Pharmaceutical giant, Pfizer (PFE, Financial) is currently trading at around its 10-year high around the $33 per share mark. At this 10-year high price, long-term investors would do well to determine whether this stock is worth adding to their portfolio or not. With its stock not performing exceptionally well over the last 15 years, can it really go higher from here? What can long-term investors expect? Major pharmaceutical companies stand to lose billions of dollars, after they lose sole manufacturing right to their key products (commonly referred as a ‘Patent Cliff’). Is the world’s largest pharmaceutical giant by revenues still a good BUY?
A persistent leader in pharmaceuticals
Pfizer is one of the biggest pharmaceutical spenders on research and development. The company has a diversified portfolio of pharmaceutical products, which include blockbuster drugs such as Lipitor, Lyrica, Diflucan, Zithromax, Viagra, Detrol, Effexor, etc. Their products cover a huge spectrum of medical disciplines such as immunology, oncology, cardiology and neurology – so the economics of scale work in favor of Pfizer. It also has a couple of new drugs in the pipeline for heart disease and cancer such as Palbociclib.
The New York-based company has an excellent distribution network across the globe – especially in emerging economies, where patients are increasingly relying on the healing effects of western medicines over traditional medicines. Pfizer is currently trading at its 10-year high at around $33 per share. The company’s current price to earnings ratio stands at around 20 with earnings per share of $1.62.
The generic drug impact
Although Pfizer is trading at its 10-year high, it is only midway from it all-time high. Pfizer’s once patented drugs such as Lipitor, Detrol, Viagra, Effexor, Celebrex and Spiriva, which were their main source of income, are now generic and can hence be produced by any generic manufacturer at a fraction of Pfizer’s price.
The main idea of Pfizer buying out Wyeth in 2009 was to help it with driving research and development. However, this acquisition has not translated into any significant top line growth since then – making the investment a rather large one for the earnings it has received through it.
Lawsuits affecting growth?
Many high value lawsuits have been laid against Pfizer at present. If the company loses, it could mean losses to the tune of several millions of dollars. The Zoloft lawsuit accuses Pfizer of advertising Zoloft to pregnant woman, although conducted trials suggested that the drug could lead to birth defects. There is also a lawsuit against Pfizer for its anti-smoking drug Chantix, which triggered suicidal thoughts and psychological problems in some patients.
With Obama-care taking off, the healthcare industry will soon be well managed and regulated. This will force the insurers as well as health care providers to negotiate better deals with the pharma companies, which is likely to cause a reduction in their sales margins – good news for consumers, but perhaps not for pharmaceutical companies.
Could 2015 be the much-needed turnaround?
There is the possibility that Pfizer might awaken from its sleep to generate investor-happy returns. The company is slowly restructuring itself to allow newer products to have a more significant impact on the company’s bottom line. Based on the company’s effort with AstraZeneca (AZN, Financial), it is likely that Pfizer may look to enhance other segments of its business, other than the global established pharmaceutical (GEP) segment of the company – looking towards immune-oncology and related areas.
The company’s vaccines, oncology, and consumer healthcare (VOC) business has been skyrocketing, on account of high vaccine sales due to the Prevnar franchise. Prevnar’s third-quarter sales scaled by a massive 26% – because of government buying programs and increased demand. 2015 vaccine sales are expected to grow because Prevnar gained additional EU approvals. Prevnar is also likely to get approved for older patients to use in the US – helping its large market share to expand further. At the end of 2014, Pfizer acquired Baxter’s entire vaccine portfolio for $635 million in 2014 – giving additional impetus to its top-line growth for 2015.
Pfizer’s oncology sales went up by 17% in the third quarter – because of strong sales of Inlyta, Bosulif and Xalkori. But nothing will come close to its latest breast cancer drug Palbociclib – expecting an approval in April 2015.
These market positives certainly raise the expectation that despite Pfizer being at its 10-year high, it may be nothing in comparison to its opportunity for earnings in the coming year. The positive changes within the company make it a safe investment bet over the next few years.
