Is Pfizer’s Failure In Anti-Depressant Pristiq Meaningful?

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Pfizer

Pfizer (NYSE:PFE) recently met with failure in its study of anti-depressant drug Pristiq in children. The trials did not meet the primary goal of proving that the treatment is more effective than placebo. The market did not react much to this news, indicating its relative lack of significance. While the number of anti-depressant prescriptions has been increasing in the U.S., the overall market’s (dollar value) growth has remained low due to competition from cheaper generics. This means that any new drug will have to show notably higher efficacy in order to compete with the existing lot, and that may not leave much room for pricing power. Considering this, Pfizer’s size, and the the fact that depression is less common among children, we believe the recent trial failure does not have much opportunity cost associated with it. However, the context is right to point out that Pfizer’s neuroscience drugs will likely need a savior a few years down the line. Patent expiry, especially Lyrica’s in 2018, could hit the division hard if newer drugs are not able to offset those revenue losses. Pfizer is likely to look for acquisitions and collaborations to fill the void.

Our price estimate for Pfizer stands at $35, implying a slight premium to the market price.

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We estimate that central nervous system drugs (which include anti-depressants) constitute about 10% of Pfizer’s value. This estimate is based on the assumption that revenues from these drugs will fall sharply post-2018. However, there could be almost a 10% upside if the company can maintain low-to-moderate single digit growth in the division’s sales. This is unlikely to happen without 2-3 successful new drugs adding roughly $4-5 billion in revenues (incremental to our current forecast).

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Pfizer Gets Drug Approval For Hot Flashes, Targets 33 Million Women In The U.S.

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The FDA recently granted approval for Pfizer’s (NYSE:PFE) Duavee, which has been developed by its wholly-owned subsidiary Wyeth in collaboration with Ligand Pharmaceuticals Inc. [1] The drug introduces a novel approach to treating hot flashes in menopausal women, and is also approved for the treatment of postmenopausal osteoporosis (common bone disease due to low estrogen levels). Unlike other drugs in the market, Duavee pairs conjugated estrogen (CE) with an estrogen agonist/antagonist (also known as a selective estrogen receptor modulator). The drug has the advantage of protecting uterus lining against hyperplasia, which increases risk of cancer of uterine lining and can happen with estrogen-only treatments. [1]

Given the reduction in cancer risk, we expect the drug to gain traction. There are approximately 33 million women in the U.S. between the ages of 45-59 (menopausal), and most of them experience hot flashes. [1] The quality of life can get significantly affected if this common condition is left untreated. Pfizer’s existing drug Premarin, which primarily consists of conjugated estrogen, earned over $1 billion in revenues in 2012. We expect Duavee to cannibalize some of Premarin’s sales starting from the first quarter of 2014. Furthermore, given that Pfizer is a well diversified company with several other major drugs, Duavee’s success will lead to only a small incremental value add.