Pfizer Inc (NYSE: PFE) – Valuation Report – 24th July 2020

(Michael Li UCL, Olivia Pote)

Closing Price: $38.41
Year Range: $27.88 – $43.17
Market Cap: $213.3612 Billion
Current Price: Undervalued
Rating: Buy*

Performance Summary
Over the past few weeks, governments across the world have been making advance purchase agreements with pharmaceutical and healthcare companies in an effort to develop and secure a coronavirus vaccine. Moreover, this wednesday, the U.S. federal government signed a $2 billion
contract with Pfizer and BioNTech, a German biotechnology firm, to secure the rights to 500 million doses of the vaccine and their distribution. There is significant competition in the race to develop a coronavirus vaccine with many biotechnology and healthcare firms competing for funding from governments to engage in R&D: the Massachusetts based biotechnology firm, Moderna, has also received federal funding to develop a vaccine using the same mRNA technology as Pfizer. More competition increases the risks of investing in Pfizer as vaccine development is similar to a zero-sum game, as the first company capable of developing a safe and effective vaccine will likely capture the entire market due to the strong demand.
Pfizer is positioned well in this race as it has relevant expertise in developing vaccines generally, but also in flu vaccines. Pfizer refused initial federal government funding for research because they knew that government negotiations would have slowed their efforts to get a potential vaccine into the trial stage as quickly as possible. In addition, the vaccine Pfizer is developing with BioNTech uses messenger RNA, which not only has the capability to rapidly produce many doses but also to produce immune responses without debilitating side effects. In fact, data released early this week hinted at the vaccine’s efficacy as it showed the vaccine was capable of producing a significant immune response with limited side effects. However, large scale trials of 30,000 people scheduled to start this month are still needed to fully investigate the safety and efficacy of the vaccine.

Pfizer Valuation
GSK Valuation
Merck & Co Valuation

Average Current EV/EBITDA: 11.81
Median Current EV/EBITDA: 12.00


The current EV/EBITDA multiple for Pfizer is lower than both the average and median values for Pfizer and its closest competitors in the industry at 10.41 compared to 12.00 and 13.03 respectively. This indicates that Pfizer is undervalued as it earns more per unit of enterprise value than its competitors, thus allowing us to label Pfizer as Undervalued. There is undeniably a huge investment opportunity in the race to develop a coronavirus vaccine due to the significant demonstrated demand from
governments globally. Pfizer is positioned well in this race, and is not overvalued which would warrant a BUY rating for Pfizer Inc (NYSE: PFE). However, it must be noted that the upside potential of Pfizer stock on the basis of its potential vaccine carries high risk due to the zero-sum nature of
vaccine development and the lack of proof of efficacy and safety. Therefore, although there is upside potential investors need to decide if they are comfortable with the relatively higher risk that comes with it.

Definitions
The EBITDA multiple (EV/EBITDA): The ratio between the enterprise value and the EBITDA
Enterprise Value: Total market capitalisation + total debt – cash and cash equivalents
EBITDA: Earnings before interest, taxes, depreciation and amortization.
R&D: Research and Development
Advance Purchase Agreements: an agreement made ahead of time to purchase a specified quantity to guarantee a market for the product. This type of agreement has been conventionally used in securing vaccines by providing incentive to pharmaceutical companies to make large upfront
investments in the R&D necessary in vaccine development.
Zero-sum game: refers to a situation in game theory where any player’s gains must be matched by losses for the other participants.


Weiland, N, Grady, D, Sanger D.E. Pfizer gets $1.95 Billion to Produce Coronavirus Vaccine by Year’s End. [online]. The New York Times Company: New York. 2020. Available from: https://www.nytimes.com/2020/07/22/us/politics/pfizer-coronavirus-vaccine.html. [Accessed 23 July 2020.]


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