Pfizer (PFE 0.55%) and Roche (RHHBY 0.77%) have disappointed investors this year. Pfizer's shares have dropped more than 39% this year, and it's trading near its 52-week low. Roche has seen its stock drop by 19% and just hit a 52-week low on Oct. 19.
Their share drops could represent a good buying opportunity for investors. These pharmaceutical companies have been around for more than a century and have strong track records of revenue growth, reliable dividends, and an emphasis on research and development to fuel new drug development. Which one is the better long-term choice? Let's see.
The case for Pfizer
The drop in Pfizer's stock is not a surprise. Due to a decline in COVID-19-related sales, the New York City-based company's revenue has fallen sharply. It also just cut its yearly sales and profit forecast.
In the second quarter, Pfizer's revenue fell 54% year over year (YOY) to $12.7 billion. Earnings per share (EPS) was $0.41, down 77% compared to the same period last year.
Pfizer's also facing a patent cliff for 11 of its drugs by 2030, including blood thinner Eliquis (for which it shares sales with Bristol-Myers Squibb), breast cancer therapy Ibrance, and autoimmune therapy Xeljanz. In Q2, the trio was responsible for 27.3% of Pfizer's revenue.
At first glance, the company's yearly prognostication is bleak. It sees yearly revenue coming in between $58 billion to $61 billion, compared to its earlier estimate of between $67 billion and $70 billion. It also dropped its annual EPS forecast to be between $1.45 and $1.65, compared to earlier projection of between $3.25 and $3.45.
It's important to remember, though, that Pfizer's COVID-related revenue was a positive outlier the past few years. If you look at Pfizer's non-COVID-related revenue, the company forecasts 6% to 8% revenue growth this year.
It's not as if the company's been idly sitting on its hands while it waits for the patent cliff, either. Pfizer has a huge pipeline with 90 programs, including 23 in phase 3 trials (the final stage of testing), and it aims to launch 19 new products in the next 18 months.
Since June 30, the company has received five approvals from the U.S. Food and Drug Administration (FDA), including two this month: Velsipity to treat adults with ulcerative colitis, and the combination of Braftovi and Mektovi to treat adults with metastatic non-small-cell lung cancer who have a BRAF V600E mutation. Other second-half approvals include its updated COVID-19 vaccine (which it collaborated on with BioNTech), Abrysvo to treat infants as a preventative Respiratory Syncytial Virus (RSV) vaccine, and Elrexfio to treat adults with heavily pretreated relapsed or refractory multiple myeloma.
Pfizer also is waiting for its $43 billion acquisition of Seagen to close, which would bring in four approved oncology medicines and a pipeline that includes 38 programs. Midway through 2023, Seagen was on track for $2.2 billion of revenue this year. By 2030, Pfizer predicts the company's therapies could contribute more than $10 billion in yearly revenue.
Pfizer's dividend may allow investors to wait for its pipeline to bear more fruit. The company raised its quarterly dividend by 2.5% this year to $0.41 per share, its 14th consecutive yearly dividend increase. The yield on the dividend is around 5.23%.
The case for Roche
Roche, based in Switzerland, operates in two divisions: pharmaceuticals and diagnostics. Its revenue, thanks to lower COVID-19 diagnostic sales, is also down compared to last year, but not by nearly as much as Pfizer's revenue slump. Through nine months, Roche reported revenue of 44.1 billion Swiss francs (roughly $49.4 billion), down 6% YOY. While diagnostics revenue dropped 25% YOY, pharmaceuticals sales rose 1% over the same period last year.
In the quarter, the company reported overall revenue of 14.3 billion francs, down 3% over the same period last year.
Roche is trusting that its own new drugs will drive revenue in the coming years. Vabysmo, first approved in January 2022 to treat wet age-related macular degeneration (AMD) and diabetic macular edema (DME), had 1.6 billion francs of revenue through nine months. That's up more than 500% from a year earlier. Roche said that in less than two full years, the drug has reached a 19% U.S. market share in wet AMD and a 12% share in the U.S. in DME, making strong inroads against Regeneron's blockbuster eye therapy Eylea.
Large B-cell lymphoma therapy Polivy, approved four years ago by the FDA, is expected to earn more than 65% of the market share for that indication, the company said in a third-quarter earnings call. The drug had Q3 revenue of 252 million francs, up 123% YOY.
Some of Roche's other relatively new drugs are seeing big gains as well through nine months. Multiple sclerosis therapy Ocrevus brought in 4.7 billion francs, up 14% YOY, and hemophilia A treatment Hemlibra had sales of 3.1 billion francs, up 17%.
Roche's pipeline is bound to pay off down the road, because it's so large. It has 141 programs, including 50 in phase 3 trials.
The company just raised its annual dividend by 2% to $1.29 per share, giving it a yield of about 3.7%. Roche has raised its annual dividend for 36 consecutive years.
Data source: YCharts
Making a choice
It's an easy call. Pfizer represents a lot more risk to investors than Roche. Pfizer has undergone a huge reduction in revenue, and it will take a while for things to bounce back. Its purchase of Seagen, if approved in the U.S., looks promising, but it will take time for the two companies to meld their efforts.
Roche, on the other hand, has largely shrugged off its drop in COVID-19-related sales and could show revenue growth as early as next year. It also isn't facing significant patent cliffs, unlike Pfizer.
Both companies have big pipelines that should pay off down the line. But Roche's is more than 50% larger, and the number of phase 3 trials it has ongoing is more than double Pfizer's.
Pfizer has a higher dividend yield, but that alone isn't enough to top Roche as an investment. Pfizer also has a lower price-to-earnings (P/E) ratio, but Roche's forward P/E shows the stock, at its current price, is a better buy.
