Pfizer won praise from scientists and investors during the pandemic by developing highly effective Covid-19 vaccines and treatments that saved millions of lives and generated record sales.
But as the Covid emergency recedes, US drugmakers are struggling to convince Wall Street that they can manage a transition that is forecast to cut annual profits by almost a third to around $70bn this year.
Pfizer expects sales of Comirnaty, the Covid vaccine it developed with German company BioNTech, and the antiviral pill Paxlovid, to fall 62 percent to $21.5 billion in 2023, compared to last year.
It also faces a patent “cliff” – the loss of market exclusivity for some blockbuster drugs, including cancer drugs Xtandi and Ibrance. This is expected to generate an additional $17bn in annual revenue by 2030.
The challenge has investors questioning whether the 174-year-old company can close the revenue gap, despite launching a record 19 drugs over the next 18 months in search of growth.
Pfizer shares have fallen nearly 16 percent to $43.21 since the start of the year and the company’s $243bn market capitalization has fallen by more than a quarter since its peak in December 2021 during the pandemic.
“The market remains uneasy with Pfizer’s post-Covid story and limited business development in 2022,” said Evan Seigerman, analyst at BMO Capital Markets.
“Investors are looking for a transformative deal and a simplified pipeline story – this could happen in the second half of 2023, but not necessarily now.”
Seigerman said Pfizer’s hope that Covid sales would rebound in 2024 — after US government stocks run out and the market moves to a commercial foothold to raise prices — may be unrealistic.
In Pfizer’s glitzy new headquarters in New York, which is based in a 66-story skyscraper called The Spiral on the banks of the Hudson River, there is no doubt that is evidence. Last month, the Pfizer team outlined a growth strategy focused on product launches, M&A and a rebound in Covid sales that is predicted to last until the end of the decade.
Dave Denton, who joined Pfizer as chief financial officer in April from US retailer Lowe’s, told The Financial Times he was confident the company could manage the transition.
“What’s unique about Pfizer is that nothing has gone from the pandemic to the stable, I would say, post-crisis phase of the pandemic. And with that, people don’t know exactly what that means,” he said.
“Investors have never spent much time understanding the breadth of our pipeline and our capabilities in research and development . . . now we’re starting to show that over the next 18 months.
In the past, the group has relied on mega mergers such as the $68bn purchase of Wyeth in 2009 to boost growth. But the White House’s tough approach to antitrust makes big deals riskier. However, since becoming chief executive in 2019, Albert Bourla, has worked to transform the company from a diversified pharmaceutical conglomerate into a science-led business.
The 19 drugs coming to market this year and next are a mix of candidates developed by Pfizer scientists and external prospects acquired through bolt-on acquisitions or jointly developed through partnerships with smaller biotechs.
They include several potential blockbusters that could generate $1bn or more in annual sales, including treatments for the respiratory disease RSV, migraines and blood cancers.
“Elranatamab has the potential to be a mega blockbuster,” said Chris Boshoff, head of Pfizer’s oncology development and rare diseases unit, referring to the drug candidate targeting multiple myeloma, an incurable type of blood cancer.
He said Pfizer has made huge strides in oncology over the past decade, building a pipeline of just two or three molecules into one of the group’s biggest therapeutic areas. A new combination therapy targeting aggressive prostate cancer is another drug that has great potential and could be approved this year, Boshoff said.
Pfizer’s expertise in mRNA – the core technology used in the Covid vaccine – also presents an opportunity, he added.
But in the short term, Pfizer is relying on its existing pipeline. The forecast of 19 drug launches will generate annual revenue of around $20 billion by 2030, enough to cover sales caused by the loss of exclusivity on six blockbuster drugs between 2024 and 2027.
Not everyone is sure that the pipeline will be delivered.
“We’re just struggling to meet Pfizer’s expectations. In very few categories [the 19 drugs] either first class or best in class. And this is the problem,” said Colin Bristow, an analyst at UBS, which downgraded Pfizer to a sell rating last month.
They chose two of Pfizer’s best prospects — a drug targeting RSV and an oral treatment for diabetes and obesity. This second estimate company can generate $10bn per year in sales.
The drugs face competition from GSK, Moderna and Eli Lilly and there is no evidence that Pfizer has an edge, he said. “It’s the same story across the board,” he said.
Being first to market or best in class does not always guarantee success. Pfizer’s expertise in manufacturing, sales and marketing helped make cholesterol-lowering Lipitor the world’s best-selling drug in the early 2000s, even though it was late to market.
This repeated the success with the Covid treatment and could be done again with new drugs, said Louise Chen, an analyst at Cantor Fitzgerald.
“That [manufacturing] Expertise will be important, especially with diabetes, which is more of a primary care market,” Chen said, adding that rivals Lilly and Novo Nordisk are facing supply problems due to rising demand.
Pfizer also has plenty of options to fill its pipeline through M&A because of cash reserves amassed from selling Covid vaccines and drugs, he said.
The US drugmaker has spent nearly $30bn on acquisitions over the past two years, taking on Arena Pharmaceuticals, Biohaven Pharmaceuticals, Global Blood Therapeutics, ReViral and Trillium Therapeutics. It is projected to generate approximately $10 billion annually by 2030.
Most analysts praised Pfizer’s acquisition choices, but some said it was moving too slowly in M&A, as it still needed to buy companies that could generate $15 billion in annual revenue by 2030 to meet its growth targets.
“Pfizer has a lot of capacity to act, we estimate more than $100bn. But they only did a few deals last year. That’s not enough to move the needle,” Seigerman said.
Finding and assessing prospects in the pharmaceutical market takes time, according to Denton, a seasoned dealmaker who while working as chief financial officer at pharmaceutical giant CVS in 2018 oversaw the $68bn acquisition of Aetna.
“We don’t invest with a focus on driving synergies. We invest with a focus on getting the science that allows us to accelerate drug development,” Denton said.
He said the company could spend an extra $50bn to achieve the revenue targets it has set for 2030.
Les Funtleyder, healthcare portfolio manager at E Squared Capital Management, said he expects Pfizer to make several acquisitions this year. It will focus on companies that are typically $10bn or below with products close to commercialization, he said.
“Pfizer is very good at selling but has historically not been known for having an R&D engine from Merck or Lilly. And it will take time to change the culture,” said Funtleyder, whose fund owns shares in Merck and Lilly but not Pfizer.
“But he has a huge portfolio of drugs and he just needs one of them, a very successful drug to become a mega blockbuster. And if he gets it, everyone will say that Bourla is a genius.