I was going to write up Moderna as a short but since someone beat me to it, I’ve been pondering whether to go with Pfizer. PFE’s downside isn’t as significant but after giving thought to recent events, I’m increasingly convinced it’s also a good short.
My objective is to do this without delving into divisive arguments about whether a certain therapy Tshould be given to a person P to addressa certain condition C. Instead, the goalis to simply predict how the players in this situation are likely to behave.
Consensus today is that Pfizer is a blue chip. The stock seems pretty fully valued, like other mega-cap stocks. My view is that Pfizer has inadvertently entered a high-stakes political poker hand in which its intrinsic value is exposed to significant impairment, kind of like when the GSEs decided to dabble in higher risk paper. If it loses this hand, I believe there will be a decline in consumer demand forPFE’s products, a decline in the prospects of favorable deals/partnerships with other pharmaceutical companies and certainly a deterioration of its relationships with governments, which is important because governments are essentially Pfizer customers as well as arbiters of whetherPfizer products are allowed in the market.
What is this high-stakes hand? Well, over the past 2 years the company has taken advantage of a market opportunity in a way that causedthe word ‘Pfizer’ to enter everyday vocabulary. As such, the Pfizer brand as a whole is now subject to the ongoing judgment of society at large. In my research, I found that many members of the public would hesitate before consuminganother Pfizer product P2 if their therapy Twas proven dangerous; even the rest of the pharmaceutical could take a hit under such a.In fact, in many people’s minds, the Pfizer brand has lost lots of value already, and so the downside scenario is already playing itself out to some extent.
An examination of the company’s position relative to Phil Fisher’s 15 points exposes multiple weak points that are useful in evaluating the company’s prospects. I will start by discussing the brand and then I’ll go through the 15 points.
Before 2021, Pfizer hada benign brand image, similar to other large pharmaceutical companies: the company name was mostly used byfinancial market participants, by the medical/pharma community in the course of day-to-day operations, by certain members of the population who were using Pfizer products. For all other people, Pfizer was mostly a name they may have seen in its various advertisements.
Let us now compare that with Pfizer’s brand positioningas of this write-up, at the end of 2021. Today the word ‘Pfizer’ is pronounced (i) by more people than ever before, say at least 50%of people outside of Asia and (ii) for very different reasons than it was pronounced before. This and other company names like ‘Moderna’, ‘Astra-Zeneca’ and ‘J&J’, have entered the vocabulary of the average person as a way to refer to just 1 product from each of these companies. It is unusual that the name of the company, and not the productitself,is used in reference to the product. For example, when someone uses the #1 rated condom, they say “I use Trojan”, not “I use Church and Dwight”.
This raises the stakes from a branding point of view for all of these drug makers. If the effort to mass-deploy inoculationsgoes smoothly, people will love the drug makers in question and these companies’ brand value will be perhaps increase. However, should a scandal occur, the equities could suffer more than they would have if all the chain of events would not have taken place(kind of like FNM and FRE securities during the housing bubble) because peoplemayswear off these companies. To contrast with the condom business, if tomorrow there’s a scandal involving Trojan condoms, sales of Arm & Hammer shouldn’t be impacted that much.
And so the question of course is: will there be a scandal? Is there one already? Where do things stand? Again, we shall avoid fanning the flames of ‘debate’ and simply state what is observable. From the perspective of one group of people, everything is going well so far. Many are making appointments for more inoculations; perhaps also proceeding with the younger age ranges. But there’s another large group who sees the situation quite differently. For that group, a scandal is brewing already and for them the Pfizer brand has negative value.
Consider for instance the following Pfizer Tweet sent on November 10, 2021 with comments disabled:
There were multiple replies from people visibly mocking and/or angry at the company; here’s a couple of examples: