Pfizer’s Exit From Brazil Generics Market Is Not Alarming

by Trefis Team
-0.32%
Downside
35.37
Market
35.26
Trefis
PFE
Pfizer
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Pfizer (NYSE:PFE) recently relinquished its stake in Brazilian generics maker Laboratório Teuto Brasileiro for just 30 cents total. In 2010, Pfizer invested nearly $240 million in the company and acquired a 40% stake in the process. Clearly, the partnership hasn’t worked out as the two companies expected, and the continued challenging economic environment in Brazil has convinced Pfizer that it is better off focusing elsewhere.

The fact that Pfizer could not find any takers for the stake for a reasonable amount is a little concerning. While we expect the company to book the loss on the investment this year, it is unlikely to impact its EPS materially. We expect Pfizer’s GAAP net income for 2017 to be in the vicinity of $7.5 billion, and even booking the entire $240 million loss will have less than 3% impact, and is a one-time event. Therefore, we do not believe there is any reason for investors to be alarmed. Further, this development is unlikely dent Pfizer’s commitment to the generics business. The company acquired Hospira in 2015 to strengthen its biosimilars pipeline, and we expect it to continue investing in this market to take advantage of a host of blockbuster biologics going off-patent. The issue with the Brazilian drug maker appears to be very specific to the company and the Brazilian market.

Our price estimate of $33 for Pfizer is roughly in line with the market.

Pfizer still has plenty of upside potential from its generics unit, especially Hospira’s biosimilars business, which we wrote about in a previous note. While continued challenges in Brazil are a concern, Pfizer is also investing in other emerging markets such as China to fuel its growth.

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