Arguably, no big pharma stocks have dominated the industry more over the last few years than Eli Lilly(NYSE: LLY) and Pfizer(NYSE: PFE).
When the COVID-19 pandemic began in 2020, Pfizer quickly emerged as the leader in the race to develop a vaccine. It ultimately raked in billions of dollars in sales for the first approved COVID-19 vaccine. Pfizer also made a fortune with its oral COVID-19 therapy, Paxlovid.
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Eli Lilly now ranks as the largest drugmaker in the world based on market cap. Its remarkable rise has been largely due to the success of its type 2 diabetes and obesity drugs Mounjaro and Zepbound.
But the good times have stopped rolling for both stocks in recent weeks. Lilly’s shares are nearly 25% below the peak from a few months ago. Pfizer is down roughly 20%. Is it time to sell Lilly and Pfizer stocks?
Much of Lilly’s recent dismal stock performance stems from its third-quarter update on Oct. 30. The company’s Q3 revenue and earnings missed consensus Wall Street estimates. Lilly also significantly lowered its earnings guidance and the upper end of its revenue guidance range for the full year.
That wasn’t the only bad news for Lilly. On Nov. 14, the drugmaker announced it was suing the Health Resources and Services Administration (HRSA), an agency of the U.S. Department of Health and Human Services (HHS). HRSA rejected Lilly’s cash replenishment model for reimbursing entities covered by the 340B Drug Pricing Program. This federal program provides prescription medications at lower costs to eligible healthcare organizations that serve vulnerable populations, including low-income and uninsured patients.
Pfizer has also had its fair share of setbacks over the last few months. On Sept. 25, the company revealed that it was voluntarily withdrawing sickle cell disease therapy Oxbryta from all markets due to safety concerns. In August, Pfizer and its partner, BioNTech, reported disappointing results from a phase 3 study evaluating their combination COVID/flu vaccine.
Some investors are undoubtedly concerned about the regulatory landscape for Lilly and Pfizer over the coming years as well. The proposed nominee to head HHS in the incoming presidential administration has been critical of obesity drugs and vaccines, including COVID-19 vaccines.
Lilly and Pfizer definitely share some common denominators. However, the dynamics of the two drugmakers are quite different.
For example, these pharma stocks’ valuations are polar opposites. Lilly’s shares trade at 32 times forward earnings. Meanwhile, Pfizer’s forward earnings multiple is only 8.3.
This stark contrast stems from the companies’ growth prospects. Analysts expect Lilly’s sales to skyrocket over the next decade as Mounjaro and Zepbound, along with other products including Alzheimer’s disease drug Kisunla, gain momentum. Meanwhile, Pfizer will lose patent exclusivity for multiple top-selling drugs over the next few years.
The context of these two drugmakers’ recent stock declines is much different, too. Although Lilly’s share price has fallen more heavily in recent weeks, its stock had more than tripled over the last three years before the sell-off. However, Pfizer’s recent decline comes on the heels of its share price sinking more than 40% during the last three years.
I don’t know if Lilly and Pfizer stocks will quickly rebound. However, I don’t think it’s time to sell either pharma stock — at least, not if you’re a long-term investor.
Lilly’s disappointing Q3 revenue and earnings were related to wholesalers temporarily decreasing their inventories of Mounjaro and Zepbound. The company’s full-year guidance cut was primarily due to expenses incurred with the acquisition of Morphic Holding. I wouldn’t be concerned about either issue.
Neither Pfizer’s withdrawal of Oxbryta nor the setback for its combo COVID-flu vaccine are showstoppers. Although the drugmaker does face a patent cliff, it also has new growth drivers that should offset the anticipated revenue declines from losses of exclusivity.
Investors shouldn’t get the cart before the horse with any potential changes at the federal level, either, in my view. Lilly and Pfizer have successfully navigated both easy and difficult periods for the pharmaceutical industry in the past. I expect they’ll both continue to do so going forward.
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Keith Speights has positions in Pfizer. The Motley Fool has positions in and recommends Pfizer. The Motley Fool recommends BioNTech Se. The Motley Fool has a disclosure policy.
