Is it time to sell your Pfizer stock?

Is Pfizer (Pfizer Stock Quote, Chart, News NYSE:PFE) looking interesting here? With its gains over the past couple of years effectively erased now and the stock plunging big time over February, investors might think there’s value in the pharma giant. Don’t buy it, says fund manager Gordon Reid, who says the environment for drug developers like Pfizer is really quite poor.

“I'm not a fan of Big Pharma. I prefer the the bio tech area,” said Reid, president and CEO of Goodreid Investment Counsel, in conversation with BNN Bloomberg on Tuesday.

“Big Pharma is handcuffed by legislation that allows patents to expire and biosimilars and generics to start to compete. It's extremely expensive to develop a drug, the failure rate is high and when you're only are able to reap the rewards of successful drugs for short periods of time, it’s just not working,” he added.

Pfizer’s share price has been dwindling since its most recent earnings report in late January which showed a company with weakening sales and declining profits. Pfizer’s fourth quarter revenue fell by eight per cent to $12.7 billion with a net loss of $337 million compared to a loss of $394 million a year ago. Adjusted earnings came in at $0.55 per share compared to the consensus expectation of $0.57 per share. (All figures in US dollars.)

Pfizer’s big news is its plan announced last summer to split the company in two, selling off its generic drug business under the Upjohn grand to Mylan NV while maintaining its focus as a research-based developer of therapies for cancer and rare diseases.

The market seemed unimpressed with the planned transformation when announced last July, where the stock dropped 14 per cent over the ensuing couple of weeks.

In the company’s fourth quarter report, chairman and CEO Albert Bouria said with the close of the Upjohn-Mylan transaction expected by mid-year 2020, the New Pfizer should be set to deliver top and bottom line growth at levels among the best in the industry, with important clinical data readouts coming from the company’s early, mid and late-stage pipeline.

But Reid says that Pfizer’s M&A efforts are questionable.

“What we're seeing is that the big pharmas can't grow revenue. You know, you come up with this blockbuster and it carries you for a while, goes off patent and you're forced to come up with another big blockbuster — it’s like bailing and leaky boat,” Reid says.

“What these companies have done over the years is in a flat revenue environment they've tried to cut costs and they've done it effectively, but they've done it through mergers of mammoth companies,” he said. “Pfizer itself acquired Warner Lambert, acquired Wyeth, these go back a long while, but they had to take these companies and amalgamate them to cut the costs of operations and that's not a great formula for stock appreciation.”

Pfizer finished 2019 down 10.2 per cent, while so far in 2020 the stock is down another 11.3 per cent.