Pfizer Inc (PFE) Com Stk USD0.05 (CDI)

Pfizer's fourth-quarter revenue fell 42% to $14.2bn, largely due to lower sales of COVID medicines. Sales from non-COVID products grew by 7%.

There was a net loss of $3.4bn compared to a net profit of $5.0bn in the prior year. Profitability in the period was significantly impacted by a $3.5bn non-cash write-off of COVID inventory.

$2.3bn of dividends were paid to shareholders in the final quarter of 2023. The group does not expect to make any share repurchases in 2024.

Pfizer expects 2024's full-year revenue to be in the $58.5-$61.5bn range, and underlying earnings per share of $2.05-2.25.

The shares were broadly flat in pre-market trading.

Our view

Pfizer is one of the world's largest Pharmaceutical companies. But sharply falling COVID-related sales are making for some tough reading for investors. And with declines in this segment expected to continue, the group's been looking at ways to refresh the product pipeline.

We're seeing modest growth elsewhere in the business. Including the recent Seagen acquisition, non-COVID sales look set to rise at near double-digit rates, and costs look set to be trimmed by at least $4.0bn in 2024. But so far, this hasn't 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 recent acquisitions 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.

Pfizer's expected to significantly increase net debt this year, largely due to the $43bn acquisition of Seagen. But at about 1x underlying cash profits during the first full year of ownership, we're not too concerned.

In the short term, the deal won't be earnings enhancing. But it doubles the size of the development pipeline in cancer, with the focus shifting to novel medicines with the potential to replace chemotherapy in some tumour types. 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 paid has been worth it.

Pfizer's got a strong record of commercialising blockbuster therapies. And at 11.9 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

The pharmaceuticals sector is relatively high-risk in terms of ESG. Product governance, particularly with safety and marketing, and affordable access to treatment are the key risk drivers. Labour relations, business ethics and bribery and corruption are also contributors to ESG risk.

According to Sustainalytics Pfizer's overall management of material ESG issues is strong. 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.

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.

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