Pfizer (NYSE:PFE) has agreed to drop “breast health and colon health” claims for its Centrum vitamins and supplements products while modifying others after a consumer watchdog Center for Science in the Public Interest (CSPI) alleged the company of deceptive practices and threatened to sue. CSPI had claimed there was no conclusive evidence that Pfizer’s Centrum line of products protect against those diseases with a mere presence of Vitamin D. Below we take a look at how this event could impact the pharmaceutical giant, which operates in pharmaceuticals, animal health, consumer healthcare and nutrition markets.
Our price estimate for Pfizer stands at $25, implying a premium of 10% to the current market price.
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The nutritional industry is highly fragmented, and many large pharmaceutical companies and packaged food & beverage companies compete for the same consumer base. Competition is mainly based on the quality, price and availability of new products. One can gauge the importance of quality for the consumer from Abbott’s (NYSE:ABT) loss of nutrition market share after it voluntarily recalled infant formula Similac in 2010.
CSPI is a well-known organization for its initiatives in nutrition and health safety, and its “Nutrition Action” health letter has about 900,000 subscribers.  Thus, any negative publicity by the organization could have an impact on a significant chunk of the nutrition market. Consequently, this could significantly affect Pfizer’s nutrition business, which generated nearly $2 billion in revenues in 2011. In our model, nutrition business in part of its Diversified Legacy Drugs & Alliances division, which contributes about 31% of our current price estimate for Pfizer.
While the company has decided to increase its focus on core pharmaceutical business and is mulling a sale of its consumer healthcare business, such news may negatively impact Pfizer’s ability to extract favorable valuations, going forward.Notes: