Pfizer Inc. (PFE) Looks Like a Good Bet
Pfizer Inc. (NYSE:PFE) was not an attractive stock until a few years ago because of the expiry of patents of some of the key drugs resulting in loss of revenue and earnings. Now, the situation has changed for the better for the pharmaceutical firm. Neither the company nor the investors were worried unduly over the scrapping of the merger deal with Allergan plc ordinary shares (NYSE:AGN). That clearly indicated that the company could stand to gain even if remains as a stand-alone company. Its recent results for the first quarter are a testimony to the belief. More than the results topped the expectations; the drug maker boosted its forecast for the current year. Also, it has a number of pipeline products to gain. On top of it, the company has agreed to acquire Anacor Pharmaceuticals Inc (NASDAQ:ANAC) for $5.2 billion. Let’s look at how these factors would help them to drive growth.
Acquisition of Anacor
It was quite obvious that after Pfizer Inc. (NYSE:PFE) scrapped its merger deal with Allergan plc ordinary shares (NYSE:AGN), it had to look for an acquisition. Therefore, it did not surprise anyone, be it investors or analysts though some people think that the price paid is slightly on the higher side. However, the company believed that the premium was justifiable because of the product pipeline. Currently, Anacor Pharmaceuticals Inc (NASDAQ:ANAC) has only one commercial product, which was known as Kerydin, and distributed by Novartis AG (ADR) (NYSE:NVS). However, the company did not acquire just for this one product.
Pfizer Inc. (NYSE:PFE)’s focus is on the pipeline product eczema treatment crisaborole. Interestingly, the drug is under the review of the FDA, and the completion is expected by January 7. By that time, the process of acquiring the company should also be over. Its estimation is that crisaborole could produce yearly sales of about $2 billion. As far as its executive Albert Bourla was concerned, the transaction offered a good opportunity to address unmet medical requirements for a big population. The key factor is that the acquisition would add to its innovative drug business list that is expected to be separated widely from its well-established products business during the upcoming years. The company indicated that it would disclose its decision by the year-end.
Hospira Factor In Q1 Results
Pfizer Inc. (NYSE:PFE)’s gain from the Hospira business was quite evident in its first quarter financial results. The division alone delivered $1.2 billion revenue in the three-month period. Excluding Hospira, its revenue growth would have been 9% and including its contribution, the growth was 20%. The business is also key to its future growth since the segment’s focus more on the generic type of drugs or injectibles. The drug firm is also beefing up some of the manufacturing units of Hospira to meet its standards. The investments should translate into returns in the upcoming years. Until now, Hospira is present only domestically. However, the chances of growing outside the United States to face the competition cannot be ruled out.
Interestingly, Hospira acquired marketing rights for several biosimilars from Celltrion, a South Korean firm, for Pfizer Inc. (NYSE:PFE). That should also help the company generate additional revenue. During the conference call, the company stressed the importance of focusing on biosimilars, which are key to its growth tactics. The drug firm’s Group president for Global Established Pharma unit, John Young, was very bullish on the available and upcoming opportunity in this segment. He estimated that about $100 billion of patented branded biologics would lose their patent protection over the next five to ten years period. As a result, biosimilars would also grow approximately $17 – $20 billion by the end of the current decade. A few years back, the market size was approximately $1 billion only. The company executive’s projection suggested that there is much to gain for it and the shareholders.
Global Reach and Research
There are two more areas from where Pfizer Inc. (NYSE:PFE) could gain, one is the global reach, and the other is its research. Not everyone would be able to compete at the global level. Only those companies with sufficient presence could ensure that their products are available at the geographical level. The company stands to gain from the marketing side of its business for it, as well as, for other firms until it makes enhanced products. Also, Hospira is yet to expand geographically. Once, it is expanded, though the company did not indicate to this effect, its product reach would be wider to ensure solid profitability.
Similar is the case in respect of Pfizer Inc. (NYSE:PFE)’s research. For instance, the company is developing a drug Xalkori, which is a next-generation one, and is in stage two. The drug maker knew about Xalkori thus enabling it to create molecule’s strengths. There are also other pipelines like Xeljanz, a kinase inhibitor. It treats RA and the patients were administered the drug twice a day. The drug firm is coming out with a once-a-day version. The drug fetched close to $200 million in the first quarter. The sale of the product is yet to commence outside the United States. The company also presented positive results from its two final stage trial on TRUEMENBA, which was designed to protect against serogroup B meningococcal disease.
While the trailing twelve-month PE suggests that Pfizer Inc. (NYSE:PFE) shares are fairly priced now, forward earnings command PE of 12.77 times only compared to 27.5 times of industry average. Similarly, its price to book was 3.2 versus industry’s 3.8. For all practical purposes, the negative growth, which was there until recently, will not be there as all analysts project positive growth. That should translate into increased valuation. Currently, there are enough opportunities to grow and those who are willing to enter now could reap significant gains in the long-term.
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.
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