Pharmaceutical giant Pfizer reported surprisingly strong third-quarter 2024 results, exceeding Wall Street expectations on both revenue and adjusted profit. This success was driven by robust sales of its COVID-19 vaccine and Paxlovid antiviral pill, alongside encouraging growth in its non-COVID product portfolio. However, despite the positive financial news, the company’s stock price dipped, likely influenced by ongoing pressure from activist investor Starboard Value and concerns about the long-term sustainability of its COVID-related revenue streams. This report delves into the details of Pfizer’s Q3 performance, the ongoing activist investor challenge, and the company’s future outlook.
Key Takeaways: Pfizer’s Q3 2024 Results
- Exceeded Expectations: Pfizer’s Q3 revenue of $17.7 billion significantly surpassed the analyst expectation of $14.95 billion.
- Strong Covid Performance: Sales of Paxlovid reached $2.7 billion, exceeding expectations and driven by increased demand and government contracts. COVID-19 vaccine sales also exceeded expectations at $1.42 billion.
- Robust Non-Covid Growth: Excluding COVID products, revenue grew by 14%, boosted by the performance of newly acquired Seagen cancer drugs and existing products like Vyndaqel and Eliquis.
- Activist Investor Pressure: Starboard Value, holding a significant stake, is pushing for a major overhaul at Pfizer, criticizing its investment strategies and urging better capital allocation.
- Revised Outlook: Pfizer raised its full-year guidance, projecting adjusted EPS of $2.75 to $2.95 and revenue of $61 billion to $64 billion.
Activist Pressure Mounts
Pfizer’s strong Q3 results come amidst increasing pressure from activist investor Starboard Value. Starboard, holding a roughly $1 billion stake in Pfizer, contends that the company failed to effectively capitalize on the massive profits generated during the peak of the COVID-19 pandemic. Starboard Managing Member Jeff Smith argues that Pfizer’s management made poor investment decisions in R&D and acquisitions, leading to significant losses in market value. He specifically criticized the acquisition of Global Blood Therapeutics, which resulted in the withdrawal of a key sickle cell drug from world markets.
Starboard’s Demands and Pfizer’s Response
Starboard is advocating for a substantial restructuring at Pfizer, emphasizing the need for greater investment discipline. While Pfizer CEO Albert Bourla acknowledged having a “constructive and cordial” meeting with Starboard, he highlighted disagreements regarding the company’s capital deployment. Bourla maintained that Pfizer’s business development deals, though presently criticized, are anticipated to yield significant shareholder value in the future. He also points to recent streamlining efforts, including the appointment of new executives and a separation of the U.S. and international businesses. Despite the differences, Bourla affirmed Pfizer’s commitment to engaging with shareholders and evaluating any beneficial proposals.
Cost-Cutting Measures
Further illustrating its response to criticism, Pfizer reiterated its commitment to deliver at least $4 billion in cost savings by the year’s end. This initiative, announced in May, is a multi-year plan aiming to cut costs by $1.5 billion by 2027. These cost-cutting measures underscore Pfizer’s attempts to address concerns about efficiency and profitability.
COVID-19 Product Performance: A Mixed Bag
Paxlovid, Pfizer’s antiviral treatment, was a star performer in Q3, generating $2.7 billion in sales – far exceeding analyst expectations. This remarkable surge is largely due to a substantial increase in demand, particularly in the U.S., correlating closely with recent waves of COVID-19 infections. A significant factor contributing to this figure was a one-time delivery of 1 million treatment courses to the federal government’s national stockpile, adding approximately $442 million to the revenue. Nonetheless, there are concerns about Paxlovid’s sustainability given its dependence on infection numbers and its long-term market prospects.
COVID-19 Vaccine Sales
Pfizer’s COVID-19 vaccine also contributed significantly to Q3 performance, generating revenue of $1.42 billion, up 9% year-over-year. This growth reflects the timing of stocking for the vaccine, prompted by the earlier approval of the updated version this fall. However, reduced contractual deliveries and decreasing demand on international markets tempered this growth.
Growth Beyond COVID: Non-COVID Products Show Potential
Beyond the COVID-19 products, Pfizer demonstrated strength in its non-COVID portfolio. The company experienced a 14% operational revenue growth in this sector. This robust performance can primarily be ascribed to the recently acquired Seagen oncology drugs. The combination of Padcev and Adectris, treating bladder cancer and certain lymphomas, respectively, significantly boosted sales adding $854 million in revenue for the quarter with $409 million from Padcev and **$268 million from Adectris**.
Other Key Growth Drivers
Pfizer’s existing products also showed strong performance. Vyndaqel, used to treat cardiomyopathy, recorded a substantial 62% growth in sales, reaching $1.45 billion for the quarter. The blood thinner Eliquis, sold in partnership with Bristol Myers Squibb, showed an 8% increase, adding $1.62 billion in sales for the quarter. This solid performance across a range of non-COVID products suggests good future growth potential. However, future sales of Eliquis remain uncertain due to potential price reductions as a result of negotiations under the Inflation Reduction Act.
RSV Vaccine Success
Pfizer’s RSV (respiratory syncytial virus) vaccine, Abrysvo also performed well in its first full quarter of sales. The vaccine generated $356 million in revenue, ahead of analyst expectations. This success is further bolstered by the recent FDA approval for the vaccine’s use in adults aged 18-59 at increased risk of RSV, expanding the vaccine’s potential market.
In conclusion, Pfizer’s Q3 results present a complex picture. While strong COVID-19 product sales and growth in non-COVID areas delivered a positive financial outcome beating expectations, the company faces challenges such as activist investor pressure, the need for ongoing cost-cutting measures, and the uncertainty surrounding the long-term viability of its COVID-19-related revenues. The company’s ability to navigate these complexities while further solidifying its non-COVID portfolio will be key to its future success.