Healthy Skepticism Library item: 5031

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Publication type: news

Lazaroff L.
Pfizer looks for wonder drug to cure sales ills
Chicago Tribune 2006 Jun 4
http://www.chicagotribune.com/business/chi-0606040177jun04,1,521689.story?coll=chi-business-hed

Notes:

Raqlph Faggotter’s Comments:

“ For the moment, Pfizer, the world’s largest pharmaceutical company by sales, is betting that cholesterol medication Lipitor, the world’s best-selling drug, can exceed sales forecasts and finally turn around the stock’s steady five-year decline.”

Pfizer is having trouble getting new products to the market and is relying in growth in the market of its established blockbuster drugs like Lipitor.

To get this growth, it has to convince a broader sweep of the population to take the drug- people who will not necessarily benefit from taking such drugs- but who can be frightened into it.

Full text:

WALL STREET WATCH BY LEON LAZAROFF

Pfizer looks for wonder drug to cure sales ills

By Leon Lazaroff
a staff reporter at the Chicago Tribune
Published June 4, 2006

NEW YORK — Pfizer Inc., like many of the pharmaceutical industry’s largest corporations, desperately wants to turn around sagging sales.

Like top rivals Merck & Co. and Bristol-Myers Squibb Co., Pfizer has struggled to find successors to blockbuster drugs, like its erectile dysfunction medication Viagra and baldness treatment Rogaine.

But growth has been elusive. By the end of 2006, Pfizer will lose drug patents that generated $11 billion in sales in 2004. In February, the painkiller Bextra—$1.3 billion in 2004 sales—was ordered off the market.

“The biggest issue for the whole group is how do they grow volume,” said John Boris, industry analyst at Bear Stearns. “But [Pfizer] has a very good nose for identifying new properties, and their pipeline is looking more promising than it has for a while.”

For the moment, Pfizer, the world’s largest pharmaceutical company by sales, is betting that cholesterol medication Lipitor, the world’s best-selling drug, can exceed sales forecasts and finally turn around the stock’s steady five-year decline.

If that doesn’t work, the New York-based pharmaceutical giant is hoping that, with five new drug products coming to market this year and as many as four next year, it will find a genuine hit to reverse falling revenue. Sales slipped to $51.3 billion in 2005 from $52.5 billion in 2004.

Time was when Pfizer was a growth stock, and its price-to-earnings multiple was in the high 20s. But these days Pfizer has trouble shaking the label of “mature,” and its P/E multiple has dropped to 12 on forward 12-month earnings.

Jump-starting something as big as Pfizer will require good news and successful new products.

In addition to Lipitor, the company is watching Celebrex, the painkiller that experienced a 19 percent sales rebound in the first quarter following a year in which sales were hurt by reports linking it to increased risks of heart attacks and strokes. The Food and Drug Administration has backed Celebrex, even as it remains headed for a product-liability or a class-action trial early next year.

As for Lipitor, the worldwide cholesterol drug market is experiencing low double-digit percentage growth. But Pfizer’s cholesterol drug business has been flat or slightly down due to stepped-up global competition. Making matters worse, many health-care providers are recommending patients opt for Merck’s less-expensive cholesterol treatment, Zocor.

Pfizer’s challenge is convincing a cost-conscious industry that Lipitor is more effective than Zocor. But that will be difficult once Merck’s patent on Zocor expires this year and low-priced generics step in.

One potential catalyst for Pfizer’s stock may be its drug Torcetrapib, which increases a body’s “good” cholesterol. Other catalysts may be Lyrica, its new nerve pain drug, and Exubera, an inhalable insulin due out this year.

New products aside, Pfizer’s business remains attractive to Wendell Perkins, chief investment officer of the $1.4 billion Johnson Family of Funds in Racine, Wis.

Perkins points out that Pfizer can be expected to generate $16 billion in cash this year and has $13 billion on hand. In addition, it is poised to either sell or spin off its low-growth, low-margin, $4 billion-a-year consumer business, featuring such household names as Rolaids, Sudafed and Listerine.

Pfizer, Boris said, should be able to get three times sales for its over-the-counter drug unit while convincing a purchaser to take on a roughly $3 billion tax liability.

“That’s quite a bit of cash-forward that Pfizer can use on a number of different fronts,” said Perkins, who began buying the stock last fall when it was at $21 a share. Johnson Family of Funds owns 540,000 Pfizer shares.

Acquiring new products may be foremost among the top uses for that cash. Chairman and Chief Executive Henry McKinnell has said Pfizer doesn’t need to augment supply lines but would like to acquire companies in the $1 billion to $4 billion revenue range with something attractive to sell.

All that cash also could be used to buy back shares, as well as further increase the company’s 24-cents-a-share quarterly dividend, already attractive at a yield of roughly 4 percent. Pfizer’s dividend, which was increased by 26 percent late last year, has kept many value investors content to hold the stock while waiting for an upturn.

Meeting earnings estimates in 2006 will come in part from cost cuts. Bear Stearns rates Pfizer “outperform,” with a 12-month price target of $30 a share.

Owning Pfizer shares, though, isn’t for everyone, Perkins acknowledged. Investors with a short time horizon are likely to look for a faster-growing company with clearer catalysts. But Perkins sees sales accelerating in the coming years as Pfizer brings more products to market.

“If you have a longer-term view, it’s a great opportunity to buy a company with significant cash flow and significant resources to improve shareholder value,” he said. “Plus, it trades at a very nice discount, and that’s what we like.”

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Leon Lazaroff is a staff reporter at the Chicago Tribune. E-mail him at llazaroff@tribune.com.

Copyright © 2006, Chicago Tribune