Pfizer dividend yield hits 5.8% as patent cliffs loom

Pfizer Inc. offers a forward dividend yield of 5.8%, a rate the author of the analysis argues is safer than market perception suggests, even as the company navigates significant patent expirations for its top-selling drugs. The drugmaker's financial resilience is underpinned by strong performance from newer and acquired products, which management says are growing rapidly to offset declines in its legacy portfolio.

Recent financial results show a sharp decline in revenue from coronavirus-related products. In the second quarter, Pfizer's vaccine Comirnaty generated $261 million in sales, a 32% drop year over year. Its antiviral medicine Paxlovid saw an even steeper decline, with revenue falling 95% to just $21 million compared to the same period last year. Despite these specific setbacks, Pfizer's total revenue increased by 3% year over year to approximately $15 billion. The company has exceeded revenue expectations in nine of the past ten quarters and beat earnings estimates in all ten.

The primary challenge facing Pfizer's long-term outlook is the loss of patent exclusivity for key medications. Eliquis, the company's best-selling anticoagulant, is expected to lose its U.S. patent by the end of the decade. Two other major cancer drugs, Ibrance and Xtandi, also face similar patent cliffs. These three drugs combined generated $15.27 billion in annualized sales as of the first half of the year. While their revenue is not expected to drop to zero immediately after patent loss, new products will not fully offset this decline.

To mitigate these risks, Pfizer is relying on its newer and acquired product lines, which CEO Albert Bourla stated generate $13 billion in annualized sales and are growing at a rate of 20% year over year. The analysis projects that if these medicines continue to grow at a compound annual rate of 15% through 2030, their annualized revenue could reach $22.7 billion. Additionally, Pfizer has implemented cost controls, eliminating $7.2 billion from its cost base over the past three years, a measure intended to support profitability during this transitional period.

The safety of the dividend is further supported by the company's capital allocation history and its development pipeline. Pfizer has not reduced its dividend in recent years despite facing operational challenges. Over the past five years, the company has increased its payouts by 10.26%. Looking ahead, Pfizer maintains a deep pipeline with approximately 16 brand-new products currently in Phase 3 studies, excluding earlier-stage programs. Berobenatide, an investigational long-acting GLP-1 weight-loss medicine with monthly dosing, is a notable candidate that could potentially generate over $1 billion in sales given its tolerability profile and market growth predictions.

Even assuming a modest 50% success rate for Phase 3 trials, which aligns with industry averages, Pfizer is expected to add several new approved products in the coming years. This pipeline depth, combined with existing cost savings and strong performance from recent acquisitions, forms the basis for the view that Pfizer's dividend remains secure despite the impending patent cliffs.