Pfizer Stock Slips. Under the Surface, Earnings Weren’t Great.

Pfizer stock is down nearly 60% since the end of 2021. (Sophie Park/Bloomberg)

Key Points

• Stronger-than-expected revenue came from older products, while cost cuts and lower-than-expected tax liabilities helped the bottom line.
• Pfizer’s adjusted earnings beat Wall Street estimates.
• Pfizer has fallen nearly 60% since the end of 2021 amid patent expirations and declining Covid-19 product sales.

Pfizer shares were lower on Tuesday despite third-quarter financial results that came in ahead of expectations. Sales of a few important products fell short.

Adjusted diluted earnings came in at $0.87 per share, well ahead of the $0.63 per share consensus estimate. Revenue was $16.7 billion, above the $16.5 billion Wall Street had penciled in.

While those numbers are substantial, they looked less inspiring once investors scratched the surface. The stronger-than-expected revenue came from older products, while cost cuts and lower-than-expected tax liabilities helped the bottom line.

A few closely watched products expected to drive growth in the coming years, meanwhile, had less-than-ideal quarters, though the company says those results should improve over the course of the year.

The stock was down 0.3% on Tuesday. CFO David Denton told Barron’s Tuesday that the bottom-line beat was better than it looked because the quarter included a charge related to a licensing agreement with 3SBio that took 20 cents out of the adjusted diluted earnings per share.

“We’ve been able to manage gross margins very effectively,” Denton said. “We’re continuing to squeeze out costs, but also working to reinvest those back into new medicines for patients.”

Pfizer shares are down nearly 60% since the end of 2021, as a number of its top products approach the end of their patent lives, the market for the company’s Covid-19 vaccine and antiviral has contracted, and its various efforts to bulk up its pipeline have failed to excite investors.

The results announced on Tuesday don’t seem to provide any new reassurance about the company’s trajectory as its so-called patent cliff nears.

The earnings beat came thanks in part to continuing research and development cost cuts, and to a tax rate that Leerink Partners analyst David Risinger called “surprisingly low” in a note early Tuesday. R&D expenses were $2.5 billion, down 2% from the same quarter last year, and below the $2.8 billion Leerink forecast.

On the revenue side, much of the beat was attributable to sales of Eliquis, the blood thinner the company sells in partnership with Bristol Myers Squibb. Eliquis revenues were $2 billion for the quarter, up 22% from the same quarter last year, and better than the $1.8 billion consensus estimate.

That isn’t likely very inspiring news for investors. Eliquis sales are likely to collapse next year, when Medicare will begin paying less for the drug under the drug-price negotiation program. Generic versions of Elequis will be launched in 2028.

Sales of Paxlovid, the company’s Covid-19 antiviral, were $1.2 billion, down 55% from the same quarter last year. Sales of Comirnaty, the Covid-19 vaccine, were $1.2 billion, down 20%. Paxlovid sales missed consensus estimates, though analysts had been writing for weeks that Paxlovid revenues would be soft for the quarter, and the weakness was likely anticipated.

Other shortfalls were likely more troubling. Sales of Padcev, a cancer treatment Pfizer acquired as part of its $43 billion purchase of Seagen, were $464 million, below the $556 million consensus estimate. And sales of another cancer drug Pfizer got from Seagen, Adcetris, were $215 million, below the $275 million Wall Street had expected. Sales of both drugs were down from the second quarter.

Denton told Barron’s that the drop in sales for the former Seagen drugs wasn’t an issue, and had to do with a switch in how the company was selling the drugs to distributors, which inflated sales in the second quarter.

“What happened in Q2 is we transitioned from a drop ship model to a wholesaler model for the Seagen products,” Denton said. “That put additional revenue into Q2, so we kind of built stockpiles, if you will. That then reverts itself out in Q3. So this will wash out the system as we finish the year.”

Pfizer maintained its forecast of revenue for the full year, but narrowed its range of predictions for earnings. It now says it expects adjusted diluted earnings of between $3 and $3.15 a share this year, compared with its prior estimate of between $2.90 and $3.10.

The earnings report comes in the midst of a legal tug of war with Novo Nordisk over the obesity biotech Mestera.

An 11th-hour attempt by Novo to snatch away Metsera, which Pfizer had agreed to buy in September, has upended the debate around Pfizer. Its stock had fallen 6.9% this year as of the close of trading on Monday.

The Metsera deal had seemed like Pfizer’s ticket into the red-hot obesity market. Now, the outlook for the acquisition is cloudy at best. Investors are left with the same old worries that have been gnawing at them since at least 2019: What happens after the patent expirations that arrive over the next few years?

Pfizer’s pricing deal with the Trump administration, which won the company a three-year exemption from sector-specific tariffs on drug imports in return for minimal drug-price concessions, set off a short-lived stock surge. Shares jumped 14% in the two days following the White House press conference where the administration announced the deal.

Those gains evaporated quickly, however. The stock is now trading below where it was before the announcement.

Write to Josh Nathan-Kazis at josh.nathan-kazis@barrons.com