One of the most important companies during the peak of the COVID-19 pandemic was pharmaceutical giant Pfizer (PFE 0.55%). The company's breakthrough vaccine helped pave the way for a post-pandemic world. Over the last couple of years, demand for Pfizer's COVID-19 treatments helped spur record-breaking revenue.
However, as pandemic concerns wane, some investors may wonder where Pfizer's next growth engine lies. While the company has several catalysts identified, I have my doubts on their prospects. And I'm not the only one. With the stock trading at just $29 per share, Pfizer shares are currently hovering around their lowest levels in 10 years.
Let's dig into the current state of Pfizer and assess if now is an opportunity to buy the dip, or move on and seek growth elsewhere.
Demand for COVID-19 medications is stalling
Pfizer's COVID-19-related treatments are broken into two categories: Comirnaty and Paxlovid. In 2022, Pfizer reported total revenue of $100.3 billion -- representing 23% growth year over year and a record for the company. This momentum probably wasn't too surprising, given Pfizer essentially doubled its revenue between 2020 and 2021. Much of this growth can be attributed to the blockbuster success of the company's COVID-19 medications, which combined for 57% of total sales in 2022.
What might be surprising, however, is the precipitous decline of Pfizer's COVID-19 revenue streams. Per Pfizer's third-quarter results, ended Sept. 30, revenue from Comirnaty and Paxlovid decreased 70% and 97%, respectively.
To be fair, these drop-off rates should be expected on some level -- given that COVID-19 appears to have subsided from its peak. Nevertheless, seeing the impact these declines have had on Pfizer's business is a bit jarring. Through the first nine months of 2023, Pfizer reported earnings per share (EPS) of just $0.97 -- down 79% year over year.
With revenue projected to shrink by roughly 40% in 2023, coupled with the company's deteriorating profits, could Pfizer's picture actually get any worse?
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A big sea of unknowns
Predicting the future prospects of a business and its stock price is both irresponsible and ultimately an exercise in false precision. There are a couple of reasons why I think Pfizer could be headed for further challenges, though.
For starters, one of the hottest catalysts fueling the pharmaceutical industry is the rising popularity of weight management medications. Treatments including Ozempic, Wegovy, Jardiance, and Mounjaro have taken the world by storm. However, all of these medications are developed by just two companies: Novo Nordisk and Eli Lilly. Pfizer was looking to get involved in this market as well, but after a series of blunders with its own diabetes and obesity treatments, I have my doubts.
Another reason I am bearish on Pfizer revolves around its $43 billion acquisition of Seagen. Per the company's initial 2024 guidance, Seagen is expected to contribute roughly $3.1 billion in revenue to Pfizer this year. However, the company is projecting total sales to be flat year over year.
I understand that it can be years before the revenue and cost benefits from acquisitions fully take shape. But with over $30 billion of newly issued debt on the balance sheet to finance the Seagen deal, coupled with the company's declining top line and uninspiring growth prospects, I have some concerns about the business.
The stock is cratering, and it could fall further
As of the time of this article, Pfizer trades at a forward price-to-earnings (P/E) ratio of 12.9 -- well below the S&P 500's forward P/E of 21.7.
While this could be viewed as an opportunity to scoop up shares while expectations are low, I think the discount to the broader market is warranted. A lot of things need to go right for Pfizer in order to get back on a growth path.
Although this is entirely feasible, I wouldn't be surprised if the integration of Seagen takes longer than anticipated -- thereby causing monetization efforts to stall. Moreover, with its cash cow COVID-19 products falling out of favor, Pfizer is going to need to identify some new catalysts sooner than later.
For me, a position in Pfizer presents too much risk at the moment. While I applaud the company's innovation from a couple of years ago, I have serious questions about the long-term picture and management's ability to execute. For this reason, I am looking elsewhere and passing on Pfizer in 2024.
