Pfizer (NYSE:PFE) was the target of a Presidential tweet tantrum Monday over its second price hike of the year but investors shrugged it off.
Pfizer was up 5 cents per share, to $37.16. It opened for trade Tuesday at $37.30.
That price is up about 12% from last year, in line with the gain in the iShares NASDAQ Biotechnology Index (NASDAQ:IBB), and close to the hikes it has pushed through this year on drugs like Lyrica for pain and Norvasc for blood pressure.
Trump’s tweet claimed Pfizer, and other companies, have hiked prices “for no reason” while at the same time “giving bargain basement prices to other countries in Europe and elsewhere.” The tweet promised ominously, “We will respond.”
Trump Cries Wolf
Health and Human Services Secretary Alex Azar was with Eli Lilly & Co. (NYSE:LLY) during the Obama Administration, having previously been deputy secretary under George W. Bush. He spoke to the 340B Coalition, the industry group on drug rebates, an hour after the Tweetstorm subsided, promising action.
Azar threatened the meeting with change, saying that replacing rebates with fixed price discounts is within the Administration’s administrative powers.
The head of the group reportedly responded, “Yeah, OK” and the audience laughed.
Trump had threatened the industry as recently as May, but this was followed by yet another round of price hikes.
Pfizer’s Real Problem
Pfizer’s real problem is a stagnant pipeline of new drugs, which leaves it trying to combine its current treatment with others instead of coming up with new solutions.
Pfizer has used acquisitions to improve the pipeline in recent years, buying Hospira to get biosimilars, Anacor for its eczema drug and Medivation for its prostate cancer treatment. Most of the approvals it expects in the next few years, however, are for line extensions to existing treatments. An attempt at a line extension for its breast cancer drug, Ibrance, failed its clinical trial recently.
Pfizer has been cutting costs but recently found “no acceptable offer” for its consumer health unit. It tried to buy Allergan (NYSE:AGN) during the Obama years but was prevented from doing so by regulations against corporate inversions, deals designed to give companies cheaper tax jurisdictions. Allergan is run out of New Jersey but based in Ireland.
Who Should Own Pfizer?
What you’re left with is a drug maker whose price peaked in the last century but has since delivered steady, if unspectacular, income.
The current dividend is 34 cents per share each quarter, up from 24 cents per share five years ago. Investors who bought then, when the stock price was at about $30 per share, are now enjoying an effective yield of 4.5% on their money, against 3.66% for new shareholders.
Pfizer is next due to report earnings July 31, with analysts expecting it to earn 75 cents per share on revenue of $13.28 billion. That would make the dividend affordable, the payout almost equaling the quarter’s operating cash flow of $1.985 billion last quarter.
The only real danger is that CEO Ian Read, 64, has often wanted Pfizer to be more than a dividend darling, as the attempt to buy Allergan illustrates. Pfizer is based in Midtown Manhattan and Read could still use that base to get Pfizer out of its rut before retiring, and into the hands of a more go-go leader.
But if the only risk to your income stock is that it is refocused on growth, you don’t have a huge problem. Buy Pfizer for the dividend, and if it makes a deal that delivers a pop in the stock price, sell it.
Dana Blankenhorn is a financial and technology journalist. He is the author of the historical mystery romance The Reluctant Detective Travels in Time, available now at the Amazon Kindle store. Write him at firstname.lastname@example.org or follow him on Twitter at @danablankenhorn. As of this writing he owned no shares in companies mentioned in this article.
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