Big Pharma’s Power Players: What’s Next for Eli Lilly and Pfizer?
Eli Lilly (NYSE: LLY) and Pfizer (NYSE: PFE) have been the dominant forces in the pharmaceutical industry over the past few years. When the COVID-19 pandemic hit, Pfizer quickly took the lead in developing a vaccine, raking in billions of dollars in sales. Meanwhile, Eli Lilly’s remarkable rise has been driven by the success of its type 2 diabetes and obesity drugs, Mounjaro and Zepbound.
A Shift in Fortunes
However, both stocks have taken a hit in recent weeks. Lilly’s shares are down nearly 25% from their peak, while Pfizer’s have dropped around 20%. So, is it time to sell these pharmaceutical giants?
Lilly’s Recent Struggles
Lilly’s disappointing third-quarter update on October 30th was a major contributor to its stock decline. The company’s revenue and earnings missed Wall Street estimates, and it significantly lowered its earnings guidance and revenue expectations for the full year. To make matters worse, Lilly is suing the Health Resources and Services Administration (HRSA) over its cash replenishment model for the 340B Drug Pricing Program.
Pfizer’s Setbacks
Pfizer has also faced its fair share of challenges. On September 25th, the company voluntarily withdrew its sickle cell disease therapy, Oxbryta, due to safety concerns. Additionally, Pfizer and its partner, BioNTech, reported disappointing results from a phase 3 study evaluating their combination COVID/flu vaccine.
Different Dynamics, Different Valuations
Despite sharing some commonalities, Lilly and Pfizer have distinct differences. Their valuations, for instance, are polar opposites. Lilly’s shares trade at 32 times forward earnings, while Pfizer’s forward earnings multiple is a mere 8.3. This disparity stems from their growth prospects, with analysts expecting Lilly’s sales to skyrocket over the next decade.
Context Matters
While Lilly’s stock has fallen more heavily in recent weeks, its share price had more than tripled over the last three years before the sell-off. Pfizer, on the other hand, has seen its share price sink over 40% during the same period.
A Long-Term Perspective
I don’t think it’s time to sell either pharma stock, at least not for long-term investors. Lilly’s disappointing Q3 revenue and earnings were temporary setbacks, and Pfizer’s withdrawal of Oxbryta and combo COVID-flu vaccine setback are not showstoppers. Both companies have navigated difficult periods in the past and will likely continue to do so.
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