It hasn’t been long since the Indonesia government announced plans to offer health insurance for its low income population and Pfizer (NYSE:PFE) has already planned for a $3 billion investment in its Indonesian manufacturing facility. It plans to ramp up capacity in Indonesia by 50%, and this will be a big step in the direction toward the high growth, low margin generic market.
Pfizer has been hurt significantly by shrinking margins and profits lately due to subdued growth in developed nations coupled with reduced healthcare spending in European countries and was banking on Tofacitinib to turn around its fortunes. But, Tofacitinib was a major set back as it has been found to cause serious infections and cancer. It was the only oral medication under development for rheumatoid arthritis and could have swept away other medications in this segment. Pfizer operates in pharmaceuticals, animal health, consumer healthcare and nutrition, and it competes with key players in the healthcare sector such as Merck (NYSE:MRK), Johnson and Johnson (NYSE:JNJ) and Abbott Labs (NYSE:ABT).
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Indonesian Dreams
Pfizer is eying the sizable generics market in Indonesia as it will make generic versions of its own branded products there to increase its market share. [1] We believe Indonesia has the potential for double digit growth in the near future, albeit at lower margins, in this market. Despite the lower profitability we believe the revenue potential makes its an attractive opportunity to pursue.
Can Tofacitinib heal the wound?
After the success of Abbott’s Humira, JNJ and Merck’s Remicade and Amgen and Pfizer’s Enbrel in the huge rheumatoid arthritis market, Pfizer was targeting an oral medication for the same treatment. All the presently available medications are either injected or infused.
The safety issues relating to infections and cancer associated with the drug has definitely dented its prospects and it is was expected to be used in patients who have not responded to either of Humira, Remicade or Enbrel. [2] However, the final verdict from the FDA remains uncertain, and if it were approved, would have a huge impact on Pfizer.
Our price estimate for Pfizer stands at $25.11, implying a premium of 15% to the current market price.
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Notes:- Pfizer to grow manufacturing capacity in Indonesia, fiercepharmamanufacturing.com, May 8, 2012 [↩]
- Pfizer’s Must-Win FDA Vote, dailyfinance.com, May 8, 2012 [↩]
