Pfizer: A Look At The Musculoskeletal Drugs Division

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The U.S. Patent & Trademark Office has granted a reissue patent for Pfizer’s (NYSE:PFE) pain drug, Celebrex, extending the drug’s patent protection by 18 months. [1] The patent extension will prevent cheap generic versions from entering the market and pave the way for continued growth in the drug’s sales till 2015 end. This comes as another boost for the drug maker’s Musculoskeletal drugs division in which Celebrex is included. The FDA recently approved Pfizer’s blockbuster potential rheumatoid arthritis (RA) drug, Xeljanz (more popularly known as Tofacitinib). [2] Below we discuss the future prospects of the division in detail.

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Musculoskeletal Drugs: Current Drugs Seeing Consistent Growth

The musculoskeletal system consists of the body’s bones, muscles, cartilage, tendons, ligaments, joints and other connective tissues, and enables humans to move physically. Pfizer has a number of well-known drugs in the division including Enbrel, Celebrex and Medrol and revenues from the division clocked more than $7 billion in 2012. The division has seen rapid growth owing to a continued pick-up in demand for its RA biologic, Enbrel. With the twin factors of no patent expiration in the near future and the recent launch of Xeljanz, we expect this trend to continue going forward.

Despite significant competition, the division’s largest selling drug, Enbrel, is seeing continued growth in demand due to its preference as first and second-line treatment for RA. [3] Further, the reissue of a patent for Celebrex will allow Pfizer additional time to generate more sales from the drug. Both of these drugs collectively garnered over $6 billion in revenues, which constitutes about 85% of the division’s revenues in 2012. [4] However, the major growth driver for revenues going forward will be Tofacitinib, which nabbed FDA approval to treat RA patients last quarter.

Tofacitinib: Key To The Future Growth

The RA drug market is crowded with many established drugs like Abbott’s Humira, Johnson & Johnson’s Simponi and Roche’s Rituxan. Not to forget Pfizer’s own Enbrel. However, about 30-40% of RA patients do not respond to current treatments which present a significant opportunity for new drugs. One can easily gauge the revenue potential since about 1.5 million people in the U.S. alone suffer from RA. [5] Currently, we have pegged the peak sales of Tofacitinib at around $1.5 billion as it may be difficult to change a physician’s prescription habits for biologics. Pfizer had earlier expected Tofacitinib to be mostly used in patients who failed major RA treatments like Humira and Simponi. In addition, we believe there is no major cost advantage of Tofacitinib over Humira, the largest selling drug for RA. Further, many of these treatments, including Humira, will lose patent protection in the next 3-4 years, which will open the market for relatively cheaper biosimilars.

However, the fact is that most of the prevalent treatments, including Humira, are injectables, whereas Tofacitinib has the advantage of being an oral pill. Further, the drug is targeting other autoimmune diseases as well. Recently, the drug was proven to be effective for the treatment of Ulcerative Colitis (UC) in phase II clinical trials. The company will soon begin phase III studies to verify the drug’s efficacy and safety in UC patients and it  plans to test higher doses of the drug. (Read Pfizer May Extract More From Tofacitinib, Drug Further Delayed) Should these factors result in higher sales of the drug than we currently anticipate, there could be an upside to Pfizer’s revenues.

We are revising our $27 price estimate for Pfizer to reflect the annual earnings and recent developments.

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Notes:
  1. United States Patent & Trademark Office Grants Pfizer Reissue Patent For Celebrex® (celecoxib capsules), Pfizer, March 05 2013 []
  2. U.S. Food and Drug Administration Approval of XELJANZ® (tofacitinib citrate) and Invitation to Media Briefing from Pfizer, Pfizer Press Release, Nov 6 2012 []
  3. Enbrel and Humira Continue to Be Used as the Preferred First and Second Line Biologic Agents to Treat Rheumatoid Arthritis, Business Wire, July 10 2012 []
  4. Performance Report, Pfizer []
  5. Arthritis-Related Statistics, CDC []
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