Filed Under:
Tickers in this Article: PFE, MRK, GSK, WYE
Drug behemoth Pfizer Inc. (NYSE:PFE), the world's largest drug, blamed an underwhelming first quarter on the patent loss in January of a pair of stalwarts: hypertension treatment Norvasc and allergy medicine Zyrtec. Pfizer shares opened at $20.50 then fell since the company released its earnings on April 17, 2008 to close at $20.23 on Monday April 28, 2008. U.S. sales of Lipitor, the world's top-selling drug, plummeted 18% as patients switched in droves to generic variations of competitor Merck's (NYSE: MRK) Zocor.

I like Pfizer for a couple reasons, not least of them being an appealing dividend yield in excess of 6% at the current stock price. More fundamentally, though, the company has a potentially interesting product pipeline, including some potentially strong prospects in the oncology area. As Lipitor heads towards its exclusivity expiration in 2011, the company's fortunes will largely depend on the ability to produce a couple of blockbuster drugs and in the ability of CEO Jeff Kindler to streamline operations and continue the cost savings realized since he took the reins in July 2006. (For more insight, see Measuring The Medicine Makers.)

Generic Woes
Flagging revenues from generic competition seems to be a common theme among pharmaceutical companies this earnings season. GlaxoSmithKline (NYSE: GSK), the number two drug maker behind Pfizer, saw its first quarter profits drop 13.7% in the wake of generic competition. Wyeth's (NYSE: WYE) popular heartburn drug Protonix suffered a similar fate as its sales fell 66%. This trend highlights one of the major challenges drug companies face as they seek to navigate the trials and tribulations of Food and Drug Administration (FDA) approval to turn promising discoveries into approved, commercially viable successes and to leverage the economics of approved products by gaining approval for an expanded range of applications, or "new indications" in the sector's vernacular. (To learn more, read The Industry Handbook: Biotechnology)

New Indications Hold the Key
Pfizer has a handful of promising drugs among its product portfolio. A trio of up-and-comers contributed about $1 billion to 2008 first quarter revenues. Lyrica, the only FDA-approved medicine for relief of chronic pain associated with fibromyalgia, increased 47% to $582 million from the prior year quarter. Anti-smoking drug Chantix increased 71% to $277 million and breakthrough cancer treatment Sutent increasd 86% to $190 million compared to first quarter 2007.

Sutent provides an instructive example of the importance of new indications for products with existing approved uses. Currently Sutent is approved for the treatment of advanced renal cell carcinoma (RCC) and gastrointestinal stromal tumor (GIST). In a presentation to research analysts on March 5, CEO Kindler highlighted significant potential revenue expansion over time from new indications for Sutent, including non small cell lung, colorectal and breast cancers among others. Phase 3 (late stage) testing for those three indications is ongoing so approval is possible but not certain. (For furthing reading, see Chasing Down Biotech Zombie Stocks)

The Pipeline
In total Pfizer currently has 102 projects in the pipeline from Phase 1 (early stage) through post-Phase 3 registration. Which of these, if any, become the next patent-protected blockbusters is anybody's guess. Still, there's very little upside optimism built into current share price levels and that makes for a fairly enticing value play in my mind.

Conclusions
Pfizer has to show that it can make continued progress in streamlining operations while generating enough excitement in new products. The market hasn't given much of a thumbs-up to CEO Kindler in pricing upside into the stock. This, along with a quarterly dividend, may argue the case for a Pfizer position in value portfolios.


comments powered by Disqus

Trading Center