GSK, Pfizer and Amgen have seen mixed results following their respective earnings reports: Pfizer’s was the only stock to rise, by 1.4%, while GSK and Amgen fell almost 1%. A post-Covid-19 drop-off in demand is the backdrop to their uninspiring performances, although all three healthcare giants are moving to find new sources of income.
- Both GSK and Amgen beat wall street expectations on the top and bottom line, while Pfizer misses on revenue.
- R&D is essential for healthcare stocks, as they compete to uncover new medicines.
- The Vanguard Health Care ETF [VHT] offers exposure to Pfizer and Amgen.
GSK had the most optimistic report, with sales rising 13% year-over-year and margins expanding as vaccine demand boosted profits. However, the company’s share price did not reflect this optimism, and had fallen 0.7% by market close on Wednesday.
Amgen also slid after announcing 300 job cuts Monday as part of an organisational restructuring. In its results the following day, the biopharmaceutical company shed light on disappointing developments in several new drugs, which caused revenue to fall slightly, although not as much as Wall Street analysts had expected.
Despite delivering forecasts of slowing demand for Covid-19 related products, Pfizer shares rose 1.3% following the company’s earnings. However, the stock returned to a downward trajectory the following day.
Pfizer stock remains down 13.4% year-to-date, with investors likely pricing in a fall in Covid-related revenue. The company announced higher research and development (R&D) expenditure in 2023, in an effort to drive growth through new drug discoveries.
The search for revenue growth
Pfizer reported $100.3bn in revenue for full-year 2022, a 30% year-over-year increase. During 2022 the company deployed capital of $11.4bn through R&D, $26bn in acquisitions and $11bn by returning cash to shareholders through dividends and buybacks. Nevertheless, shareholders are concerned over the amount of growth that came from Paxlovid and Comirnaty, Pfizer’s coronavirus-related products.
The company forecast a reduction in revenue of $67–71bn for 2023, with 7–9% revenue growth expected, excluding Covid-19 products. There are also no share buybacks expected for 2023, as Pfizer funnels more cash into its R&D activities. R&D spend is expected to come in at $12.4–13.4bn for 2023, with Pfizer CEO Albert Bourla stating that R&D is the “lifeblood that fuels us”.
Amgen reported modest full-year revenue growth of 1%, to $26.3bn. One positive for the company going forward is the acquisition of Horizon Therapeutics [HZNP], which is due to complete by mid-2023.
GSK boasted full-year sales of £29.3bn, up 13% from the prior year, and a forecast 6–8% increase for 2023. Adjusted earnings per share of 139.7p was up 27% year-over-year and is forecast to grow 12% to 15% for 2023. The company also reported free cash flow of £3.3bn for 2022, which is likely to be funnelled into R&D alongside continued dividend payments.
GSK’s demerger with its consumer health division, listed as Haleon [HLN] as of last July, will free up management to focus on strategic growth in vaccines like Shingrix, which prevents the viral infection Shingles. As for Pfizer, the wind-down of coronavirus-related sales is a concern for GSK.
R&D is the name of the game
While Amgen had partnered with Eli Lilly [LLY] in 2020 to ramp up the supply of its Covid-19 antibody treatment, the FDA pulled its approval from Lilly last November, citing its ineffectiveness against current active variants of the coronavirus.
The company is well-placed to make up for the loss by providing competition to AbbVie’s [ABBV] popular arthritis treatment Humira, which has been available in Europe since 2018, when its patent expired in the region.
The move represents the growing trend for pharmaceutical companies to reduce dependency on Covid-19 treatment profits, which supported them during the pandemic. With China removing its pandemic-related restrictions late last year, however, Pfizer has been negotiating the cost of its Paxlovid treatment with China’s government health insurance, reported Reuters on Monday.
According to data from Refinitiv, analysts currently estimate Pfizer will sell $10bn worth of the drug in 2023, while the company announced projected sales of between $8bn and $13.5bn, a far cry from the $18.9bn it earned from Paxlovid in 2022, the first full year that the drug was available.
However, there is still plenty of room to profit. One long-term trend that could benefit healthcare companies is the aging of the global population. With the World Health Organisation estimating that by 2030 one in every six people will be aged 60 or older, healthcare companies are poised to profit. According to Kenneth Research, geriatric care is likely to drive growth at a CAGR of approximately 9% between 2023 and 2033.
Funds in focus: Vanguard Health Care ETF
As of 31 December, Pfizer is the fourth-largest holding in the Vanguard Healthcare ETF [VHT], with 4.92% of assets under management (AUM). AbbVie comes next at 4.89%, while Amgen accounts for 2.41%.
The Vanguard Health Care ETF tracks the MSCI Investable Market Health Care Index, a benchmark measuring the return on investment for a broad range of healthcare stocks. The fund is up 1% in the past year, and flat in 2023 so far.
Alternatively, as of 1 February the VanEck Pharmaceutical ETF [PPH] holds AbbVie as its sixth-largest holding at 4.99% of AUM, with Haleon following at 4.87%. The fund also holds Pfizer at 4.35% of AUM and GSK at 4.30%. The fund is up 3.1% over the past 12 months, but flat year-to-date.
According to analysts polled by Refinitiv, GSK has a median 12-month price target of 1,580p, representing 11.3% potential upside for the company’s share price. The equivalent figure for Amgen represents 9.2% growth at $269.00. Meanwhile, analysts came to a median target of $50.00 for Pfizer, which would be a 13.7% rally for the stock.
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