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Why its FY2024 downgrade has Wall Street wary

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Pfizer (PFE) disappointed Wall Street this week with lower revenue guidance for the upcoming year, giving analysts other reason to doubt the company and its stock.

Shares for Pfizer were at the end of Wednesday down 7.5%, trading at a near-10-year low of $26.45. PFE was down another 2% or so on Thursday.

“PFE shares are looking increasingly washed out at current levels, we do not see a clear path for the stock to recover given the ongoing uncertainty on the company’s core earnings power,” wrote J.P. Morgan analyst Chris Schott.

Pfizer is going through significant transformation both with leadership — losing chief commercial officer Angela Hwang —and its pipeline. The company is faced with lower revenues from its Covid products, and needs to fill a $17 billion hole from expiring patents by the end of the decade.

Pfizer’s leaders, CEO Albert Bourla and CFO David Denton, faced stern questions from analysts on a call Wednesday about its 2024 projections—including significantly lower than expected diluted EPS guidance of $2.05 to $2.25.

“I was just wondering if you can talk about the margin trajectory from here in terms of when you might be able to reach pre-pandemic margins?” asked Morgan Stanley’s Terence Flynn.

Denton said the company’s objective is to get back to pre-pandemic margins, but that its growth outlook won’t match pre-pandemic predictions.

“I know the company has said specifically that our ’20 to ’25 growth rates would be, excluding COVID, approximately 6% from a CAGR (compounded annual growth) perspective over that time frame. Given the guidance we just provided for 2024, it seems that objective of getting to that 6% growth rate by 2025…seems somewhat out of reach at this point in time,” Denton said.

Other questions asked for clarity on the earnings per share guidance, and potential impacts of the guidance on expected dividends.

Albert Bourla, CEO of Pfizer attends a discussion at the World Economic Forum (WEF) in Davos, Switzerland May 25, 2022. REUTERS/Arnd Wiegmann

Touting his stock: Albert Bourla, CEO of Pfizer at the World Economic Forum (WEF) in Davos, Switzerland in 2022. (Photo: REUTERS/Arnd Wiegmann) (REUTERS / Reuters)

Evercore ISI analyst Umer Raffat asked why the company was forecasting a loss of 40 cents per share next year, due to the Seagen acquisition, when the Seagen looked to have a healthy portfolio and was breaking even this year. “The only dilution should be from their interest, which is only $1.9 billion, which is less than $0.30 on EPS. So how do we get to $0.40 on Seagen’s EPS dilution? So, the gross margin and the Seagen…is probably where the Street is confused around the overall numbers,” Raffat said.

Bourla and Denton took turns reiterating a strong outlook. They said they anticipate $3.1 billion in revenue from Seagen, an oncology-focused company that Pfizer closed on Thursday, to add to the bottom line in 2024.

Denton also said the company is not focused on share repurchases and that “a dividend cut is not on the table. We have a balance sheet that is appropriate that can maintain and grow our dividend over time.”

Bourla also noted that the company is staying conservative on it’s Covid portfolio projections, forecasting $8 billion in 2024, compared to this year’s expected $12.5 billion.

“We want to provide realistic and conservative…estimates on Covid, which will be something we can easily make. In reality, we stay with our statements that we do believe vaccination rates and treatment rates in the coming year will be very similar to what we have seen this year,” Bourla told investors.

He previously signaled a slowdown in vaccination rates, with anticipated resurgences in 2025 and beyond.

“The debate remains around what is the growth potential beyond the Covid-19 cliff,” wrote HSBC analysts in a note after the call.

But not all analysts are doubtful.

“We believe (Pfizer) is in execution mode headed towards their 2030 vision following recent launches and (business development) deals,” said Trust analysts in a note to clients after the call Wednesday, pointing to the acquisitions Pfizer has completed in the past year.

SEPTEMBER 20th 2021: Pfizer and BioNTech say their COVID-19 vaccine is safe and effective in children ages 5 to 11. The vaccine has generated robust immune responses against the coronavirus in clinical trials within this age group. - File Photo by: zz/John Nacion/STAR MAX/IPx 2020 7/28/20 A view of Pfizer Inc. World Headquarters in Midtown Manhattan on July 28, 2020 as New York City enters Phase 4 of the reopening process as certain restrictions are eased during the worldwide coronavirus pandemic. (NYC)

A better year for COVID vaccines in 2025? Pfizer headquarters in Midtown Manhattan. (Photo: Getty) (zz/John Nacion/STAR MAX/IPx)

Lackluster pipeline

It’s not the first time Bourla has had to convince Wall Street that Pfizer was a good buy.

Even during the pandemic, the company faced wary investors — who were concerned the company did not have more than a limited time blockbuster vaccine to offer. While other COVID-19 companies saw significant boosts to their stock, Pfizer remained one of the outliers — despite having the lion’s share of the COVID-19 vaccine market in the U.S. and hitting a record $100 billion in revenues in 2022.

Bourla took the helm of Pfizer, after 12 years in various leadership positions in the company, in 2019 — at a time when the company was spinning off its generics and off-patent branded business Upjohn.

He was intially focused on running Pfizer like a lean machine — with an eye on its innovative pipeline— to fill the company coffers. That focus took a detour when the pandemic hit, but also provided Bourla the opportunity to prove his point: He could operate a big pharmaceutical company nimbly and effectively to produce blockbuster innovations.

Even then, the stock was not rewarded. “Although I’m not happy, all we can do is to execute on our strategy so that investors will see that this is a good growth opportunity,” he told Yahoo Finance earlier this year.

Now, the focus of Wall Street is on how the company, post the COVID boom, will grow as it looks to fill a $17 billion shortfall from expiring patents by the end of the decade.

To that end, Pfizer has been busy with its R&D, launching 13 products, of a planned 19, in the past two years. It has also spent a total of $16 billion in 2022 to acquire Biohaven and Global Blood Therapeutics, plus the $43 billion for Seagen.

Will that move the needle on Wall Street?

Anjalee Khemlani is the senior health reporter at Yahoo Finance, covering all things pharma, insurance, care services, digital health, PBMs, and health policy and politics. Follow Anjalee on all social media platforms @AnjKhem.

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