This Recent FDA Approval Is Bad News for Pfizer | The Motley Fool

It’s no secret why Pfizer (PFE 1.39%) stock has been struggling this year. Investors are worried about how well the company will be able to do in light of waning demand for its COVID-19 vaccine and pill. It’s also facing patent cliffs for many of its top drugs. That’s why even though it’s trading at a seemingly cheap 12 times its estimated future earnings, investors aren’t piling into the stock.

And now, one of its rivals just got a big boost that may only strengthen the bearish case against Pfizer.

Merck’s vaccine obtains approval

On June 17, the Food and Drug Administration granted approval to Merck (MRK -1.28%) for Capvaxive to help prevent pneumonia and infections caused by the streptococcus pneumoniae bacteria. The vaccine provides protection against 84% of the strains that cause invasive pneumococcal disease in adults aged 50 and over. In an interview with MarketWatch, Merck’s management stated that the vaccine’s protection is “broader than anything that’s out there.” Merck expects the vaccine will be available later this year and that it could “gain majority market share.”

Capvaxive will compete against Prevnar 20 — one of Pfizer’s top products. The Prevnar family of vaccines generated just under $1.7 billion in sales during Q1, up 7% year over year. Only the anticoagulant Eliquis and antiviral Paxlovid generated more revenue for the business during the period. Moreover, Paxlovid’s sales were down 50% last quarter, and they could fall even further as demand for the COVID-19 antiviral wanes. This makes Prevnar all the more important for Pfizer, at least in the near term.

The challenge is that with a 98% market share in the adult pneumococcal market, Pfizer has a lot of ground to lose against a formidable competitor. It’s not a question of whether it will lose revenue as a result of Merck’s vaccine coming to market — it’s a question of how much.

Pfizer already faces plenty of headwinds

To buy shares of Pfizer today, investors have to take a leap of faith — they have to believe in the company’s management, and that its long-term strategy will pay off. The company may lose up to $18 billion in revenue due to patent expirations between 2025 and 2030. Top drugs Eliquis, Vyndaqel, Xeljanz, and Ibrance will lose their exclusivity in the years ahead.

Pfizer CEO Albert Bourla expects that the business can add up to $25 billion in revenue from new sources by the end of the decade through acquisitions and in-house development of its pipeline candidates. Last year, Pfizer acquired oncology company Seagen for $43 billion, and its assets will play a key role in the future of the business.

Should you invest in Pfizer’s stock?

Pfizer’s stock didn’t fall off a cliff due to the approval of Capvaxive as the healthcare stock was already deeply discounted, with the market pricing a great deal of bearishness and uncertainty into its valuation. And many investors may have been anticipating this as a likely event.

Ultimately, the looming arrival of a Prevnar competitor arguably doesn’t make Pfizer any worse of a buy than it was before. Whether you view the stock as a buy or not is going to come down to whether you believe the company can deliver on its ambitious growth strategy, and that management’s recent moves, including its acquisitions, will pay off with enough blockbuster drugs to offset the eventual inevitable sales declines in its current roster of top drugs.

If you’re bullish on the company’s prospects and are willing to take on that risk, you can get the stock for a fairly cheap valuation now. But be prepared to hang on for the long term. It could take several years or more to determine whether Pfizer is indeed on the right path.