When an industry bellwether fails, the first question must be, is the problem with the industry or the bellwether? There are clues in the case of Pfizer Inc. (NYSE:PFE).
PFE stock is slipping today after the company failed to meet analyst expectations Nov. 1. Pfizer reported earnings of $3.726 billion, or 61 cents per share, on revenues of $13.045 billion. The consensus had been for earnings of 62 cents — with a high-end “whisper number” of 64 cents — and $13.16 billion in revenue.
The clue is Pfizer’s own failed attempt to merge into Allergan plc Ordinary Shares (NYSE:AGN). The effort was scrapped in April after the U.S. changed its tax rules to discourage the “inversion” that would have seen the whole company based in Ireland, rather than the U.S.
When you’re depending on tax lawyers to give your stock a boost, it is likely there’s nothing in operations to justify as much optimism.
This has long been the problem with PFE stock, as well as other mainline drug companies. The “patent cliff” has made generics out of former blockbusters like Pfizer’s Lipitor, now atorvastatin, and there are fewer new drugs to replace it.
Pfizer Drug Fails
Pfizer’s basic business also has problems.
The company announced it has stopped development of a new anti-cholesterol compound, having been beaten to the market by Regeneron Pharmaceuticals Inc (NASDAQ:REGN), Sanofi S.A. (ADR) (NYSE:SNY) and Amgen, Inc. (NASDAQ:AMGN). It faces growing competition with Eli Lilly and Co (NYSE:LLY) and Novartis AG (ADR) (NYSE:NVS) in treatment of breast cancer.
Pfizer’s Prevnar pneumonia vaccine is failing to live up to sales forecasts. The company’s efforts to give away 1 million shots of the drug were rejected by Doctors Without Borders, which accepted a more “sustainable” solution offered by GlaxoSmithKline plc (ADR) (NYSE:GSK).
Pfizer will soon start shipping an arthritis biosimilar against Johnson & Johnson’s (NYSE:JNJ) Remicade, but most of its moves right now seem defensive. It has a deal to possibly buy Myovant after an IPO, to get its womens’ healthcare drugs. PFE is selling its drug infusion business, partly for stock, as well as its Manhattan headquarters building.
There are some who consider the stock, from a technical level, to be oversold. Their argument is that recent declines — which have taken the stock down $6 per share since August — are overdone.
But this is trade talk. Fundamentally, Pfizer looks weak.
Everyone Looks Weak
The counterargument is that the healthcare sector is in a short-term, secular decline, driven partly by competition and partly by fears over the coming U.S. election.
The Health Care SPDR (ETF) (NYSEARCA:XLV), which tracks the whole sector, is down 10% in just the last three months, tracking Pfizer’s own decline, and it could recover once there is more regulatory clarity. Problems could be isolated to situations like that of Valeant Pharmaceuticals International Inc. (NYSE:VRX) — now the target of a criminal investigation — meaning equities like PFE stock would trade more on fundamentals than an industry malaise.
The real story may be simpler. Huge investments and faster computing are bringing more drugs to market more quickly, and many wind up competing with one another, meaning there is less pricing power even within the branded drug space than there was before.
What is good for patients, in other words, may be what’s bad for the industry.
Sit on PFE Stock
If you are looking for fast profits, it is never right to even look at Pfizer. It tends to track the general market, which is logical given its market cap of $191 billion. But it neither dramatically outperforms nor underperforms that market. Until the last month, Pfizer’s performance generally mirrored that of the Dow Jones Industrial Average, and even in the last month it is moving in line with the industry’s XLV ETF.
Pfizer, in short, is the kind of stock you buy when you don’t have any exciting ideas. This is not changing. You can watch PFE stock to take the temperature of the market or industry, but if you’re going to buy it, then do so for the nearly 4% dividend yield.
Then ignore it.
Dana Blankenhorn is a financial journalist and author of the science fiction story Into the Cloud. Write him at email@example.com or follow him on Twitter at @danablankenhorn. As of this writing, he did not hold a position in any of the aforementioned securities.