Last year wasn't a particularly good one for Pfizer (PFE 0.55%). Even CEO Albert Bourla says so. "We missed our internal projections and also, we missed the expectations of The Street... And clearly, that was shown in our stock price performance, that was very, very bad," Bourla said at the JPMorgan Healthcare Conference last week.
In October, the big pharma company slashed its forecasts for annual coronavirus vaccine and treatment sales due to lower-than-expected demand and announced a cost realignment plan. Meanwhile, the already suffering shares continued to drop, ending the year with a 43% loss. Though there are plenty of reasons to believe this pharmaceutical giant will recover and grow over the long term, this year may continue to present challenges. In fact, here are two red flags that could sink Pfizer in 2024.
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1. Coronavirus product trends
As the leader in the coronavirus vaccine and treatment market, Pfizer reported a record $100 billion in revenue in 2022. But strength in this market hurt the pharma giant when trends in coronavirus product use turned around. Demand for vaccine Comirnaty and treatment Paxlovid soared in earlier pandemic days, but as we move toward a post-pandemic world, demand has plummeted.
Pfizer and rival Moderna initially suggested that COVID vaccination could follow the course of the flu vaccine, implying about half of the U.S. population may go for a yearly booster. But during the recent fall season, only 17% of Americans lined up for a shot, and as a result, Pfizer cut its estimates for 2023 vaccine sales. The company also lowered its Paxlovid forecasts.
Now, for 2024, Pfizer predicts that Comirnaty and Paxlovid, together, will bring in $8 billion in revenue. That's a far cry from the combined $55 billion in revenue those products delivered in 2022.
So, unless Pfizer is wrong, it doesn't look like this will be a very dynamic year for coronavirus product sales -- and since investors have focused on Pfizer as a coronavirus stock, this could continue to weigh on the shares.
It's important to keep in mind that Pfizer is still generating blockbuster revenue from its coronavirus products, and a potential combined coronavirus/flu vaccine candidate -- now involved in clinical trials -- could offer more growth down the road. But another potentially lackluster year for coronavirus products may equal another lackluster year for Pfizer shares.
2. The time it takes new products to deliver growth
New products are a big thing for Pfizer right now, and for one particularly good reason: The company's older blockbusters face losses of exclusivity representing $17 billion in lost revenue from 2025 through 2030. Pfizer has a solid plan to compensate, by launching its biggest wave of new products ever.
The company aims to release 19 new products or indications over an 18-month period and is a great deal of the way there, with 13 launches completed and nearly all products approved as of last fall. Pfizer expects these products to compensate for the lost revenue -- and go on to grow. But this won't happen overnight. The company predicts new products will deliver $20 billion in revenue in 2030.
Right now, these products could actually weigh on Pfizer's margins. Manufacturing costs are always higher in early days of production, and costs to launch are another thing to consider too. It also takes time for a commercial team to win over doctors and for a drug's sales to take off.
All this means Pfizer's new products may not serve as catalysts for earnings growth or share price performance right away. And that could result in another grim year for Pfizer shares.
What should investors do?
Does this mean you should flee Pfizer stock? Not necessarily. If we look at Pfizer's long-term prospects, the picture looks much different. Yes, COVID products aren't likely to deliver the kind of revenue they did in the past, but they could still bring in a significant amount of recurrent revenue over time -- especially if Pfizer's combined vaccine candidate scores a regulatory win.
More importantly, though, Pfizer's new products -- as well as key acquisitions, such as the purchase of oncology specialist Seagen -- could spur a new era of growth for Pfizer in the coming years. Today, Pfizer trades for 12 times forward earnings estimates. This price already looks reasonable -- and it doesn't even reflect earnings further down the road, when new product sales should gain in momentum.
So, the two red flags I mentioned above could sink Pfizer this year -- but a decline may be a top buying opportunity for investors willing to invest now and hold.
