Shares in Pfizer (PFE 0.55%) were falling recently after it discontinued clinical trials for a potential diabetes and weight-loss therapy. The drop was due to negative perceptions after lotiglipron, a glucagon-like peptide-1 receptor agonist (GLP-1-RA) candidate, showed elevated levels of liver enzymes in some patients.

However, the pharmaceutical company also announced it was going ahead with trials for a different GLP-1-RA candidate, danuglipron, that could be used to treat obesity and Type 2 diabetes.

Neither news item should really matter much in the long term to investors. However, there is one green flag and one red flag that should matter.

The green flag: Pfizer's late-stage pipeline

Pfizer has had four Food and Drug Administration (FDA) drug approvals in the past two months, and on June 27 it showed another may soon be on the way after the FDA accepted its biologics license application (BLA) for hemophilia B therapy fidanacogene elaparvovec with a prescription drug fee user act (PDUFA) date in the second quarter of 2024.

Pfizer has a huge pipeline of therapies that could pay off, including 38 in phase 3 trials and 28 in phase 2 trials. Of the company's four recent approvals, the biggest deal in the short term is probably its respiratory syncytial virus (RSV) vaccine, Abrysvo, which got its FDA nod on May 31. The vaccine is to prevent lower respiratory tract disease caused by RSV in adults 60 and older.

The FDA approved the vaccine based on a phase 3 trial that included 37,000 participants and showed a 66.7% protection against RSV-associated lower respiratory tract illness. The vaccine's efficacy level was even higher against more severe illness at 85.7%. Analysts have placed the market value of RSV vaccines at $10 billion annually, and so far, only Arexvy from GSK and Pfizer's Abrysvo are approved RSV vaccines and are expected to be ready this fall.

One other approval that may be nearly as important is migraine therapy Zavzpret, administered with a nasal spray. The fast-acting therapy was approved by the FDA in March and is expected to hit the market by July, Pfizer said. Migraines affect roughly one in seven people globally, according to the American Migraine Foundation, so the opportunity is huge for Pfizer. Zavzpret is the first migraine spray to work by blocking the calcitonin gene-related peptide, CGRP, a protein in the brain that can create inflammation. 

The red flag: Lowered earnings expectations

Thanks to lower sales for its COVID-19 therapies, including COVID-19 vaccine Comirnaty and COVID-19 therapy Paxlovid, overall revenue was down in the first quarter, and that trend is likely to continue for the rest of the year.

Revenue and earnings per share (EPS) were both down 29% year over year in the first quarter, with revenue reported as $18.3 billion and EPS of $0.97. Pfizer said it expects annual revenue to be between $67 billion and $71 billion, a drop of between 29% to 33%. Investors have already begun to penalize the company for the lowered expectations, with its shares down more than 28% so far this year.

One of the best reasons to hold onto Pfizer's stock, regardless of its share price, though, is its dividend. The company raised the dividend by .025% this year, to $0.41, which equates to an above-average yield of around 4.5%. Pfizer has hiked its dividend for 14 consecutive years, and with a 34% payout ratio, it seems safe. However, Pfizer has been willing to cut the dividend, which it last did during the Great Recession in 2009. If we are headed to another recession, which some have said will happen, Pfizer could react again by cutting its dividend.

Another potential reason for long-term lower expectations for Pfizer is that the company is facing patent cliffs later this decade for some of its top-selling drugs, including breast cancer therapy Ibrance, cardiomyopathy drug Vyndaquel/Vyndamax, rheumatoid arthritis drug Xeljanz and blood thinner Eliquis, the last of which Pfizer shares sales with Bristol Myers Squibb.

Excluding COVID therapies, those four drugs accounted for 36.3% of the company's revenue in 2022. According to a report by Citeline.com, Xeljanz is the first to face patent expiration in 2025, to be followed by one drug each year, Eliquis in 2026, Ibrance in 2027, and Vyndaquel/Vyndamax in 2028. On top of that, all four therapies can be taken orally, which makes them easier for generic drugmakers to produce compared to biologic therapies.

Still a lot to recommend Pfizer

Pfizer's expertise and pipeline potential are reasons enough to stick with its shares despite concerns about sagging results. And at its current price, the stock is trading at only 7 times earnings, a steal for a company with Pfizer's track record and resources. 

What's more, this is a company that made $100 billion last year in revenue and has been willing to spend big to grow revenue -- witness its $43 billion announced purchase agreement in March with Seagen, approved by Seagen stockholders at the end of May. Seagen's oncology platform should fit nicely with Pfizer's own focus on cancer therapies.

In the long run, Pfizer is likely to emerge stronger because it has many therapies and a record of success in getting pipeline candidates to market.