Weekly Pharmaceutical Notes: Pfizer, Merck And Johnson & Johnson

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Last week was quite eventful for Pfizer (NYSE:PFE) and Merck (NYSE:MRK), studded with collaboration, acquisition and drug related announcements. However, things were relatively quiet for Johnson & Johnson (NYSE:JNJ), Bristol-Myers Squibb‘s and  Roche Holdings (NASDAQ:RHHBY). Overall, the shares of big pharmaceutical firms either traded in a small range or were down slightly due to company-specific events. In this note, we bring to you the key developments for the biggest pharmaceutical companies in the U.S. during the past week.

Pfizer

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Pfizer recently struck a deal with Spark Therapeutics to establish a gene therapy platform. Under the agreement, Pfizer will make an upfront payment of $20 million to Spark Therapeutics and $260 million in additional milestone-based payments. [1] In return, Pfizer will handle late  stage clinical trials, approval and commercialization of the product. Spark is currently investigating the efficacy of gene therapy for hemophilia B, and its program will enter early phase trials next year.

Additionally, the company’s antipsychotic drug Geodon is under some heat due to FDA’s warning that the medicine can trigger severe skin reaction which can be potentially fatal. [2] However, Geodon has lost its patent exclusivity and its sales stood at merely $193 million in 2013. Therefore, any financial impact on Pfizer will be minimal. In another interesting news, a study indicated that Pfizer’s biggest drug Lyrica, which is used to treat seizures, nerve pain and fibromyalgia, doesn’t help the most common back pain. [3] Therefore, the possibility of expanded usage has dimmed.

We estimate revenues of around $49.65 billion for Pfizer in 2014 and non-GAAP diluted EPS of $2.15. We maintain a $35 price estimate for Pfizer’s shares, which is more than 15% above the market price. The company’s shares traded in small range during the past week.

Merck

Merck has announced that it will acquire Cubist Pharmaceuticals for $8.4 billion. This year has been busy with M&A (mergers and acquisitions) activity in the pharmaceutical industry  and Merck has been especially focused on mid-sized acquisitions. However, there has been a twist with this proposed transaction in which, shortly following its announcement, a US court invalidated four of five key patents covering the company’s flagship product, Cubicin. If upheld, the ruling will allow generic competition to commence in mid-2016, when the remaining patent expires.  The invalidated patents would have allowed patent protection to extend to 2019 and 2020.

In another news, Merck stated that it is pushing its newly launched cancer drug Keytruda into further clinical trials after a study found it to be effective in a common and aggressive type of breast cancer. [4] You can read about our take on the drug’s potential here.

We estimate revenues of around $42.33 billion for Merck in 2014 and non-GAAP diluted EPS of $3.38. We maintain a $52.50 price estimate for Merck’s shares, which is more than 10% below the market price. The company’s shares fell slightly last week following the US court’s invalidation of patents of Cubicin, which Merck intends to acquire.

 

Johnson & Johnson

The year 2014 has been rich with mergers and acquisitions, and related speculations. Johnson & Johnson has reportedly hired Goldman Sachs to explore the sale of its artificial sweetener, Splenda. As the matter is private, there has been no word from the company on the rationale behind this consideration.

We estimate revenues of around $75.20 billion for Johnson & Johnson in 2014 and non-GAAP diluted EPS of $5.77. We maintain a $101 price estimate for Pfizer’s shares, which is more than 5% below the market price. The company’s shares fell slightly during the past week.

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Notes:
  1. Pfizer Bets on Gene Therapy as Technology Comes of Age“, Reuters, Dec 8 2014 []
  2. FDA warns Pfizer’s antipsychotic could cause fatal skin reaction, Reuters, Dec 11 2014 []
  3. Pfizer’s Lyrica Doesn’t Help Most Common Back Pain, Study Finds, Bloomberg, Dec 11 2014 []
  4. Merck advancing breast cancer drug Keytruda to mid-stage, SFGate, Dec 10 2014 []