Biotech Values

[DewDiligence]

The Barron’s article on PFE is bullish, but not unduly so—and it does not sufficiently emphasize the company's financial strength (IMO); here’s an excerpt:

Pfizer’s pipeline might be stronger than it’s given credit for—and pipelines are what drive drug stocks. “The pipeline could surprise on the upside,” says Louise Chen of Cantor Fitzgerald, who has a Buy rating on the stock, with a $75 price target, one of the highest on the Street. That’s the company line as well. “We’re coming off a record year in 2022 and the best times for Pfizer are ahead of us,” says David Denton, the pharmaceutical manufacturer’s chief financial officer.

…Wall Street doesn’t have as much confidence in the pipeline, which is more of a show-me story than those of some rivals. One skeptic is UBS analyst Colin Bristow, who recently downgraded Pfizer to Neutral from Buy, in part because he thinks less of what’s coming than the company does.

The following is the crux of the matter, IMO:

Pfizer shares are almost back to where they stood prior to the pandemic’s start in 2019, and…the company’s enterprise value—equity value plus net debt—is lower now because its net debt has gone from $40 billion to less than $1 billion.

This is a huge positive transformation in financial strength that's attributable to COVID. And, to reiterate, the net debt of $1B does not even account for PFE’s ~$10B stake in HLN, which can be monetized at any time. Accounting for the HLN stake (on an after-tax basis), PFE has no net debt, but rather has net cash of $5-10B.

I.e., PFE’s balance sheet is strong enough to buy a lot of portfolio and pipeline assets without becoming over-leveraged.