It's been about a couple of weeks since Pfizer (PFE 0.55%) promised to make Halloween extra spooky by warning us that third-quarter results would be disappointing.
It turns out the warning was more than justified. Instead of the large profit investors have gotten used to, Pfizer reported a third-quarter loss of about $2.4 billion.
Image source: Getty Images.
While the recent loss is disturbing, shares of Pfizer are already down more than 40% this year.
Is it time to sell this pharma stock, or has the market-beating gone too far? Let's weigh the challenges it faces against its strengths to find out.
What happened?
Before the market opened on Tuesday, Oct. 31, 2023, Pfizer released third-quarter results showing why its warning was necessary. Paxlovid, the antiviral tablet approved to treat COVID-19, lost its luster so quickly that it forced a $4.7 billion inventory write-down.
Pfizer's COVID-19 vaccine isn't exactly flying off pharmacy shelves, either. Another inventory write-off regarding Comirnaty raised non-cash charges during the quarter of a whopping $5.6 billion.
To combat the loss of top-line revenue, Pfizer launched a cost-cutting plan that its shareholders will probably appreciate far more than its employees. Cost cuts are expected to reduce annual operating expenses by $1 billion in 2023 and another $2.5 billion next year.
Non-COVID sales are rising
Paxlovid sales fell hard, but the rest of Pfizer's product line is quickly picking up the slack. Sales of the company's non-COVID treatments rose 10% year over year if we ignore the negative effects of the rising U.S. dollar.
Pfizer expects non-COVID revenue to rise 6% to 8% in 2023, plus a slate of new drug launches could make the next few years exciting ones to own this stock.
Respiratory syncytial virus (RSV) feels like a common cold to most of us, but it's a leading cause of hospitalization among older adults and infants. Pfizer's Abrysvo earned approval to protect older adults from RSV in May, and it's already a blockbuster with sales that hit $375 million in its first full quarter on the market. This August, Abrysvo became the first maternal immunization for RSV, which could boost its sales much higher.
In October, the U.S. Food and Drug Administration (FDA) granted Pfizer's Humira biosimilar, called Abrilada, an interchangeable designation. This allows pharmacies to dispense Pfizer's low-cost biosimilar version even if their doctor prescribes Humira, a drug that racked up $18.6 billion in U.S. sales for AbbVie (ABBV -4.58%) last year.
Vyndaqel is a treatment for transthyretin amyloid (ATTR) cardiomyopathy, a rare heart condition that isn't so rare now that there's a viable treatment available. Third-quarter sales surged 47% higher at constant currency to an annualized $3.6 billion, and sales of this treatment could march much higher. In October, the FDA rebuffed an application to treat ATTR cardiomyopathy patients with Onpattro, a treatment from Alnylam that is already approved for patients with ATTR-related nerve damage.
Later this year, or early next year, Pfizer expects to complete its $43 billion acquisition of Seagen, a cancer drug specialist. The acquisition is expected to contribute more than $10 billion in annual revenue to Pfizer's top line by 2030.
Probably not time to sell
The write-downs Pfizer reported in the third quarter are one-time events. Cash flows from Vyndaqel, Abrysvo, and the rest of its new product lineup, though, could keep rising for years to come.
At recent prices, you can sell or buy shares of Pfizer for around 19.1 times the midpoint of management's guided range for adjusted earnings in 2023. That's a fair valuation for a pharmaceutical company growing its non-COVID sales by an annual percentage in the high single digits.
You can find better stocks to buy, but selling Pfizer shares right now looks like a mistake.
