Pfizer's Down, But Not Out (PFE)

By Gregory S. Davis | January 24, 2007 AAA

Pfizer (PFE) has long been admired as the cream of the crop when it comes to investing in drug stocks.

But the sunny picture for Pfizer has begun to fray at the edges and the resulting 10,000 domestic job cuts along with a 20% headcount reduction forecast in Europe announced earlier this week are proof positive of changes meant to return Pfizer to its former glory.

While it is true that Pfizer is the only company to have 2 of the worlds' top 10 selling drugs, the footsteps of competitors and generic drug makers are only getting louder.

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Generic drug makers including Watson Pharmaceuticals (WPI), Mylan Labs (MYL), Barr Pharma (BRL) and Teva Pharmaceuticals (TEVA) are all posing threats to Pfizer and the other large patent holding drug makers such as Merck (MRK) and Bristol Meyers Squibb (BMY).

For the long term investor, the future for Pfizer is at best uncertain While demographics inclusive of the expected need of drugs to medicate U.S. baby boomers do play in favor of big pharmaceuticals, Pfizer must find a way to introduce new blockbuster drugs or it must grow through acquisitions.

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Pfizer's high cholesterol fighter Lipitor and high blood pressure fighter Norvasc generated sales of $12.9 billion and $5 billion respectively in 2006. Sales did increase incrementally for both over 2005, but the loss of Pfizer's exclusive patent protection in the U.S. on its antidepressant drug Zoloft had a dramatic effect on revenues and foreshadows the future for big pharmaceuticals that are heavily dependent on patent protected drugs.

Pfizer's Zoloft generated $3.1 billion in revenues in 2005, making it Pfizer's second top selling drug in the United States. The loss of the patent protection on Zoloft alone pushed sales for the drug down 35% to $2.1 billion in 2006. Patent protection for Norvasc, Pfizer's second top selling drug worldwide, is set to expire later this year. Despite this heavy blow, Pfizer managed to increase company-wide revenue for 2006 by 2%.


Not Without A Fight

Revenues for Pfizer's arthritis and pain medicine Celebrex increased 18% to $2 billion worldwide, while its central nervous system drug Lyrica increased 297% to $1.2 billion. Pfizer is not taking comfort in the fact that its patent on the world's top selling drug, Lipitor, is in place until 2011. Along with the staff reductions Pfizer has chosen to reshuffle its organization in hopes that smaller business units will create a more entrepreneurial spirit in the $48 billion dollar a year behemoth.

Pfizer also has plans for $10 billion in stock buybacks and a reemphasis on channeling hard dollar savings into R&D. With an increased focus on delivering drugs that doctors deem effective in treating the needs of patients, Pfizer's plans for the future make this stock one to watch. What's more, even though Pfizer's stock closed up on Wednesday, January 24th at $26.82, it is still paying a healthy 4.3% annual dividend.

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