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Investment Overview for Pfizer (NYSE:PFE)
Key drivers of Pfizer's value that present opportunities for upside or downside to the current Trefis price estimate for Pfizer:
Diversified Legacy Drugs & Alliances
- Revenue from Diversified Legacy Drugs & Alliances:
Pfizer sold its consumer healthcare division in 2006 to Johnson & Johnson. The current healthcare division bought as a part of Wyeth acquisition could face a similar future, though this time Abbott Labs seems a more likely contender than J&J. The company has been reducing its focus on the segment and is in process of selling its nutrition business. Further, the Animal Health division which has been a healthy and growing division for Pfizer is being spun into a different entity to make it a no-tax transaction.
If Pfizer decides to sell some of its profitable existing ventures, the revenues within this segment could fall to nearly $18 billion by the end of the Trefis forecast period. This would represent a decline of close to 5% to the Trefis price estimate. If however, Pfizer decides to opt for acquisitions and arrangements, revenues within the segment could reach nearly $24 billion by the end of the Trefis forecast period, representing a potential upside of more than 5%.
Prevnar & Prevenar (7 & 13)
- Revenue from Prevnar & Prevenar (7 & 13):
The Prevnar franchise of vaccines constitutes nearly 17% to the Trefis price estimate. Prevnar 13 which is based on the scientific foundation of Prevnar 7, is currently approved for use in infants and young children. Prevnar 13, if approved for treatment in adults can generate a significant increase in revenues. Prevnar's revenues have been rising at a fast clip over the last 2-3 years. We expect revenue to grow and top $9 billion by the end of the Trefis forecast period.
However, with drug's extension to new indications, the sales growth may exceed our expectations. If Prevnar is able to increase its revenues to $11 billion by the end of the Trefis forecast period, it represents a potential upside of nearly 3% to the Trefis price estimate. If however, regulatory approvals take more time or are unfavorable, Prevnar's revenues could reach only $6 billion by the end of the Trefis estimate period and thereby result in a potential downside of 4% to the Trefis price estimate.
Pfizer is currently the world's biggest pharmaceutical company in terms of revenues. It was founded in 1849 and went public in 2004. In October, 2009, Pfizer completed the acquisition of pharmaceutical giant Wyeth for $68 billion. The firm operates in two main segments: Bio-pharmaceutical and Diversified.
Bio-pharmaceutical includes the Primary Care, Specialty Care, Established Products, Emerging Markets and Oncology customer-focused units, which includes products that prevent and treat cardiovascular and metabolic diseases, central nervous system disorders, arthritis and pain, respiratory diseases, urogenital conditions, cancer, eye disease and endocrine disorders.
Diversified includes Animal Health products; Consumer Healthcare products , such as pain management therapies, cough/cold/allergy remedies, dietary supplements, hemorrhoidal care and other personal care items; Nutrition products such as infant and toddler formula products.
Though Pfizer markets the world's best selling drug known as Lipitor, it accounts for just 5% of the stock value.
The biggest contribution to the value of the stock comes from the Legacy Wyeth & Pfizer products, Alliances and income generated from the Diversified unit. This is explained by the following reasons.
Alliances & licensing arrangements to bolster market share
The vast network of alliances, licensing deals and other forms of joint partnerships that Pfizer has helps reduce R&D expenses. A strong distribution network, tie-ups and brand image due to world class drugs help revenues and increase market share.
Pfizer's 'Generic Unit' in a class of its own
Pfizer’s generic division (the Established Products unit) had $10 billion in annual sales in 2010 approximately 40% lower than that of Teva's, the world’s largest generics pharmaceutical manufacturer. The generic drugs market is poised to grow at a substantial rate based on the current trends.
Acquisitions to help boost growth at Pfizer
The Synbiotics deal which was completed at the end of 2010 will open up a new area of growth in veterinary immuno-diagnostics. This market segment was valued around $750 million in 2010 and is projected to grow at a healthy pace of 8% till the end of the Trefis forecast period.
The acquisition of Ferrosan's consumer healthcare unit which was completed in December, 2011 will allow Pfizer to expand the marketing of Ferrosan’s brands through Pfizer’s global footprint and provide greater distribution and scale for certain Pfizer brands, such as Centrum and Caltrate.
Launch of new drugs
Pfizer has five new drug launches in the pipeline which are expected by 2013. These include crizotinib, apixaban, the kidney cancer treatment axitinib, the arthritis drug tofacitinib, and an adult version of the pneumonia vaccine Prevnar.
Loss of patents impacting sales
By the end of 2013 over 10 blockbuster drugs are expected to lose patent exclusivity which includes Lipitor. These branded drugs are set to lose over $100 billion in revenues in the next few years and thus companies such as Pfizer will need to develop new drugs to offset these losses.
Growing threat of generic products
The fast growing pharma market in emerging economies or referred to as the 'Pharmerging' economies have the capability and technical prowess to manufacture generic versions of blockbuster drugs.
These generic drugs are often sold at prices that substantially cheaper then their branded counterparts, thereby severely affecting big pharma's ability to generate profits in the long run.
Lack of approval for Biosimilars by FDA
At present the Food & Drug Administration Authority (FDA) does not have a process to grant approvals for Biosimilars.
Though its hard to say when such a process would be initiated, the potential impacts would be severe for any big pharmaceutical firm, as Biologics seem to be the last bastion of long term profits for big pharma.
Globalization of healthcare reforms
Governments around the world are trying to rein in fiscal spending in order to manage their budget deficits
Since healthcare costs are one the biggest components of any national budget, it is obvious that increased healthcare legislation and reforms around the world will hurt revenues for the entire pharmaceutical sector.
How Does Trefis Modelling Work?
How do we get the historical numbers for this chart?
Trefis has a team of in-house Analysts who gather historical data from company filings and other verifiable sources. When historicals are available, we explain how we got them at the bottom of the Trefis analysis section below.
Who came up with the Trefis forecast for future years?
The Trefis team of in-house Analysts considers a variety of factors when projecting any forecast. The rationale for our projections is explained in the Trefis analysis section below.
How does my dragging the trendline on the chart impact the stock price?
- We use forecasts for business drivers to calculate forecasted Revenues and Profits for each division of the company.
- We then use forecasted Profits in a Discounted Cash Flow (DCF) model to obtain the Price Estimate for the company.
See more on: DCF Methodology
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