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Pfizer desperately needs ammunition in its fight against activist investor Starboard Value. Fortunately for CEO Albert Bourla, he found some better-than-expected third-quarter results. An unexpectedly large rise in Covid-19 infections over the summer helped boost sales of its drugs Paxlovid and Comirnaty and allowed Pfizer to improve its outlook for full-year sales and adjusted profits.
Unfortunately for Bourla, the drugmaker will need to find more bullets if it wants to get Starboard off its back. It’s much easier said than done. The increase in forecasts (it now expects to make between $61 billion and $64 billion in revenue by 2024, up from a previous forecast of between $59.5 billion and $62.5 billion) may seem impressive. But most of this additional gain is Covid-related and will not be repeated every quarter.
If profits from Covid products are excluded, Pfizer’s situation does not change. He is struggling to convince investors that there is life after the virus and that he didn’t waste a once-in-a-lifetime cash windfall during the pandemic.
Starboard, which has accumulated a billion dollar position at the drugmaker, you are right to criticize it for bingeing on overpriced offers. They include Seagen, the loss-making cancer biotech bought last year for $43 billion, including debt. The decision to pull Oxbryta, a sickle cell anemia treatment, from the market last month has raised further questions about Pfizer’s M&A acumen. The drug was the centerpiece of the $5.4 billion acquisition of Global Blood Therapeutics in 2022.
Pfizer’s return on equity has fallen from more than 19 percent in 2022 to 2.2 percent last year, according to S&P Global Market Intelligence. Its failure so far to develop an anti-obesity drug has added to investor frustration. The company is worth less now than before the pandemic after losing $180 billion in market value over the past three years.
Starboard, however, doesn’t offer many solutions. There is no quick way to accelerate innovation. Medicines take a long time to develop. It is an expensive process and requires a good dose of luck as well as investment.
Bourla’s big bet on cancer drugs could still pay off. Other things that could help boost the share price (disposals, cost cutting, deleveraging) are underway.
One line of defense could be your cheap valuation. Pfizer shares, at 11 times forward earnings, trade at a discount to most of its peers. However, its dividend yield (around 6 percent) is the highest. Assuming all the bad news is fully reflected in the group’s shares, now would be a good time to hold the shares.