Equities

Big Pharma's Revenue Challenges and Strategic Shifts: Pfizer Misses 2023 Financial Expectations

Big Pharma, led by Pfizer, shifts focus to oncology and biologics amid patent expirations and underwhelming financials.

By Mackenzie Crow

4/4, 01:35 EDT
Bristol-Myers Squibb Company
Johnson & Johnson
Merck & Company, Inc.
Pfizer, Inc.
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Key Takeaway

  • Big Pharma, including Pfizer and Merck, faces revenue challenges due to patent expirations; Pfizer's stock fell 33% under CEO Bourla.
  • Pfizer's $43 billion acquisition of Seagen highlights a shift towards complex drugs like biologics and oncology for longer exclusivity.
  • Despite strategic shifts, Pfizer missed 2023 financial expectations with $58.5 billion in revenue; aims for significant growth by 2030.

Big Pharma's Patent Predicament

The pharmaceutical industry, particularly Big Pharma companies like Pfizer, Merck, Johnson & Johnson, and Bristol Myers Squibb, faces a constant cycle of innovation and obsolescence. This cycle is driven by the expiration of patents, which allows competitors to produce generic versions of blockbuster drugs, significantly reducing the original drug's revenue. Pfizer, under CEO Albert Bourla since 2019, has aggressively pursued acquisitions and research and development, spending $80 billion and $50 billion respectively, to mitigate the impact of upcoming patent expirations. Despite these efforts and the approval of 22 new medicines, Pfizer's stock has declined by 33% since Bourla took over, reflecting a broader trend of underperformance in Big Pharma stocks.

The Shift to Oncology and Biologics

In response to the challenges posed by patent cliffs and the new Medicare price-negotiation regime, Big Pharma companies are increasingly focusing on more complex drugs, such as biologics and oncology treatments, which are harder for generic manufacturers to replicate. Pfizer's recent $43 billion acquisition of Seagen, a leader in antibody-drug conjugates (ADCs), exemplifies this shift. This move not only doubles Pfizer's oncology pipeline but also aligns with a broader industry trend towards high-price, cutting-edge medicine. Pfizer's strategy aims to replace revenue from drugs going off-patent by focusing on treatments that offer longer exclusivity periods and higher pricing power.

Financial Performance and Future Outlook

Despite the strategic shifts, Pfizer's financial performance in 2023 fell short of expectations. The company's revenue totaled $58.5 billion, with adjusted diluted earnings of $1.84 per share, missing its projected range. This underperformance was partly due to lower-than-expected demand for its Covid-19 vaccine, Comirnaty, and antiviral, Paxlovid. Looking ahead, Pfizer aims to generate significant revenue from recently launched products and acquisitions, targeting $20 billion and $25 billion respectively by 2030. However, the company faces the daunting task of finding approximately $38 billion in annual revenue within six years to meet its growth targets.

Street Views

  • Lawton Burns, Wharton School of the University of Pennsylvania (Neutral on Pfizer):

    "Pfizer’s problem is they’re so big, there’s just not enough things you can do to get growth to satisfy Wall Street’s expectations."

  • Chris Shibutani, Goldman Sachs (Bearish on Pfizer's projections):

    "The magnitude of the difference in where we’ve ended up has been so dramatic that it really equates to uncertainty, which has a way of eroding confidence of investors in management."

Management Quotes

  • Albert Bourla, CEO of Pfizer:

    "We missed our internal projections, and our external projections. We had a very bad year."