By Michael Erman
NEW YORK (Reuters) – Pfizer’s quarterly financial report comes at a crucial time for the U.S. drugmaker and its CEO on Tuesday, as activist hedge fund Starboard Value steps up pressure to demonstrate concrete results from a promised turnaround.
Investors and analysts said they want to see improved profitability after the company’s billions in cost cuts over the past year, as well as revenue growth, especially from the cancer drugs picked up during the 2021 to 2023 acquisition spree.
Pfizer’s management must also lay the groundwork for faster growth in 2025, they said.
“Next year you should see a pretty big improvement in earnings for a lot of reasons,” said Jeff Jonas, portfolio manager at Gabelli Funds, which owns Pfizer stock.
Jonas said an improvement in sales should lead to a better balance sheet, protecting the company’s dividend. Pfizer’s dividend yield of nearly 6% is much higher than most major pharmaceutical companies and has given some investors reason to hold on to the stock as sales fell.
Investors have fled Pfizer as concerns about the pandemic eased and billions of dollars in sales of COVID-19 vaccines and treatments disappeared. The company’s shares, worth about $162 billion, are trading at about half their pandemic-era highs.
Starboard has argued that Pfizer’s board should hold management accountable for its underperformance, particularly questioning its track record of producing profitable new drugs from internal research and development or acquisition.
In an interview on CNBC, Starboard CEO Jeff Smith said a change at the top of the company could make sense, but stopped short of calling for the resignation of Pfizer CEO Albert Bourla.
“Something material has to change. They can’t just close their eyes and assume things will get better,” he said.
‘NOT REALLY FOCUSED’
In addition to the loss of revenue from COVID-19, Pfizer has also struggled in recent quarters with disappointing data on a closely watched experimental obesity drug, the weak launch of its respiratory syncytial virus (RSV) vaccine and its discontinuation of his treatment against sickle cell disease Oxbryta. due to deaths during clinical trials.
Pfizer declined to comment for the story.
Gabelli’s Jonas said he would like Pfizer to sharpen its focus on three or four key therapeutic areas, noting that the company has had recent successes in oncology and vaccines.
“They did a little bit of everything, but they weren’t really focused,” he said. “So I think there is room for improvement.”
Analysts on average expect third-quarter revenue of $14.95 billion, up 13% from a year ago. Sales hit a low in the second quarter of 2023 after the company cut forecasts for sales of its COVID vaccine and treatment.
Guggenheim analyst Vamil Divan said COVID could be an area of outperformance for Pfizer this quarter, following a late summer spike in U.S. cases.
However, better-than-expected results for the quarter won’t be enough to reassure investors, he said, adding that Pfizer executives need to show they are working on future growth.
“Are they saying anything else that might put people at ease with the longer term, whether it’s on the cost side or something on the pipeline side? I think that will buy them a little bit more time,” Divan said.
Cancer drugs Padcev and Adcetris, which the company acquired last year through its $43 billion takeover of Seagen, are of particular interest to investors.
William Couchman, an executive at investment firm Birmingham Capital Management, said he expects better results from the Seagen drugs after Pfizer has more time to integrate the company. According to LSEG data, Birmingham owned about $5 million worth of Pfizer stock in June, and Couchman said they have continued to buy.
Pfizer shares closed down less than 1% at $28.45 on Friday.
“By the time Pfizer proves there was some wisdom in these acquisitions and gains ground with some other products, it won’t be a $28 stock anymore,” he said.
(Reporting by Michael Erman; Editing by Caroline Humer and Bill Berkrot)
