Systematix puts a ‘buy’ on Pfizer India on drug strong pipeline

Equity research firm Systematix Institutional Equities has initiated coverage on pharmaceutical major Pfizer Ltd with a “Buy” rating and set a target price of Rs 4,954, indicating an upside potential of around 30% from current levels.

The broking house said the recent slowdown in Pfizer Inc’s Indian subsidiary was due to temporary factors and its base business is poised to rebound going forward. The analysts expect Pfizer Ltd to benefit from new product launches sourced from parent Pfizer Inc’s robust pipeline over the next 2 years.

“Revenue growth is likely to be subdued, in mid-single digits, in the near term, but once the parent entity rolls out its late-stage new drug pipeline in India, growth trajectory could surprise on the upside,” the broker said in a new report.

Despite under preforming in recent months, Pfizer Ltd’s shares have seen a positive trend on the NSE so far in August 2023, outperforming the pharmaceutical sector and broader markets. The stock began the month around Rs 3,800 levels and steadily moved higher through the first three weeks of August.

The stock had hit a bottom of around Rs 3,900 in mid-August last year amidst pharmaceutical sector weakness and global slowdown concerns. However, the stock started recovering ground from September 2022 as concerns around growth eased. The positive momentum accelerated in 2023 with the stock crossing Rs 4,000 in January on the back of strong Q3 FY2023 results.

Pfizer’s shares continued to march higher in February and hit a 12-month high of Rs 4,350 in early March as growth outlook improved further. Some profit-booking was seen subsequently which pulled the stock back towards Rs 4,000 levels by mid-May. The stock entered a consolidation phase over the next two months. The sideways trend was broken in late July 2023 following strong Q1 FY2024 results by the company which sparked renewed buying interest.

Growth Outlook

Systematix noted that Pfizer faced growth headwinds in the near term from patent expiries, supply constraints, and price controls. However, its core brands remain strong with long-term growth potential. According to the analysts, a variety of factors have negatively impacted Pfizer’s annual revenue growth over the last few years.

These factors include divestment of certain brands, competitive intensity in the pneumonia vaccine Prevenar, impact of patent expiry on some drugs, drug price control order implementation, and supply issues in some manufacturing plants. However, Systematix believes the impact of these temporary factors will taper off going forward.

The analysts expect Pfizer to launch at least 3 major drugs in India over the next 2 years, sourced from parent Pfizer’s new chemical entity pipeline. These include pneumonia vaccine Prevenar 20, novel antibiotic Aztreonam-avibactam and ulcerative colitis drug Etrasimod. Prevenar 20 offers broader protection compared to the existing Prevenar 13 vaccine, and can become a growth driver for Pfizer. Aztreonam-avibactam has shown positive results against drug-resistant bacteria in trials, and can expand Pfizer’s leading anti-infectives portfolio. Etrasimod recently got filed for approval in the US and Europe for moderate to severe ulcerative colitis. Its launch can open up a new segment for Pfizer in India.

Additionally, Systematix believes Pfizer’s base business comprising legacy brands is poised for steady high single digit growth once temporary disruptions play out fully. According to the analysts, majority of Pfizer’s top brands are leaders in their respective categories, giving the company leverage to drive growth through brand extensions. The core brands are also witnessing improving penetration among physicians and consumers.

Key growth drivers for Pfizer’s base business highlighted in the report are brand extensions, focus on core brands, wider penetration among doctors, and salesforce efficiency improvements. Neurology, women’s health, gastro and hospital anti-infectives are some of Pfizer’s core therapy areas. Flagship brands like Becosules, Corex, Dolonex and Prevenar hold leadership positions in their respective segments.

While earnings may remain subdued in FY24, healthy new launch pipeline and base business recovery can drive 12% EPS CAGR over FY23-25E as per Systematix estimates. Given strong cash flows and net cash balance sheet, Pfizer may also announce a special dividend payout in the near future, as per analysts. Based on growth recovery, new launch benefits and reasonable valuations, Systematix has initiated coverage with a Buy rating and set a 30x FY25 EPS based target price of Rs 4,954 on the stock.

Pfizer Ltd is the Indian subsidiary of the US pharmaceutical major Pfizer Inc. It is the 4th largest multinational drug maker in India with FY22 revenues of Rs 26 billion. Its portfolio includes vaccines, anti-infectives, vitamins, gastrointestinal medicines, pain management drugs and more. The company has faced growth pressures in the last 2 years due to industry-specific challenges.

However, Systematix believes its strong legacy brands, new product pipeline and focus on core portfolio can help Pfizer revive growth over the coming years. The analysts expect a combination of new product launches and steady base business growth to drive healthy earnings CAGR for the company over the medium term. Their Buy rating reflects improving growth outlook and reasonable valuations for Pfizer currently.