• Pfizer (PFE) has a huge windfall from its Covid-19 vaccine.
• Pfizer is now under pressure to limit that windfall and spend it on new treatments.
• The company also faces a patent cliff on its other drugs.

Pfizer (NYSE:PFE) stock, a long-time stock market laggard, found new life with the Covid-19 pandemic. Comirnaty, the vaccine it produced with BioNTech (NASDAQ:BNTX), delivered 60% gains for shareholders during 2021. Covid-19 made Pfizer’s Chief Executive Officer Albert Bourla a best-selling author and a star.

But investors look at the future, not the past. Since the start of 2022, Pfizer stock is down over 16%. So is the iShares Biotechnology ETF (NASDAQ:IBB), which tracks the biotech industry. The result is that Pfizer stock is deceptively cheap today. At slightly under $50 per share, it sports a price to earnings multiple under 13. It also has a 40 cent per share dividend now yielding 3.2%.

What Pfizer needs is a story to tell that doesn’t involve Covid-19.

Pfizer’s Gamble

Pfizer stock gained 11% between 2017 and early 2020. This not only paled before the S&P’s gain of 46%, but the IBB’s gain of 30%.

Like other big drug makers, Pfizer spun-off its generics division. These were combined, along with the former Mylan, into Viatris (NASDAQ:VTRS). Since the spin-off last year, Viatris stock is down 30%. Pfizer is up 35%.

The Pfizer pipeline now has 89 listings, with 10 drugs going through registration, the last step before sale. Many inhibit the actions of proteins called kinases. They include new uses for Xeljanz, a kinase inhibitor. The patents for such begin expiring in 2026. They also include Ibrance, a CDK 4/6 inhibitor used to treat breast cancer. Its patent runs to 2027.

Most of Pfizer’s revenue still came from Comirnaty, however. With the pandemic becoming an endemic, Pfizer is under pressure from activists to share the technology. Sales for its Covid-19 anti-viral treatment, called Paxlovid, are already slumping.

Spending the Windfall

At the end of 2021, Pfizer had piled up $31 billion in cash and short-term investments. This is thanks to almost $37 billion in revenue from Comirnaty. At the end of 2019, before the pandemic hit, the company had less than $10 billion in cash.

Like Gilead (NASDAQ:GILD), whose valuation fell after its hepatitis-C cures proved effective, Pfizer is now under pressure to reinvest its Covid-19 windfall. This means the key man at Pfizer today isn’t Bourla, but David Denton, the incoming chief financial officer. Denton is best-known for acquiring Aetna for CVS Health (NYSE:CVS) and new deals are expected to be made by him.

Pfizer’s first post-Covid deal was to buy Arena Pharmaceuticals for $6.7 billion. Its Etrasimod, an anti-inflammatory drug for ulcerative colitis and atopic dermatitis, has performed well in Phase 3 trials. But Bristol Myers Squibb (NYSE:BMY) also has a drug in this area, Zeposia.

Currently, the market battle is over which patients might get the best relief from each drug. But regulators, especially in Europe, are eventually going to look at price. Cost-effectiveness is a war no drug company seems ready to wage yet.

The Bottom Line on PFE Stock

Pfizer is a conservative investment, a true dividend aristocrat. It has paid a dividend continuously since 1980. Pfizer spent $8.7 billion on dividends in 2021, but still had $38.7 billion in debt at the end of the year. This makes Pfizer a speculative stock until investors see where Denton is going to put its Covid-19 money.

The whole industry is pushing against the health care system’s ability to pay. You can’t have an unlimited draw from a limited pool of funds. The current system means wealthy people can live 10 to 15 years longer than people with less money.

Covid-19 hasn’t changed this. The costs of Pfizer’s vaccine has created pushback, even against drugs that treat common conditions. It will take all Bourla’s political skills and all of Denton’s deal-making skills to maintain Pfizer’s valuation.

Buy it for the dividend, but don’t expect miracles.

On the date of publication, Dana Blankenhorn held no positions in companies mentioned in this story. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.