Shares of Pfizer (PFE 0.23%) desperately want a constructive catalyst. The pharma big’s inventory has fallen by over 22% yr so far in response to its declining COVID-19 franchise, consisting of the vaccine Comirnaty and antiviral drug Paxlovid.

And as a direct results of its quickly declining share worth, Pfizer’s annualized dividend yield has ballooned to a whopping 4.11%, which is sort of 2.5 instances the typical yield of shares listed on the benchmark S&P 500. The drugmaker’s valuation has additionally fallen to a close to industry-low 3.25 instances 2024 estimated gross sales (most large pharma shares commerce at over 4 instances future gross sales) in the course of the opening months of 2023.  

Monday, Pfizer introduced a $43 billion deal to amass most cancers specialist Seagen (SGEN 0.69%). This transaction nonetheless has to achieve approval from regulators, however the two corporations count on the merger to formally shut in both late 2023 or early 2024.

Is that this sizable enterprise growth deal the catayst required to vary the narrative round Pfizer’s inventory? Let’s dig deeper to search out out. 

What’s Pfizer gaining? 

By buying Seagen, Pfizer is onboarding 4 authorised most cancers therapies: Adcetris, Padcev, Tukysa, and Tivdak. Collectively, these 4 commercial-stage drugs, together with Seagen’s royalty and licensing income, are anticipated to generate roughly $2.2 billion for the corporate this yr. To place this income determine into context, this quantity is roughly equal to three% of Pfizer’s projected 2024 gross sales whole. As such, the near-term affect of this transaction on the highest line shall be pretty modest. 

In the long run, Pfizer expects Seagen’s present label-expansion alternatives for its authorised medicine — mixed with its property in mid- to late-stage growth — to assist generate a grand whole of $10 billion in whole gross sales by 2030. This outlook relies on a number of wins in each the medical and regulatory arenas.

But when this seems to be true, Pfizer will probably break even from this hefty transaction early within the subsequent decade. This $43 billion buyout, in flip, is clearly concerning the Pfizer of tomorrow (the 2030s onward).  

Thankfully, Pfizer has sufficient money available, attributable to its record-breaking COVID-19 franchise, to each purchase Seagen and proceed to help its extremely coveted dividend program. Actually, the drugmaker famous in its accompanying investor presentation on this buyout that this deal will not have an effect on future dividend will increase or potential share buybacks. 

Conclusions

Is that this buyout a table-pounding cause to purchase Pfizer inventory? The reply is “most likely not.” Whereas this Seagen acquisition does have the potential to push Pfizer into the higher echelon of most cancers corporations by the center of the subsequent decade, a lot of the worth wrapped up on this transaction is latent at this level. In different phrases, this Seagen acquisition is extremely unlikely to considerably bolster Pfizer’s high or backside strains throughout the subsequent two years. 

This buyout did drive one other level house, nonetheless. Pfizer’s objective is to ship $25 billion in risk-adjusted income by means of enterprise growth offers by 2030. Even after this hefty deal, although, the corporate continues to be roughly $5 billion wanting its said objective (and that is assuming a best-case situation with regard to a number of upcoming knowledge readouts and business launches). Consequently, it’s most likely gearing up for one more small to midsize acquisition to cowl this potential shortfall. 

Having mentioned that, this subsequent acquisition can be unlikely to be a near-term needle-moving occasion attributable to its anticipated measurement (probably effectively underneath $5 billion). Offsetting declining gross sales from historic franchises like Comirnaty and Paxlovid is a long-term mission. There is no approach round this primary truth.

So should you’re shopping for this blue chip pharma inventory immediately for its dividend or lowball valuation, it is vital to maintain the lengthy view firmly in thoughts. This moody market has proven little curiosity in deep worth or potential income streams.