Over the last few years, Eli Lilly and Pfizer have been at the forefront of the pharmaceutical industry, but recent setbacks have left investors questioning their future potential. Lilly’s dominance stems from its blockbuster diabetes and obesity drugs Mounjaro and Zepbound, while Pfizer gained fame (and billions) from its COVID-19 vaccine and antiviral drug Paxlovid. However, both stocks have seen notable declines recently, raising concerns about whether it’s time to sell.
The Downturn: What Went Wrong?
Lilly’s recent challenges began with a disappointing Q3 report that missed Wall Street expectations. Revenue and earnings were lower than forecast, and the company reduced its full-year guidance, citing temporary inventory reductions by wholesalers and acquisition costs. Additionally, Lilly faces legal battles, including a lawsuit against the HRSA over its 340B Drug Pricing Program.
Pfizer’s struggles are tied to its sickle cell disease therapy Oxbryta, which was withdrawn due to safety issues, and a lackluster phase 3 trial for its combination COVID-19/flu vaccine. The company also faces a looming patent cliff, with several top-selling drugs losing exclusivity in the coming years.
Different Dynamics Between Lilly and Pfizer
Despite their shared downturn, the two companies are in very different positions. Lilly’s forward price-to-earnings (P/E) ratio of 32 reflects high growth expectations driven by its expanding portfolio, including its Alzheimer’s drug Kisunla. Conversely, Pfizer’s forward P/E of 8.3 highlights its undervaluation and uncertain growth due to upcoming patent expirations.
Lilly’s stock had tripled in value over the past three years before its recent decline, while Pfizer’s shares have dropped 40% over the same period, reflecting their diverging trajectories.
Should You Sell?
For long-term investors, selling either stock might be premature. Lilly’s current issues, including inventory adjustments and acquisition expenses, are temporary and unlikely to derail its long-term growth. Its robust pipeline and market leadership in key therapeutic areas position it well for future gains.
Pfizer, despite its challenges, has new growth drivers that could offset revenue losses from patent expirations. Its ability to navigate regulatory challenges and innovate has been proven time and again, suggesting the company can rebound.
Conclusion
While Lilly and Pfizer are facing hurdles, both have solid foundations that should support their long-term performance. For investors willing to ride out the current volatility, these pharmaceutical giants still hold promise for the future. Selling now could mean missing out on their recovery and potential gains.
