According to the news report by CNBC, JP Morgan Chase & Co. downgraded its rating on Pfizer Inc.’s shares from “overweight” to “neutral” on Tuesday. The consultancy also warned its clients that the pharma company’s stocks’ rally would now slow down after having gone up by more than 22% this year.
Analyst Chris Schott from JP Morgan wrote in a note to clients that they had seen a positive shift in Pfizer’s strategy, which is now focused on increasing growth of the company’s top as well as bottom line growth to beyond the year 2020. This is where the company’s sales growth is expected to be about 5% higher than the group.
Schott added that now with the company trading on par with its peers as well as the broader market, they saw the improved core narrative better reflected in the company’s valuation.
He said that now, with further increase in stock prices most likely to be tied to either added pipeline successes or with strong new launches that gain momentum (however, these new product launches are slated to take place largely after 2020), they were moving to the sidelines and taking a wait and watch stance.
Pfizer’s shares fell by 0.9% in yesterday’s trading to close the day at $44.01 per share. Despite downgrading the company’s rating, JP Morgan kept its share price target for Pfizer at $46 per share. And despite the broader sell-off in the stock market, investors have boosted the pharma giant’s shares. Pfizer’s stocks have gone up by 21.5% year to date, vis-à-vis the rest of the pharma industry, which has seen a 7.4% gain in the same time period.
Zacks gave further details of why JP Morgan had taken such a sideline stance against Pfizer. The pharma giant’s top line is being affected by the loss of exclusivity for many of its top selling drugs. This includes Celebrex (for treating pain and inflammation caused by osteoarthritis, rheumatoid arthritis, etc.), Norvasc (for the treatment of high blood pressure as well as coronary heart disease) and Lipitor (to treat cardiovascular disease).
Pfizer lost its patent exclusivity for Pristiq (an anti-depressant) and Viagra (to treat erectile dysfunction and pulmonary arterial hypertension) and is now facing strong competition from the generics market for these two drugs.
The pharma giant will also be losing patent cover for a number of other drugs in the next few years. These drugs include Lyrica (used to treat epilepsy, fibromyalgia, neuropathic pain and generalized anxiety disorder) and Chantix (to treat nicotine addiction) among others.
Added to this is the fact that other pharmaceutical companies are trying to get approval to produce generic versions of Pfizer’s two major products – Xtandi (used for the treatment of prostate cancer) and Xeljanz (used to treat arthritis and colitis).
The loss of exclusivity for its premium drugs in 2017 cost Pfizer $2.1 billion in sales. And now, with even more drugs set to lose their exclusivity, the company can expect to lose up to $2 billion in sales over the next 3 years.
Despite these challenges, Pfizer is investing heavily in its drug pipeline. The company is looking at developing new drugs in areas such as oncology, inflammation, vaccines and immunology. It is also looking at developing new drugs in immuno-oncology.
Pfizer is expecting to get approvals for about 25 to 30 new drugs by 2022, of which 15 are expected to be blockbusters. The successful development of its drug pipeline will offset the intense competition the pharma giant is facing from generic drug makers. However, it will take a few years for that to happen.