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Pfizer - non-COVID medicine growth overshadowed by losses

Pfizer's third-quarter revenue fell by 42% to $13.2bn, largely due to lower sales from COVID medicines.

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Pfizer's third-quarter revenue fell by 42% to $13.2bn, largely due to lower sales from COVID medicines. Sales from non-COVID products grew by 10%.

There was a net loss of $2.4bn compared to a net profit of $8.6bn last year. Profitability in the period was negatively impacted by a $5.6bn non-cash write-off of COVID inventory.

Over the first nine months of the year, Pfizer returned $6.9bn in dividends to shareholders.

There were no changes to recently downgraded full-year guidance for total revenue of $58-$61bn, and underlying earnings per share of $1.45-$1.65.

The shares were down 1.5% in pre-market trading.

View the latest Pfizer share price and how to deal

Our view

Pfizer is one of the world's largest Pharmaceutical companies. Sales and profits have fallen sharply so far this year as demand for products to prevent and treat COVID-19 has dried up. And with declines expected to continue the group's been looking at ways to refresh the product pipeline.

We're seeing modest growth elsewhere in the business, and Pfizer's looking to trim its cost base by at least $3.5bn by the end of next year. So far it's not been enough to restore investor confidence.

Further ahead there are other threats to revenue as some key blockbuster medicines, approach the so-called patent cliff. Between 2025 and 2030, the company is facing the loss of exclusivity over several key products which together account for around $17bn of revenue.

Pfizer's banking on its ambitious research program and continuing acquisition spree to make a big impact on revenue by the end of the decade. However, we caution that there remain significant hurdles to success including take up by patients, and regulatory approvals. Pfizer's R&D hit rate is higher than most. Still, only about 1 in 5 make it from pre-clinical research all the way through to regulatory approval. And whilst Pfizer's program of product launches is broadly on track, there have been a few delays along the way.

Another risk is legislative action on drug pricing, and the length of time developers retain exclusivity over certain treatments, which remain firmly under the microscope of US politicians. In particular one of Pfizer's best sellers, the blood thinner Eliquis, is one of the first drugs to be subject to price negotiations with the US Department of Health following new legislation passed earlier this year.

Pfizer's expected to significantly increase net debt this year, reflecting the reduction in profitability and continued high levels of research spend. At under one times forecasted cash profits at the last count, it's still not too much of a worry.

However, that's likely to jump further on the closure of Pfizer's proposed $43bn acquisition of cancer specialist Seagen. That's assuming the deal's approved by the competition authorities, and whilst some progress has been made of late, there are still no guarantees. Pfizer thinks Seagen can more than quadruple revenues to over $10bn by 2030, but that's not without the usual risks of drug development. It will be a while yet before we find out if the hefty premium being paid will be worth it.

Pfizer's got a strong record of commercialising blockbuster therapies. And at 10.5 times forward earnings, it's trading at the lower end of its peer group. But there's a sizeable chunk of revenue that needs to be filled as COVID-related sales dwindle, and investor sentiment's unlikely to improve until the path to profit growth becomes clearer.

Environmental, social and governance (ESG) risk

Product governance is a primary driver of ESG risk for this sector, with safety and marketing of medicines the key focus. Access to medicines and their affordability, as well as business ethics concerning intellectual property rights, ethical clinical research and price collusion are other topical issues. Labour relations and Bribery and Corruption are also material ESG risks.

According to Sustainalytics, Pfizer's overall management of material ESG issues is strong, but we have some concerns. Board-level oversight is in place and there are adequate policies and programmes on bribery, corruption and whistleblowing. Implementation could be an issue, though, given it's being investigated by the SEC and Department of Justice regarding bribery allegations. Pfizer was recognised by the Access to Medicine Index for its value-based healthcare initiatives, but disclosure of list and net price changes in the US has deteriorated over the past few years. The group's transparent with its trial data, but falls short of best practice in other areas of product governance.

ESG data sourced from Sustainalytics

Pfizer key facts

All ratios are sourced from Refinitiv. Please remember yields are variable and not a reliable indicator of future income. Keep in mind key figures shouldn't be looked at on their own - it's important to understand the big picture.

This article is original Hargreaves Lansdown content, published by Hargreaves Lansdown. It was correct as at the date of publication, and our views may have changed since then. Unless otherwise stated estimates, including prospective yields, are a consensus of analyst forecasts provided by Refinitiv. These estimates are not a reliable indicator of future performance. Yields are variable and not guaranteed. Investments rise and fall in value so investors could make a loss.

This article is not advice or a recommendation to buy, sell or hold any investment. No view is given on the present or future value or price of any investment, and investors should form their own view on any proposed investment. This article has not been prepared in accordance with legal requirements designed to promote the independence of investment research and is considered a marketing communication. Non-independent research is not subject to FCA rules prohibiting dealing ahead of research, however HL has put controls in place (including dealing restrictions, physical and information barriers) to manage potential conflicts of interest presented by such dealing. Please see our full non-independent research disclosure for more information.

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Written by
Derren Nathan
Derren Nathan
Head of Equity Research

Derren leads our Equity Research team with more than 15 years of experience in his field. Thriving in a passionate environment, Derren finds motivation in intellectual challenges and exploring diverse ideas within his writing.

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Article history
Published: 31st October 2023