Billionaire Ken Griffin just bought 7.9 million shares of this beaten-down pharma stock as he targets the weight-loss market

Each quarter, hedge funds that manage more than $100 million must file a Form 13F with the Securities and Exchange Commission (SEC). These filings detail what stocks investment firms bought and sold in the most recent quarter.

Ken Griffin is a billionaire investor who is the CEO of hedge fund Citadel. Last quarter, Citadel bought 7.9 million shares of Pfizer (PFE 1.11%) — increasing the stake in the pharmaceutical giant by 63%.

The past few years have featured plenty of ups and downs for Pfizer. While the stock has been profitable so far in 2024, Pfizer shares have declined more than 30% over the past three years.

Below, I’ll highlight some of the bigger factors that influenced Pfizer, while also sharing my thoughts on what might have influenced Citadel to load up on the stock.

What’s Causing Pfizer Stock to Fall?

I see three major influences that have contributed to Pfizer’s share price decline.

1. COVID-19: Along with Modern and Johnson & JohnsonPfizer played a key role in the development of vaccines that fought against the COVID-19 virus. In the chart below, the gray-shaded column represents the short-lived COVID-19 recession.

PFE Revenue Data (Quarterly) by YCharts

Between 2020 and 2022, Pfizer’s revenue and profits grew thanks largely to the company’s COVID-related drugs, Comirnaty and Paxlovid. However, starting in the fourth quarter of 2022, Pfizer’s growth witnessed a noticeable deceleration due to declining demand for these COVID treatments as the world emerged from peak pandemic conditions.

2. Purchases: In an effort to combat stagnant growth and diversify its product offerings, Pfizer acquired oncology specialist Seagen for $43 billion in December 2023. While revenue from Seagen will help offset declining sales of Comirnaty and Paxlovid, acquisitions often require years of integration efforts before they are fully accretive.

3. Road map: One risk to always keep in mind with pharma stocks is that these companies face patent cliffs on their drugs. Over the next few years, Pfizer expects to face patent challenges for some of its biggest drugs, including Eliquis, Ibrance, Prevnar 13 and Xtandi. While it’s difficult to know how much Pfizer’s growth will be affected as generic alternatives to these treatments hit the market, the company could very well lose billions in sales.

Something else can stay in the background

With sales from Pfizer’s blockbuster COVID treatment declining, combined with billions more in revenue at stake due to expiring patents, what else can Pfizer do to offset these risks other than organic derivative growth from purchases?

One hot area in healthcare that Pfizer has been pursuing for some time is weight loss. Glucagon-like peptide-1 (GLP-1) agonists such as Ozempic, Wegovy, Rybelsus, Saxenda, Mounjaro and Zepbound have been transformative growth factors for their developers, Novo Nordisk and Eli Lilly.

The total global addressable market (TAM) for GLP-1 is expected to reach $100 billion by 2030, according to research from Goldman Sachs. Although Lilly and Novo Nordisk dominate the GLP-1 space right now, a number of other pharmaceutical companies of varying sizes are competing to enter the market.

Although it is still early days for Pfizer’s GLP-1 candidate, Danuglipron, recent clinical trials have indicated that the drug is well tolerated.

Image source: Getty Images.

The bottom line

Given the unknowns surrounding Pfizer’s business in terms of offsetting sales declines from COVID drugs, the vulnerability presented by patent cliffs, and the multi-year timeline surrounding large-scale acquisitions, I’m not surprised to see Pfizer stock continue to decline.

Right now, Pfizer trades at a forward price-to-earnings (P/E) multiple of just 10.8. To put this into perspective, that’s less than half of the S&P 500 forward P/E multiple of the index of 23.2.

I think the current trading activity around Pfizer stock paints a clear picture; many investors think about short-term risks rather than long-term prospects. Another way to look at it is that potential gains from Danuglipron combined with growth from Seagen could more than offset any losses from other drugs over the long term.

Pfizer’s contract valuation and its potential to enter new markets could be what compels Citadel to continue buying shares.

That said, it will be years before Pfizer gets a foothold in the cancer treatment market. Furthermore, there is no guarantee that its weight loss ambitions will ever be realized, as much more testing with the Food and Drug Administration (FDA) will be required before Danuglipron can potentially reach the market.