How Pfizer Blew Up

Why the Blue Chip pharma stock lost half its market cap this year

The collapse of Pfizer is well and truly stunning. I think it’s one of the biggest individual stock stories of the year and, perhaps, the very worst one:

The orange line is the S&P 500 Health Care sector ETF and the purple line is Pfizer’s stock price, on a total return basis. This is a ten year chart, which throws a big monkey wrench into the standard “just buy great companies and hold them forever” bit of received wisdom we all hear from an older relative at some point early in our investing careers.

Is Pfizer not a great company? Founded in 1849 in Brooklyn. $100 billion in annual sales. Over 80,000 employees. Treating tens of millions of patients for a thousand illnesses all over the world. If that’s not a “great company” I don’t know what is. And yet, look at that purple line plunge, both in absolute terms but also relative to the sector. You’d have been better off holding Merck (which remained a Dow Jones Industrial Average component in 2020 while Pfizer was being kicked out). You’d have been better off holding just about anything in the large cap pharmaceutical or biotech space.

And, to add insult to injury, Pfizer isn’t even going to be a player in this decade’s hottest class of drugs - the GLP-1 inhibitor weight-loss bonanza. They threw in the towel on that earlier this month.

The drugmaker on Friday said it will stop developing the twice-daily treatment, danuglipron, after obese patients taking the drug lost significant weight but experienced high rates of adverse side effects in a midstage clinical trial. Pfizer noted that it will release data on a once-daily version of the pill next year, which will “inform the path forward.” 

The announcement came six months after Pfizer scrapped a different once-daily pill in June, citing elevated liver enzymes. Pfizer’s move to drop two obesity drug candidates in just a few months demonstrates how difficult it is to develop an effective, safe and tolerable treatment for losing weight, even after recent breakthrough medications entered the space. 

You know who is going to be a player in that category, for as far as the eye can see?

Eli Lilly. While Pfizer was doubling and tripling down on their COVID-19 vaccines and the Paxlovid pills for treatment, Lilly was focused on anti-obesity, which is the real disease battle of the decade to come.

Here’s what the results of making that choice were for shareholders of each company:

On a total return basis, LLY shares are up one thousand three hundred percent over the last ten years (orange) and they don’t appear to be stopping.

Ken Langone, who knows a thing or two about health care, had this to say on an appearance on CNBC’s Squawk Box this week:

Ken Langone sees the stars aligning for Eli Lilly stock.

"I think Lilly will be the first trillion-dollar drug company in history," the billionaire investor said in a CNBC interview on Wednesday. "Why? Their pipeline. And god bless [former CEO] John Lechleiter. In the dark years when everything was falling off the cliff, he was firm in his commitment to spending the money on R&D and protecting the dividend."

This year, Eli Lilly rode the GLP-1 drug train with Mounjaro and Zepbound, with shares soaring 62% since January.

In May, it surpassed Johnson & Johnson to become the biggest pharmaceutical company by market cap. Lilly is now worth about $568 billion.

During the pandemic years, Pfizer was riding high. It had become a savior in the eyes of the world - one of a small handful of companies we were counting on to get us out of our homes and back to our normal lives. What they didn’t see coming was the tremendous drop-off in desire to keep taking vaccines once patients had already been vaccinated (or infected, or most commonly, both). I got my booster shot and then Omicron within a six week period in the fall of 2021. That was it for me. I’ll never take another dose again. I don’t get flu shots either. I think my attitude typifies how most of the country began to think about COVID and the need for more injections. If I get sick again and it’s really bad, I might change my tune. But unless and until, I’m done.

Anyway, demand for the shots fell off a cliff. The government had so many Paxlovid pills leftover they sent millions of them back.

Meanwhile, Pfizer wasn’t ready with a new wave of growth to replace this declining segment of their business. A recent acquisition of Seagen (for a massive $43 billion price tag) should result in a lot of new revenue, but not right away and an insufficient amount to offset the current disappointment.

As you can see above, the stock price spent the last year being effectively cut in half in the aftermath.

Shares closed on Thursday at $26.13, their lowest since June 5, 2013. This year to date, the stock is down 49%. The decline in its market cap is its largest on record, surpassing the previous record yearly loss of $67 billion in 2004.

Bourla, who had been celebrated around the world for pushing Pfizer to move quickly to combat the coronavirus, now confronts concerns on Wall Street about the company’s sales forecasting and its ability to launch new drugs and deliver on its pipeline.

In this week’s feature story at the Wall Street Journal, we read about a company at a historic low point in terms of both potential growth and morale. You can read it here for the details: Pfizer Helped Save the World With Covid Vaccines. Now It Needs to Right Itself.

Time to buy?

It’s tempting to want to start getting bullish anytime a former darling like Pfizer hits the skids and gets dumped by everyone. “Cut in half” is nearly always a good signal to begin kicking tires for long-term investors, no matter what the problems are. But turnarounds aren’t guaranteed and those that do work out tend to take a long time. And in the pharmaceutical space, this can be doubly true given the nature of clinical trials, research, approvals and the other necessary accoutrements of being in the drug business.

Pfizer is currently expected to earn $2.24 cents per share in 2024 on revenue of $59.89 billion. That’s on a market cap of $150 billion. Here’s Wall Street taking down their earnings per share estimates for the next fiscal year along with the compression in its forward PE:

Basically, the fundamentals are bad and getting worse, while sentiment continues to darken. This is unlikely to continue indefinitely.

So how will we know when there’s more potential reward than risk? We’re probably already there.

How will we know when it’s bottomed? We won’t without the benefit of hindsight. And these things tend to overshoot to the downside given how much reason for pessimism the company continues to give its shareholders.

But a bottom will eventually occur. Even if it takes awhile for any sort of rally off that bottom.

If I may be so bold, watch for the next piece of “bad news” or the next downgrade. If the stock fails to fall on that, it could be the first sign that there are no more sellers left. I have to believe we’re at least close.

This week I ate at…

New York City has 400 Michelin-starred restaurants and, as of this past October, Torrisi Bar & Restaurant is now one of them. Pete Wells at the New York Times just added Torrisi to his list of the twelve best new restaurants in New York for 2023.

Getting a reservation is hard. You have to book 30 days in advance of when you want to go at 10am or add yourself to the Notify list on the Resy app. Or, you can be Taylor Swift or Taylor Swift-adjacent. Or you can just walk in at an odd time like 3pm on a weekday and sit at one of the 12 spots at the bar that are reserved for walk-ins. Torrisi is part of the Major Food Group empire (Carbone, Sadelle’s, etc) so it’s going to be like this for awhile.

So if you find yourself in the neighborhood (it’s in the Puck Building on the Mulberry Street side), take a shot.

I went this week with my friend Ian Rosen who is currently building products and running businesses under the TIFIN umbrella of companies. They’re working on all kinds of AI-based products for the wealth management market I’m excited to see someday.

We did the Italian and American Hams with Zeppole appetizer you see below and it was absurdly good. Don’t show up there for lunch not intending to eat pasta. It would be a missed opportunity.

Watch this weekend

The full video of Bob Elliott’s appearance on The Compound and Friends is now up on our YouTube channel. He rocked the show this week. If you haven’t listened yet, here’s the option to watch:

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Smile, we’re not going to be here forever.