In bygone centuries, medicine consisted of bloodletting and leeches. Cures were simple and inexpensive, if petrifying. But with the modern development of pharmaceuticals, and the human predilection for consuming a pill over having a malfunctioning body part excised by a moonlighting barber, the drug industry has become one of the world’s largest and most profitable. That’s something Pfizer, Inc. (PFE) shareholders have well understood for decades.

Since 2009 Pfizer has been among the 40 stocks that comprise the Dow Jones Industrial Average. Its subsidiaries include several formerly stand-alone pharmaceutical companies enormous in their own right, among them Parke-Davis, Wyeth and Searle. Pfizer's 2009 Wyeth acquisition alone represented the largest corporate takeover in years, costing it $68 billion, one-third of that money financed. That banks were willing to lend $23 billion at a time when money was notoriously tight speaks to Pfizer’s consistent profitability. (For related reading, see: How Johnson & Johnson Became a Household Name.)

Blue Chip Before Blue Pills

To the unassuming public, one drug company is largely indistinguishable from the next. They develop, they test, they patent, they sell, they get fined by the U.S. Food and Drug Administration. But to observant investors, drug companies differ greatly. A roster of effective, heavily-prescribed, high-margin medications can turn a manufacturer from a struggling also-ran to the bluest of blue chips. And Pfizer’s line includes some of the most (financially) potent drugs in existence.

Pfizer’s history goes back to 1849, its first few chapters including steady growth and the development of crucial antibiotics that saved the lives of countless infected Allied soldiers during World War II. But the company’s story reached a climax with the 1998 debut of sildenafil, a drug originally intended to combat the effects of pulmonary hypertension. You might know it by its alternate application, and/or by its trademarked name: Viagra.

Dominant Market Share

Chemically induced tumescence wasn’t always a staple of romantic life. Viagra represented so groundbreaking a development that within a year of its release, it enjoyed close to a 100% share of a rising and ever more virile market. While several competitors – notably Bayer/GlaxoSmithKline plc’s (GSK) Levitra and Eli Lilly and Co.’s (LLY) Cialis – have since cut into Pfizer’s profits, Viagra still accounts for almost half of worldwide erectile dysfunction prescriptions. (For related reading, see: Evaluating Pharmaceutical Companies.)

The $2 billion the company makes annually on Viagra represents only about 4% of Pfizer’s revenue, but the margins on Viagra are something to behold. The company understandably doesn’t release figures on how much it costs to create each marginal Viagra pill, but we can deduce its cost indirectly. Pfizer’s patent for Viagra expired in Europe in 2013, and the predicted rush of generics to market has happened in earnest. Given that Viagra knockoffs now sell for barely $1 a pill in the United Kingdom, the cost of producing them must be less. Viagra retails for about $10-15 in the U.S., where its patent doesn’t expire until 2017. You can thus figure the profit margins out yourself; the math, at least, is not hard.

But Not Just Viagra

The success of the world’s favorite impotence treatment isn’t even Pfizer’s most notable success. As remarkably as Viagra sales thrust upward after their late-‘90s release, the drug remains only Pfizer’s third-biggest seller in the United States and Canada. The company’s flagship drug on its home continent, at least for now, is Lyrica – used to treat fibromyalgia, epilepsy, and other diseases that cause patients to convulse.

Pfizer sold $625 million worth of Lyrica in the most recent quarter for which figures are available, fully twice the revenue generated by Viagra. Despite Lyrica’s intended specialized use – for the treatment of a disease that often manifests itself in violent and debilitating seizures – in practice Lyrica is mostly prescribed for patients who suffer from anxiety. Name-brand Lyrica sells for around $2-3 a pill, a price Pfizer will enjoy until generic pregabalin appears in the U.S. market in 2018.

A Pill For What Ails You

Not far behind Lyrica on the list of Pfizer’s top sellers is Celebrex, an anti-inflammatory medication that Pfizer recommends for the treatment of arthritis. The company sells well over $2 billion worth of Celebrex in North America annually, a number that’s remained consistent for several years. Depending on strength, Celebrex capsules retail for around $1.50 or $3 per capsule. (For related reading, see: Pharmaceutical Phenoms: America's best-Selling Medicines.)

The remaining largest contributors to Pfizer’s revenue total (which routinely stands at over $50 billion annually) include Lipitor (a statin that lowers blood cholesterol), Zoloft (an antidepressant), and the noted over-the-counter pain reliever Advil. A special case is Prevnar 13, a vaccine intended to prevent pneumonia in adults and which technically counts as Pfizer’s second-most lucrative offering after Lyrica, with worldwide sales approaching $4 billion last year.

As to why Advil isn’t higher up the list of Pfizer’s biggest sellers, as an over-the-counter medication Advil falls under the purview of the company’s consumer healthcare division. That’s where you’ll also find such common household medicine cabinet staples as Dimetapp, Robitussin, ChapStick and Centrum. Yet despite those products’ ubiquity, consumer healthcare operations are responsible for a mere 7% of Pfizer’s income.

The Bottom Line

The fact is undeniable – pharmaceuticals, the brainchildren of untold man-years and billions of dollars of research and development, represent the overwhelming share of Pfizer’s business. And will continue to indefinitely. (For related reading, see: Pharmaceutical vs. Biotech Investing: Is It Worth The Risk.)

Related Articles
  1. Stock Analysis

    How Warren Buffett made Berkshire Hathaway a World-beater

    It would almost be easier to list the industry sectors in which Omaha-based Berkshire Hathaway Inc. (NYSE:BRK.A) doesn’t turn gargantuan profits.
  2. Investing Basics

    Defining The 3 Types Of Investments

    Investments can be divided into three distinct groups – ownership, lending and cash equivalents.
  3. Stock Analysis

    Gilead's 3 Key Financial Ratios (GILD)

    Learn about key financial ratios for Gilead Sciences. Read about a large debt offering the company made in the third quarter of 2015.
  4. Mutual Funds & ETFs

    Invesco’s Top Funds for Retirement

    Here's a list of Invesco investments—retirement funds—that may work for you if you have the time to let them mature over the long term.
  5. Stock Analysis

    Starbucks: Profiting One Cup at a Time (SBUX)

    Starbucks is everywhere. But is it a worthwhile business? Ask the shareholders who've made it one of the world's most successful companies.
  6. Stock Analysis

    How Medtronic Makes Money (MDT)

    Here's the story of an American medical device firm that covers almost every segment in medicine and recently moved to Ireland to pay less in taxes.
  7. Investing News

    Latest Labor Numbers: Good News for the Market?

    Some economic numbers are indicating that the labor market is outperforming the stock market. Should investors be bullish?
  8. Investing News

    Stocks with Big Dividend Yields: 'It's a Trap!'

    Should you seek high yielding-dividend stocks in the current investment environment?
  9. Investing News

    Should You Be Betting with Buffett Right Now?

    Following Warren Buffett's stock picks has historically been a good strategy. Is considering his biggest holdings in 2016 a good idea?
  10. Investing News

    Yo Shkreli: Kanye Doesn't Want Your $10M, Bromance

    Martin Shkreli, I'm really happy for you, Imma let you finish, but you might be one of the weirdest ex-CEOs of all time. Of all time!
RELATED FAQS
  1. What is a basis point (BPS)?

    A basis point is a unit of measure used in finance to describe the percentage change in the value or rate of a financial ... Read Full Answer >>
  2. Do hedge funds invest in bonds?

    Hedge funds have the freedom to deploy their capital in virtually any manner. They can use leverage, invest in non-publicly ... Read Full Answer >>
  3. Do mutual funds pay dividends or interest?

    Depending on the type of investments included in the portfolio, mutual funds may pay dividends, interest, or both. Types ... Read Full Answer >>
  4. Can mutual funds only hold bonds?

    While some mutual funds include bonds in addition to other asset types, certain funds, aptly named bond funds, hold only ... Read Full Answer >>
  5. What are the risks of annuities in a recession?

    Annuities come in several forms, the two most common being fixed annuities and variable annuities. During a recession, variable ... Read Full Answer >>
  6. Are high yield bonds a good investment?

    Bonds are rated according to their risk of default by independent credit rating agencies such as Moody's, Standard & ... Read Full Answer >>
COMPANIES IN THIS ARTICLE
Trading Center