How Pfizer’s Pipeline Success Can Lift Its Outlook?

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Pfizer‘s (NYSE:PFE) research and development (R&D) costs have jumped this year which indicates the company’s growing confidence in its drug pipeline. This increase in expenditure comes despite the continued pressure on its revenue growth, and the results are evident. So does this present the right time to invest in the stock? Some of the optimism around pipeline has already been priced in as Pfizer’s stock has gained roughly 15% this year. If history is any indicator, 15% move in Pfizer’s stock is quite a significant one. There may be further room for capital gain, depending upon the extent of success of the upcoming drugs. However, at this point, we believe that the magnitude of the upside potential from better than expected success of the drug pipeline may be capped at around 10% or so.

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

by Trefis Team

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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.

Earlier this year, a phase 3 trial for inotuzumab showed higher complete hematologic remission rate in adults with had relapsedrefractory CD22-positive acute lymphoblastic leukemia  as compared to regular chemotherapy. [1]  More drugs in the developmental stage such as palbociclib and crizotinib have also demonstrated encouraging progress. While palbociclib more than doubled the progression-free survival in cancer patients with HR+ HER-2 metastatic breast cancer, crizotinib has been assigned breakthrough therapy designation by the U.S. FDA.

Currently, the company has around 14 drugs in phase 3 trials and 12 (important ones) in phase 2. The number of drugs in Phase 3 has increased over the last couple of quarters. Also, if biosimilars gain approval globally, Pfizer would have an addressable market of $12 billion in the near term as it is currently developing biosimilar versions of some of the major immunology and oncology drugs. This assumes that biosimilars will be priced 45% below patented drugs. As we have stated previously in some of the analyses, we currently expect Pfizer’s pipeline drugs to bring close to $5-$6 billion in annual revenues by the end of 2019. However, if the company exceeds this expectation, and doubles the revenue from pipeline drugs, it could add approximately 10% to its value. This could happen if there is accelerated shift towards biosimilars and Pfizer leverages its acquisition of Hospira.

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Notes:
  1. See the Pfizer press release. []