Pfizer’s big fat fail 12/1/23

0:01Live from the Nasdaq market site in the heart of New York City's Times Square. This is fast money. Here's what's on tap tonight. A strong start. December picking up right where November left off. Rates keep falling. Stocks keep rising. And from tech to regionals to the consumer, it's a sea of green. Should investors keep riding the momentum through year end? We'll debate that. Plus, big fat fail. Pfizer pulling the plug on its twice a day weight loss pill as too many patients said no mask to the drug because of the side effects. Is Pfizer in danger of being left out of the obesity boom? Plus, it's Friday and that means it is time for a little options action.

0:34Professor Koh and the Chartmaster together again. They're ready to rap about the regional banks coming up. I'm Melissa Lee coming to you live from Studio B at the NASDAQ. On the desk tonight, Steve Grasso, Bono and Eisen, Carter Wirth, and Mike Koh. We'll get to the market's strong start to December in a minute, but we begin with Pfizer and its supersized losses today. The stock falling more than 5 % to its lowest level since March 2020. After the drug giant announced it is pulling the plug on its twice-daily weight loss pill, Pfizer saying patients struggle to deal with the side effects from taking this medicine.

1:06For the year, Pfizer is now down over 43 percent, badly lagging its obesity drug rivals. Eli Lilly nearly 60 percent higher on the year, while Novo Nordisk is up 48 percent. Here now to take us inside today's setback, CNBC's Angelica Peebles. Hey, Angelica. Hey, Melissa. Yeah, so Pfizer's ambitions in the obesity space falling behind today after the drug denuglipron caused high rates of side effects for trial participants. More than 70 percent reported nausea, nearly half experienced vomiting, and a quarter of participants experienced diarrhea. The twice-daily pill did deliver weight loss of up to 13 percent, but that was slightly below what the street was looking for.

1:46And that, in addition to the side effects, were just too much to overcome. Now, Pfizer says it'll keep working on a once-daily formulation of this pill. The company is expecting data on that in the first half of next year. And those results will determine the next steps, if any, for this pill. But it still puts Pfizer further behind Novo and Lilly as it tries to break into the obesity space. Melissa? Angelica, what is the difference between the once-daily formulation, which is a time-release formulation, and the one that was twice-daily? I mean, why will it yield any different side effects, maybe fewer side effects?

2:19But still, the side effects in terms of the percentage of patients that experience them were so high. And that's a big question. I've seen a few analysts today and even investors talking about whether it makes sense for Pfizer to keep moving forward. It's essentially the same drug, but it's once a day versus twice a day. Of course, there's probably some nuances to the to the formulations there. But the idea is that it's still the same drug. And I think that's why you're seeing the reaction that you saw today where investors are just really negative on the on the prospects for this. All right. Angelica, thank you.

2:55Angelica Peebles. What was interesting today, too, was that Eli Lilly and Novo Nordisk wore down on the session even and melted down into the close of the session, even though stocks did sort of the opposite. Carter, what's your take on these stocks? Well, I mean, the first thing we know is that health care has been a massive underperformer to the S &P, and it's breaking its all data relative trend lines. So we don't like it as a space. But what remarked about Pfizer is, of course, this was always the largest or one of the largest, now number eight in terms of market cap. and its COVID lows are in play.

3:26Right. And so it still hasn't figured out after all this time what its future is post-COVID. I mean, imagine being back before it discovered all these, you know, just sort of seminal vaccines that changed the course of events in the pandemic. Right. You need something to replace or plug that hole. You know, when we listen to that entry, you talk about diarrhea, vomiting, and nausea. I'm thinking, isn't that what they're looking for? That's what you want to lose weight. You don't want weight loss that way. I kid. I kid. But when you look at this, they still haven't figured out how to plug that hole.

4:00If you look at Moderna, Moderna actually has weaker year-to-date performance than Pfizer. So they're all trying to figure out what the next Holy Grail is. And they'll continue on that climb until they figure out whether it's a combination of two or M &A and figure out how they do it. I really think the only bull case right now is its recent performance. And what we've seen is there's been an outperformance of contrarian bulls. And they've done well over the past couple of months or the last month specifically. But I think when you look at Pfizer specifically, I think the only way the real path to growth for them is going to be via acquisition.

4:33And that implies that they're going to have to continue to pay a premium in order to be a player in the market. And for that reason, it's just tough to really get bulled up. I do think it's really tough to set up a short here just because of the underperformance. but for them to to like essentially climb over the R &D hill, then pay an acquisition premium. They still have the S-Gen acquisition that's still on the horizon. I really just think the path for them to be a real player in the space is is going to be difficult. With that said, they have plenty of cash. So I would expect that they will be in the acquisition market.

5:04So they do have that that pending acquisition, which is now expected to close sometime in 2024, Mike. And that could give them all sorts of new cancer drugs. Are we setting up here where this could be a real value? Well, I think it is looking a little bit like a value here. I mean, right now the company has got about a 15 percent margin. Go back to 2018 when the company was making about 13 and a half billion on significantly less revenue than the company's got right now. You get to that number, you're going to get another three and a half, four billion dollars a year in net income. So part of their problem is clearly coming on the expense side.

5:37But as far as the appetite suppressant, that basically these side effects basically represent, you'd probably lose more than the 10 percent that you got on that trial just reading the side effects, I'm guessing. But I mean, that is obviously going to be a critical area, not only for them, but for everybody. I mean, that's probably the biggest growth prospect. So I think that's something you're going to have to continue to focus on. Hopefully they can rein some things in on the on the cost side. And then I also think there's a little bit of liability potentially associated with some of the vaccines.

6:04And I think that's weighing on the stock as well. For more on Pfizer's weight loss pill setback, let's bring in Jared Hulse. He's a health care equity strategist at Mizuho. Jared, always good to see you. In your note this morning, which came out, I think, at 7 o 'clock in the morning, you said you didn't expect it to fall more than 5 percent. It fell a little bit more than 5 percent. It's amazing that this was actually in the stock, considering how low the stock was to start with. Exactly. I feel like, you know, expectations for Pfizer have been low, I think, for a reason. They have been really unable to, you know, prove their pipeline out to investors, at least over the past few years.

6:43I think that's why there continues to be pressure on it trades at a low multiple. It's at a 52-week low. It's also trading where it was 30 years ago. So I think it really just depends on what your time horizon is, if you want to take a shot at it right now. But I do think that when you look at the reaction today from investors, there's disappointment because the company continues to kind of, you know, make sure that they are expanding their pipeline and giving you new assets to hold on to. And this one, you know, falls by the wayside. Is there still hope for the once a day pill? What will be the difference between the twice a day and the once a day when it's the same compound except once a day and time released?

7:24There's hope for it, but I wouldn't be betting on it, right? Like Pfizer is trying to obviously play catch up here. I think anytime you play catch up in this industry, you wind up facing uphill battles because a lot of the patients that need the medication are already on Novo or Lilly or have been on another clinical trial in the obesity space. So to put out another positive clinical trial, I think it's harder by the day. There's diminishing marginal returns, I think, for all of the companies that are trying to play catch up. I'm not very favorable on it. I feel like they're trying to get very good efficacy out of one pill.

7:59I feel like when we look at the one versus two, efficacy probably comes down. Now you're in the high single-digit to low double-digit range. Even if safety is good, Lilly and Novo are giving you 18%, 20 % weight loss. So at this point, then, it sounds like you think Lilly and Novo have a lock on the market. Or is there hope for some of the others? Because there are still others that are still working on weight loss drugs. For now, I totally do. I think Amgen's got a shot next year. Pfizer, maybe they continue down the road. And grace of God, something good comes out of this one pill. Or they wind up going and acquiring something like Astra did a couple of weeks ago in China.

8:35You've got structure out there. You've got turns out there. You've got biking. So there are shots on goal, albeit way behind. But like we saw Novo and Lilly do over the past couple of weeks, they're investing billions in manufacturing. So small cap biotech, I believe, will not be able to actually manufacture nor commercialize. So I think the only way out is M &A. Maybe we start to see some of that next year. So, Jared, you just mentioned it. Amgen was the way I would play it because you haven't seen the bounce that you've seen in the other names. But are they too far away from actually making any progress?

9:07And the other side of the question is, if we're talking about Pfizer M &A, do we look at those companies or are they too small that we wouldn't even know them? You could look at them. GPCR is structure. That was an IPO earlier this year. Stock has done very well out of the gate, albeit on very few patients. Terns, T-E-R-N, these are all small cap names that the healthcare community looks at. But, you know, broadly speaking, they're probably not super well known. So there are ways to play it. People have put baskets together. It's been hit or miss because you've had some real failures. You've had some early success, this structure being one of them.

9:41I think Amgen's a fine way to play it. They haven't gotten nearly the credit Lillian Novo have, right, just from a market cap perspective. So if they have something there, could there be another$50 billion,$100 billion jump if, in fact, their injection is as good or better? It's possible. Is Pfizer worth investing? I mean, do you think it's a value or do you think that it's just too murky at this point? It's trading terribly. It doesn't have the pipeline. There are too many unknowns. It's been decades since the stock has really worked, right? It worked during COVID for obvious reasons. I'm not there.

10:14I find it very difficult. I think any time that you have to acquire drugs that all of you mentioned earlier in the show in order to just fulfill revenue and earnings growth, I think that's a really tough story. For Eli Lilly and Novo Nordisk, what are sort of the wild cards that can stand in the way of the stock's continued gains? Is it maybe black box label in Europe because of the suicide concerns? I mean, what is it out there? I'm not concerned about the suicide situation. It seems too small to really matter. And it's probably, you know, really refined to a select community. But I do think pricing at some point, we've discussed this before, that will come into play.

10:55Call it 2027, 2028. Pricing in terms of pressure downward. Downward pressure on pricing. Because of Medicare. Exactly. Because of Medicare and what that might mean for commercial. and just broad-based managed care saying, before we prescribe this to every person that wants it, make them at least jump through some hoops. We've heard a little bit of anecdotal evidence around dieting and exercise for some period of time before getting on it so that the insurance companies are not writing scripts left and right, because if they do, you know, it's going to be a tough problem for them. So if not Eli Lilly, if not Novo, then not Pfizer, then what?

11:35I've been pushing Merck a little bit. I feel like the Keytruda concentration, the entire world knows is going on. Not a secret. They've done a lot of M &A over the past two years, acquiring hematology assets, acquiring inflammation assets and not for massive numbers. So I think they're trying to get ahead of it instead of, you know, getting behind the eight ball and then having to acquire in 2028. They're doing it kind of proactively. And I think AbbVie is fine, too. We saw them do a transaction this week. It was rewarded. Didn't seem like they paid a ton for an asset that could put up three, four billion by 2030.

12:10So those are the two I would play, if not these. I'm still I'm still sort of thinking about you saying Astra acquiring the Chinese, the right to the Chinese drug. Right. Because that was like phase one. Correct. And you're saying even that could move the needle, something like that. Because that just seems sort of like a press release. It's possible. I mean, they only paid$100 million plus or minus for it. So I think it's a call option. If it works, amazing. If not, no big deal. But I think you've got to be, being in this space has obviously been incredibly impactful for two companies. No surprise, everyone else is trying to do it.

12:45Jared, good to see you. Thank you. You too. Thanks. Mizuho. Mike, I'll go to you for the trade. Yeah, I mean, we saw a huge amount of options trading today on the back of this news, unsurprisingly. Traded almost 400 ,000 contracts, 200 ,000 puts trading, and it was mostly the 27 strike. But I did see some people selling some of those puts, kind of drawing a line in the sand here, thinking that maybe most of the damage has been done and they'd be willing to pick it up right around that 27 level should it fall down there. Yeah. Well, that's it. I mean, the question is, do we or don't we get to the COVID lows at 2640 or 29 plus minus in principle?

13:21And while we all break these rules, it is never right to buy a stock at a downtrend. And this is just an impaired situation. Stay away. Resist. Yeah, I like the way Amgen's setup is. The problem is people still think about this. We have option players on the desk, so these are not the ones that I'm targeting this to. It's an expensive price stock. You should play that through options. But Amgen is given pretty much zero credit for an obesity drug right now. And this one, Jared mentioned it, briefly glossed over it. This one has not given any credit for it. I think you could find the hidden gem there.

13:57And then he talked about Tern Pharmaceutical, T-E-R-N. That one is a lower market cap, but it's a cheap stock. That one you could play, too. Listen, when we talk about people that are already in the space, we talk about the moat that's there. And I think there's clearly a moat around these two. And then Lilly is best in class. There's a study that came out essentially saying there's 15 to 18 percent more efficacy and they lost more weight over time. So why not stick with what's working? There's a lot of speculation. If you told me or Mike or Carter that I'm paying 100 million dollars for a call option, I'd probably say you're better off just buying the stock.

14:29And for that reason, I just think given all the speculation, what we don't know, the only thing that we do know for sure is that the heel in order to get into this space is quite steep. I'm going to stick with one of the people that are already there. It's Lily for me. Markets kicking off December the way November ended, charging higher. The streets seemingly ignoring Fed Chair Powell's warning that the talk of cutting rates is premature and more hikes could still happen. The major average is finishing the day higher across the board. The Dow at nearly 300 points. The Nasdaq and S &P up more than half a percent each.

14:59And check out the 10-year. It ended the week at 4.21 percent, a move of nearly 30 basis points just this week. Carter chartered the 10-year earlier for us this week. Has anything changed? Oh, it's more of the same, meaning rates are sinking. And the irony, of course, is that the street even came up with one of those terms they come up with, which was higher for longer. And as soon as that became the headlines, what happens? Rates start going down. It's just it's one of those things. Once people look for a moniker, it's usually the end of the run. But we have a few charts, and let's look at them together.

15:30So we were at 5%. We lived within this channel, very mathematically so. And now, of course, we've crashed down through it. And ultimately, we're approaching what I think is the first stopping point, which is 4.195 percent. And we're very close. At that point, this intermediate move will be a bit overdone, which brings us to the S &P. Of course, the S &P has loved this. There's always this belief that if rates are going lower, you expand the multiple. But I would say what one client said is interesting. As long as they are staying 4 to 5, 3, some 5. Once you go to three, it's not expand the multiple.

16:05It means something's wrong on Main Street, right? And that is the issue. So the question here for the market is we are literally back to where we were at the end of July. So a four-month round trip to nowhere. In fact, the entire year was about the first half. This was, if you look at this year, we were the 12th biggest year on record in terms of first-half performance. And second half, we're up 3%. We've done nothing in five months. And so we're back to the July high. And ultimately, I think we struggle here. That's not a popular view. I think everyone's keyed up for a big December, a big seasonal move.

16:36My bet is otherwise. So if you've enjoyed the market's run this year, it sounds like you're saying ring the register. Yes, that's always the temptation. There's only two circumstances you can be in. We know one is ahead of the market as the year-end approaches and then wants to maybe sort of play chess with it to keep that gain. Or one's behind and then either makes the decision, let's stop now because it could get worse or gamble even more so to catch up. That often is a mistake. Yeah. Mike, what's your take? Yeah, I mean, it's interesting that you look back to the highs that we were, the level we were back in July, because think what everybody was saying at that time.

17:11A lot of people were actually forecasting that we were going to see rate cuts by year's end, and that kind of justified where the market is. And now I feel that a lot of market participants are saying the same thing, looking about a comparable amount of time out, you know, looking five to six months. Essentially, the market I don't think is really buying Powell's, you know, higher for longer or, you know, we're going to keep him or there might be another rate hike. And the market is forecasting rate decreases. And I think that helps explain where equities are right now. Yeah. Do you think the market's rallying to your end?

17:42I do. Begrudgingly, I do. And I've definitely been on the wrong side of this. I hear Carter in terms of you don't want to chase performance. But unfortunately, you know, many investors are forced to chase performance or explain to their investor base and their profits why they haven't matched performance. So for indexing and for other reasons, I think, you know, I would likely play it with call options. I think it's tough because I do think there are a lot of headwinds going into next year. With that said, I do think you have to put some capital to work and it'd probably be with upside or at the money calls.

18:10Not to be cliche, but when bears turn bulls and they capitulate, that's when you sell the market. I think there's too many people. That's happened, right? No. How much is this? 5.8 trillion in money markets. We have five strategists on the sell side that have all upped their price targets to new record highs. If you if you listen to anybody, this is still the most unloved market rally. The amount of money, the trillions that are in money markets right now is still on the sidelines. Once you get those people to say, OK, let's go back to risk assets. That's when you think it's gone too far. It hasn't gone too far yet.

18:42Mike. Well, the VIX, I mean, at least that is an indicator of people's sentiment is definitely suggesting that people are pretty complacent here. I mean, we closed at less than 13. I mean, this is the pretty much the lowest levels of the year that we're at right now. And so that signals that folks are really not that concerned. So it does seem like there has been sort of a reluctant switch to bullishness. And if anything should have us a little bit concerned, it's it's that that people have gotten awfully complacent. So you're saying, though, that you want to be contrarian, basically. I want to stay contrarian because that's what's worked.

19:18But you think contrarian means being bullish and to your end. Yeah, I think definitively we go sideways to higher. If we break through 4 ,600 to the upside, then we could see new highs. And we've seen day moves that used to take months. Now you're seeing things just eclipse old levels of resistance and blow through them in an afternoon. But consensus is for a big December. Everyone's playing for the Santa Claus rally, if you will, the seasonal strength. And so maybe contrarian would be to be betting against that. Yeah, I hear where you guys are going. I don't think that everyone's got to consensus.

19:53We were just at$4 ,150 in the S &P, and everyone was eyeballing$3 ,600 in the S &P. It's happened like that. So I think we have the ability to break through. If people are still looking at treasuries, if people are still in a 10-year and in a money market, they have to come out of those for this to be long-winded. It's got to exhaust. People have to pull that money out, get into the risk asset. But then you also have to believe that your return is going to be greater than 5.5%. Yeah, well, you can have a 5.5%. I mean, at this point in the run. The stock market's below where it was two years ago.

20:25So that 5 % would have been real nifty two years in a row. A couple of weeks ago, we traded up 10 % in the S &P. So we're looking at outsized. And the VIX hasn't been a real barometer of the market bullishness in quite some time. And there is complacency if you're in treasuries. There is complacency. And I think that's why I'm saying you want to play it via upside calls. I think that the risk-reward profile doesn't really mean that I want to be in terms of this for a medium or long term. With that said, I tend to agree that there's likely going to be a squeeze. And just because consensus, there still is a hoard of cash on the sidelines.

21:02And you've seen, you've had people in Treasuries, and you've seen the performance of that asset. So if you're going to make the argument that you should take profits in equities, you can also make the argument that you should be taking some profits in the T-Bomb or Treasury market as well and redeploying that into some asset. I would argue that, to Carter's point earlier, yeah, we're flat on the year. But if you look at the timing from January to July and then from July here, there have been exacerbated moves. And so options gives you a chance to kind of play on the timing rather than expecting there to be a complete secular shift higher.

21:34Coming up, a huge week of earnings for consumer stocks. We'll bring you a full breakdown in a first look at how options traders are positioning for next week's reports. Plus, today's major movers, a paramount pop and a bob of breakdown as we highlight the Friday trade. That and much more when Fast Money rolls on.

21:55We've got a newslet alert here. We've got some additions and deletions to the S &P 500. One major addition, Uber. Deidre Bosa's got the details. Deidre. Melissa, that's right. Uber is sort of the most noteworthy addition right now to the S &P 500. Speculation months in the making that this would be coming. The shares are up nearly 5 % in the after hours. This is really a milestone and kind of cherry on top of a really good year for Uber. It achieved gap profitability. You needed to achieve that before you were eligible to even enter the S &P 500. It's won a bunch of regulatory battles. It's going to be partnering with Black Cabs in London.