Why Pfizer Inc. (PFE) Is The Best Bet In Pharma Space?


In the last few years, Pfizer Inc. (NYSE:PFE) stock looked like it was in slumber mode. That was primarily because of the expiration of the patent on drugs, leading to generic versions. The company’s overtures to acquire the Britain-based AstraZeneca plc (ADR) (NYSE:AZN) proved to be a futile effort, thus curbing its ambitions of delivering growth through acquisitions. Though the company has some promising product pipelines, it would not deliver any immediate or near-term results. Currently, it is involved in negotiations with Allergan PLC (NYSE:AGN) to acquire the latter. It can go either way, i.e. the company can buy or the Ireland firm can ignore the overtures. However, for some investors, the stock is the best bet in the pharmaceutical sector. Why? Let’s look at the reasons surrounding it.

Splitting The Company

Pfizer Inc. (NYSE:PFE)’s deeply involved in discussions with Allergan PLC (NYSE:AGN) for multiple reasons. One such reason is the reduction of taxes, as well as unlocking of cash trapped in overseas operations. Until they announce a deal, the uncertainty will be clouded over the discussions. However, the company appears to be interested in taking a decision on the question of splitting it before the next year ends. The objective seems to be perfect and tailor-made for two sections of investors. That will also enable its shares to be in the limelight and be a part of any investment portfolio.

Accordingly, Pfizer Inc. (NYSE:PFE)’s plan appears to be to split into two, with one of them focusing on increasing profit rapidly to be driven by new medicines. The other one would extract a steady flow of funds from its older medicines. That would satisfy two sections of investors, i.e. those who want growth and those who want income. The move would also generate increased valuation for its shares. This need not be relied upon whether the company can close the deal with Allergan PLC (NYSE:AGN) or not. However, any favorable deal could have the potential to delay the process of splitting since split can happen only after the merger, which needs different approvals.

Growth Prospects Look Best In Recent Years

The current conditions appear to be the best one for Pfizer Inc. (NYSE:PFE) in recent years, since it struggles for top line growth for the fifth straight year. However, that is set to change from next year. That is because of primarily two reasons. One is that the unfavorable impact from the patent expirations will start fading from the financial numbers. Secondly, new medicines are set to play a bigger part from next year. As a result, at least until the end of the current decade, the pharmaceutical firm would outperform its similar sized rivals. Currently, the shares of the company might look to be priced reasonably. However, it has the potential to return 20% in the next year, which included about 3.3% dividend yield, and a dramatic alliance or tear down.

In the current year, Pfizer Inc. (NYSE:PFE) is predicted to deliver revenue of $48.1 billion and earn a profit of $13.5 billion, indicating a single-digit percentage drop from the last year. In 2010, the company delivered $67.8 billion revenue and close to $18 billion profit. That was mainly due to its cholesterol drug, Lipitor, patent expiration. Its revenue dipped to $3.9 billion in the two-year period from $10.7 billion in 2010. In the current year, Lipitor is predicted to deliver $1.9 billion in revenue. There was also another drug responsible for the drop in the top line. That was Celebrex, for arthritis, since it lost two of its patents last year. The revenue will likely be down more than two thirds, from $2.7 billion generated last year.

New Drugs To Contribute

There are also some other drugs from the staple of Pfizer Inc. (NYSE:PFE). However, they can be eclipsed by other drugs growth. The company has gotten accelerated approval for its Ibrance in February for the treatment of breast cancer. There are already estimations that it could contribute close to $700 million in the current year itself. On top of this, the drug is likely to get approval for expanded uses, which means its potential market will multiply four times. Therefore, there is a potential that the drug could generate $5 billion in revenue before the end of the current decade.

Similarly, there is another drug, Eliquis, for preventing blood clots. The drug won expanded approval from the regulator last year. Pfizer Inc. (NYSE:PFE) is marketing the product in alliance with Bristol-Myers Squibb Co (NYSE:BMY). Currently, there is an expectation that the drug will witness 15% growth to $1.1 billion in the current year. The drug will witness an accelerated pace of growth in the next two years. One more drug, Prevnar 13, is also predicted to deliver 27% growth to $5.6 billion revenue in the current year. Another $1.2 billion could be easily added to it in the next three-year period.

Pipeline Drugs

Pfizer Inc. (NYSE:PFE) also sees Hospira, Inc. (NYSE:HSP) contributing to its earnings straight away. Aside from that, there are over 80 pipeline drugs for a focus on cancer, pain, and arthritis. These kinds of developments suddenly took the stock on a favorable momentum. Morgan Stanley (NYSE:MS) analyst, David Risinger, has not only upgraded the shares of the company to an Overweight rating from Equal Weight but also expects the company to deliver EPS CAGR of 8 – 11% until the year 2020, from the current year period. He is not the only analyst to think like that. Cowen analyst, Steve Scala also has a similar view on EPS CAGR and upgraded the rating to Overweight.

Conclusion

Pfizer Inc. (NYSE:PFE) is one stock in the pharmaceutical sector that looks to be a safe bet now. That is because there are multiple factors to take it to growth trajectory from next year. The splitting of the company and any favorable deal with Allergan PLC (NYSE:AGN) can be considered as a further enhancement or bonus. There is also less risk of a downside risk perception now. Therefore, the stock looks a perfect bet in the pharma sector, mainly on patent expiration fading,  but also on new products contribution.

Disclaimer: The opinions and data expressed herein by the author are not an investment recommendation and are not meant to be relied upon in investment decisions. The author is not acting in an investment advisory capacity, nor is this an investment research report. The author’s opinions expressed herein address only select aspects of potential investment in securities of the company or companies mentioned and cannot be a substitute for comprehensive investment analysis. Any analysis presented herein is illustrative in nature, limited in scope, based on an incomplete set of information, and has limitations to its accuracy. The author recommends that potential and existing investors conduct thorough investment research of their own, including detailed review of the companies’ SEC filings, and consult a qualified investment advisor. The information upon which this material is based was obtained from sources believed to be reliable, but has not been independently verified. Therefore, the author cannot guarantee its accuracy. Any opinions or estimates constitute the author’s best judgment as of the date of publication, and are subject to change without notice.

Viraj Shah

Viraj Shah has completed M.Com (Finance) and is currently pursuing his CFP. He tracks US markets along with other global markets like India very closely. He is very passionate about stocks, real estate, and technology. He also believes that money can always be made in the market.

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