighted a recurring concern around joint safety, and we expect to slightly reduce our probability of approval while Pfizer and partner Lilly discuss potential next steps with the regulatory agencies for this drug. For a complete review of Pfizer's pipeline and currently marketed portfolio, please see "Annual Drug Pipeline Report: Moats Remain Secure as Innovation Counters Pricing and Generic Headwinds, but M&A Accelerating."