Pfizer (PFE 1.32%) is one of the world's largest drugmakers. That doesn't guarantee the company's success, but it does provide the company with some important long-term advantages.
Currently, however, Pfizer is facing significant headwinds, and the stock has declined roughly 60% from its 2021 highs. For long-term investors who can handle a little adversity, this could be a buying opportunity.
There are plenty of things to dislike about Pfizer
A stock doesn't lose 60% of its value randomly, and Pfizer is dealing with very real issues right now. However, some of that drop is attributable to investor enthusiasm running a bit too hot during the coronavirus pandemic. At that point, Pfizer was one of the few pharmaceutical companies that was offering a COVID-19 vaccine.
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Investors treated COVID-19 as if it were the new normal, not the temporary health issue that it turned out to be. Vaccine sales waned as the world learned to live with the coronavirus, and the excitement around Pfizer's vaccine cooled off, too. Now, the company is also facing patent expirations for some of its blockbuster drugs. Revenue from drugs that lose patent protection tend to decline dramatically, often referred to as a patent cliff.
Additionally, Pfizer's pipeline of new drugs encountered a major setback when its GLP-1 weight loss candidate failed to meet expectations. GLP-1 drugs are in high demand among consumers and investors, making this a significant negative development. However, the ups and downs of the GLP-1 niche actually highlight the investment opportunity that Pfizer presents today.
Pfizer is making the right moves
The company that first introduced GLP-1 drugs to the world was Novo Nordisk. Being first, however, doesn't mean you win the game in the drug sector. Eli Lilly introduced its own GLP-1 shot, which quickly became the new industry leader.
Novo Nordisk didn't sit around and lick its wounds -- it continued to perform research and development. It just recently introduced the first GLP-1 pill. Novo Nordisk's oral GLP-1 pill could allow it to regain the lead from Eli Lilly, or at least significantly reduce the lead.
The key takeaway from the matchup between Eli Lilly and Novo Nordisk, which isn't going to end just because of Novo Nordisk's GLP-1 pill, is that things can change in the drug sector, often quickly. The healthcare sector, in general, is driven by innovation, and the pharmaceutical niche is no exception. A small number of large drugmakers have proven they have the scale and expertise to survive the inevitable ups and downs that come with patent cliffs and research and development (R&D). Pfizer is one of those companies.
NYSE: PFE
Key Data Points
After Pfizer's own GLP-1 drug failed, it acted quickly. The first move was to acquire a smaller drug company with a promising GLP-1 drug candidate. It followed that by agreeing to distribute a GLP-1 drug for a Chinese company, assuming the drug receives regulatory approval. This is an example of management and the board of directors doing what's necessary to ensure Pfizer's long-term success.
It's entirely possible that this time is different and Pfizer will fall short as it attempts to turn its business around. However, given its history and the aggressive moves the company is making, it seems highly likely that even if its GLP-1 efforts don't pan out, the company will continue to fight, and a new innovation will eventually lead to new blockbuster drugs and improved financial results.
Pfizer isn't for the faint of heart, but if you think long term, it could be an attractive contrarian play.
One big caveat with Pfizer
One factor that's likely to draw many investors to Pfizer today is the stock's attractive 6.8% dividend yield. The problem is that the yield comes along with a dividend payout ratio that's over 100%, which suggests that there's some risk of a dividend cut. Pfizer has cut its dividend before -- specifically following a large acquisition -- so dividend investors should probably tread carefully here.
That said, history suggests that Pfizer will be in a much better position in five years than it is today. The aggressive moves that management is making right now are evidence that it's going to do what it takes to make that happen.
