Pfizer New Coverage: $25 Trefis Price Estimate

Pfizer (NYSE:PFE) is the world’s biggest pharmaceutical company and operates in two main segments: Bio-pharmaceutical and Diversified. Bio-pharmaceutical includes Primary Care, Specialty Care, Established Products, Emerging Markets and Oncology units that focus on treatment and prevention of cardiovascular and metabolic diseases, central nervous system disorders, arthritis and pain, respiratory diseases, urogenital conditions, cancer, eye disease and endocrine disorders, among others. Its Diversified unit includes Animal Health, Consumer Health and Nutritional Products such as nutritional supplements and toddler formula products.

Pfizer delivered net revenues in excess of $67 billion for the fiscal 2010 with net income close to $8.2 billion. We recently launched coverage on Pfizer with a $24.60 price estimate for the company’s stock which is just over 12% higher than the current market price.

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Launch of Coverage on Pfizer; $24.60 Price Estimate

We have broken down our analysis of Pfizer into 8 major divisions –

1. Diversified Legacy Drugs & Alliances

2. Prevnar & Other Anti-Infective Drugs

3. Lipitor & Other Cardiovascular Drugs

4. Lyrica & Other Central Nervous System Drugs

5. Sutent & Other Oncologic Drugs

6. Celebrex & Other Musculoskeletal Drugs

7. Detrol & Other Alimentary Drugs

8. Premarin & Other Immunomodulatory Drugs

See our complete analysis of Pfizer’s stock here

Key Trends in the Pharmaceutical Sector

The Pharma sector is undergoing a major transformation as the era of blockbuster drugs is all but over. By the end of 2013, over 10 blockbuster drugs will lose their patents, representing a potential loss of nearly $ 100 billion in revenues for the big pharmaceutical giants.

Generic drugs and growth from emerging markets are the two most important factors driving value in the pharmaceutical space . But even in pharmerging markets, patent laws are neither strong nor effective when it comes to regulating drug prices and the launch of generics.

Big pharmaceutical giants need to rationalize their R&D spends and find innovative ways to discover and market new molecules if they are to protect there top-line growth.

Pfizer has five new drug launches in the pipeline which are expected by the end of 2012. These include crizotinib, apixaban, the kidney cancer treatment axitinib, the arthritis drug tofacitinib, and an adult version of the pneumonia vaccine Prevnar.

Even Pfizer’s generics business is poised to grow after recording revenues of nearly $10 billion in 2010, just 40% shy of global generics leader Teva Pharmaceuticals.

Though Pfizer markets the world’s best selling drug, Lipitor, it accounts for just 5% of the stock value. The biggest contribution to the value of the stock comes from the Legacy Wyeth & Pfizer products, Alliances and income generated from the Diversified unit.

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Loss of patents a major headache

By the end of 2013 over 10 blockbuster drugs are expected to lose patent exclusivity which includes Lipitor. These branded drugs are set to lose over $100 billion in revenues in the next few years and thus companies such as Pfizer will need to develop new drugs to offset these losses. Lipitor, which had revenues in excess of $10 billion for fiscal 2010, is on pace to lose $2-3 billion in revenues for the 2011. We expect Lipitor’s revenue to drop drastically in the next 2 years.

Pfizer is trying to minimize this decline in Lipitor’s revenue by a host of innovative deals, including a five-year agreement with Watson Pharmaceuticals (NYSE:WPI) to be the exclusive seller of “authorized generic” Lipitor.  Deals with insurers, pharmacy benefit managers, and individual customers to meet or beat the price of Lipitor’s generic replacements are also expected to reduce the decline in revenues.

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Launch of 5 new drugs by 2012

Pfizer has five new drug launches in the pipeline which are expected by the end of 2012. These include apixaban, crizotinib, the kidney cancer treatment axitinib, the arthritis drug tofacitinib, and an adult version of the pneumonia vaccine Prevnar.

Apixaban is Pfizer’s new offering in the anti-coagulation market, currently under Phase-III trials. The drug has shown to reduce mortality rates by 11% when compared to the segment leader, Warfarin. The warfarin replacement market is estimated to be more than $10 billion a year and possibly up to $20 billion.

Crizotinib, to be marketed as Xalkori, targets a specific group of non-small cell lung cancer patients. The drug priced at $115,000 for a year’s treatment also signals the arrival of personalized cancer treatment options with a steep price tag. Industry analysts expect the drug to generate additional revenues in excess of $500 million by 2015.

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