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Pfizer desperately needs ammunition in its fight against activist investor Starboard Value. Fortunately for chief executive Albert Bourla, it found some by way of better than expected third-quarter results. An unexpectedly large surge of Covid-19 infections over the summer helped boost sales of its medicines Paxlovid and Comirnaty and allowed Pfizer to raise its outlook for full-year sales and adjusted earnings.
Unfortunately for Bourla, the drugmaker will need to find more rounds if it is to shake Starboard off its back. That is far easier said than done. The bump up in guidance — it now expects to pull in $61bn-$64bn in revenue for 2024, up from a previous forecast of between $59.5bn and $62.5bn — may look impressive. But the bulk of this extra gain is Covid-related and will not be repeated every quarter.
Strip out the Covid product gains and Pfizer’s predicament is unchanged. It is struggling to convince investors there is life after the virus and that it did not squander a once-in-a-lifetime cash windfall made during the pandemic.
Starboard, which has amassed a $1bn position in the drugmaker, is right to take it to task for bingeing on overpriced deals. These include Seagen, the lossmaking cancer biotech bought last year for $43bn, including debt. The decision to withdraw Oxbryta, a sickle cell disease treatment, from the market last month, has raised further questions over Pfizer’s M&A acumen. The drug was the centrepiece of its $5.4bn acquisition of Global Blood Therapeutics in 2022.
Pfizer’s return on capital has fallen from more than 19 per cent in 2022 to 2.2 per cent last year, according to S&P Global Market Intelligence. Its failure thus far to develop an obesity drug has added to investor frustration. The company is worth less now than before the pandemic after shedding $180bn in market value over the past three years.
Starboard, though, is not offering much by way of solutions. There is no quick way to speed up innovation. Drugs take a long time to develop. It is a costly process and requires a healthy dollop of luck as well as investment.
Bourla’s big bet on cancer drugs could still pay off. Other things that could help boost the stock price — disposals, cost-cutting, deleveraging — are under way.
One line of defence might be its cheap valuation. Pfizer shares, at 11 times forward earnings, trade at a discount to most of its peers. Yet its dividend yield — at about 6 per cent — is the highest. Assuming all the bad news is fully priced into the group’s shares, now would be a good time to hang on to the stock.
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