Sunday, March 06, 2005

Pfizer (PFE)

I am currently long PFE. I unfortunately bought in right before the Vioxx withdrawal and entire COX2 fiasco. It looks like the stock bottomed in the 25 range and has moved up a bit after the FDA panel allowed Celebrex and Bextra to remain on the market (Black Box warnings). I'm not adding any PFE at the moment, but there are some catalysts on the horizon that could benefit the share price.

Positives/Potential Positve Catalysts:
  • Balance sheet is in great shape
  • Yield is currently 2.8%
  • By historical standards, valuation is quite cheap.
  • COX2's allowed to stay on the market. Rx trends should improve.
  • Torcetrapib/Lipitor combination could be the biggest selling drug of all time. Note that data on torcetrapib (drug that raises good (HDL) cholesterol) will be presented this week. A Lipitor/Torcetrapib combo would be a big boost to the PFE cholesterol franchise. I believe Lipitor patent expires around 2010
  • PFE's purchasing of R&D. http://biz.yahoo.com/ap/050224/pfizer_idun_1.html
    • PFE has long been criticized for weak internal R&D so they're doing something about it here. They made another acquisition earlier in the year.
    • Much of the focus of analysts is on the current drug lineup with PFE's impressive list of blockbusters plus any Phase III studies that are going on. As far as I know, PFE management does not discuss compounds in Phase I or II. I have to assume that a fair share of these compounds, whether bought or developed in-house, will get FDA approval.
  • Sales Force Rationalization--This is something that Morgan Stanley focuses on that could be a catalyst for PFE and Big Pharma in general. There is currently an abundance of PFE sales reps who repeatedly call on the same doctor. Will the industry follow PFE's lead should PFE do any kind of reorg?
  • We'll learn more about all of these issues at PFE's annual meeting in April.

Negatives
  • Lipitor/Torcetrapib is a big deal to PFE and I expect the FDA will not make things easy. One concerning note out already.
  • Sales growth will be hard to come by over the next few years due to patent expirations and not enough big new drugs to fill the gap. I'd estimate a 2% top line CAGR through 2008.
  • A company from India (I believe) is suing PFE over its Lipitor patents. A decision should be reached in Q3. An adverse decision would be devastating.

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