Pfizer Pivots to Weight Loss Drugs Amid Declining Covid-19 Revenue

As Pfizer faces a dramatic drop in Covid-19 revenue, its focus on weight loss drugs is increasing competition in the multi-billion dollar market.

Strong Q1 Performance and Future Outlook

Pfizer reported strong Q1 earnings results, which investors and executives hope signals an end to the volatility experienced during the pandemic. As the developer of the first mRNA vaccine against the disease and one of the first effective treatments, investor sentiment towards Pfizer was high while lockdowns were in place, reflected in the company's share price. However, shifting public views on the pandemic led to Pfizer revising down its expected revenue for the year by $9 billion and cutting its earnings forecast in half. Now, Pfizer only reports earnings excluding Covid-related sales as they are no longer core to its growth.

Following significant cost reductions, Pfizer believes it is well positioned and is looking to capitalise on new opportunities to drive its recovery, such as diabetes drugs that can aid weight loss. The use of GLP-1 receptor agonists for weight management has benefited early players in this area, like Novo Nordisk and Eli Lilly, with the latter seeing its share price triple largely due to this drug. Unlike with Covid, Pfizer is a late entrant to this market. However, in an attempt to offer a differentiated approach to attract more customers, it faces additional challenges.

Increased Funding, Heightened Competition

Pfizer is supporting danuglipron, a pill that functions similarly to Ozempic but can be taken orally instead of via injection. The convenience may attract more consumers. However, the company previously faced issues last year during its Phase 2b trial, which saw significant adverse effects despite proving effective. To address this, Pfizer is advancing a once-daily dosing regimen-based trial that halves the dose, with results expected later this year.

Yet Pfizer is no longer alone in this market. Roche announced the successful results from its Phase I trial of a weight loss GLP-1 pill on Wednesday. The Swiss company will soon initiate Phase II studies, potentially providing outcomes later this year as well. For now, Roche still leads, having completed Phase II trials. Should Roche also succeed, it could mean Pfizer will soon face competition even if its drug is approved.

On the other hand, this may not pose much trouble as the overall weight loss industry is projected to reach $150 billion in annual sales by the early next decade. In the short term, though, demand is so strong that sales have been restricted mainly by supply. With four major producers potentially entering the market next year (Novo Nordisk, Eli Lilly, Roche and Pfizer), competition (and profit margins) might become a consideration. First, the medications must pass trials, and even Phase II success still indicates a 58% chance they won't reach the market. Pfizer has a long road ahead to take to replace Covid revenue.

Pfizer Could Break Higher

Pfizer is attempting to rise above $30, around 20% higher than the regional bottom of $25. If upward movement is sustained, the share price may subsequently reach the measured-move target of $35 and potentially surpass $40. However, if momentum wanes, the price could fall back to around $27 before potentially retesting bottom.

Source: SpreadEx / Pfizer

Key Takeaways

Pfizer reported strong Q1 earnings but lowered 2024 guidance by $9 billion due to changing pandemic views. Now, looking at diabetes drugs that aid weight loss, Pfizer's pill danuglipron functions like Novo Nordisk's Ozempic but orally. However, Phase 2b trials showed side effects despite effectiveness, so Pfizer is testing a lower once-daily dose with 2022 results expected. Roche also announced successful Phase I weight loss pill trials on Wednesday and will soon begin Phase II, potentially providing outcomes later this year. Competition may rise with four major producers potentially entering the projected $150 billion annual weight loss market.