My last article I wrote on Pfizer (PFE) was in early December, and I thought the stock would be a good investment in 2013. Not only did I back the stock as a good investment, but I also noted a short-term income strategy. This is what I originally suggested:
The Options Play
Presently trading at $25.56, I believe the stock will retract now that it has reached another plateau. For this reason, I am looking at a Bull Put Spread.
- Buy the March 2013 put with a strike of '26' (priced at $1.21)
- Sell the March 2013 put with a strike of '25' (priced at $0.69)
- Net Debit to Start: $0.52
- Maximum Profit: $0.48
- Maximum Risk: net debit
- Maximum Length of Play: 4 months
Reasoning behind the Trade
- Double top warrants a pullback before it continues up.
The stock did pull back after the double top and recorded a low of 24.73 the end of December. At this point I closed out the trade for a profit. At the same time, the stock started moving up in the beginning of January and now sits at 26.64. So I made a nice short term profit and continue to back the stock on its bullish trend. How long can this trend last?
The Drug Bosulif Could Generate Nice Revenue
EU regulators gave a positive recommendation for Bosulif, Pfizer's targeted cancer treatment drug. This Leukemia drug was approved for patients who have failed treatment with other kinase inhibitors who have the rare-Chronic Myelogenous Leukemia. This was already approved by the FDA in September, and it has been estimated that this drug can bring in about $341 million in annual sales in the U.S. alone.
Bosulif is known as a second line therapy. The first line of therapy in this class of drugs is called Gleevac, manufactured by Novartis (NVS). Tyrosine kinases are important mediators of this signal transduction process, leading to cell proliferation, differentiation, migration, and metabolism and programmed cell death. These signaling pathways are often genetically altered in cancer cells to impart a selection advantage to the cancer cells. Thus there is a need to inhibit them. Patients become resistant to Gleevac and this is why drugs like Bosulif are important. These kinds of targeted therapies are a hot area right now because they can narrow the treatment options for some patients, avoiding ones that probably won't work.
Zoetis Inc: Example of Pfizer's Streamlining Plan
Pfizer is set to offer 86.1 million shares (priced $22-$25) and the animal health business could be valued at as much as $12.5 billion. The IPO has been estimated to be able to raise almost $4 billion by the end of February. Zoetis Inc. will sell medicines, vaccines and other products for livestock and pets. This particular division of Pfizer generated $3.16 billion in annual revenue or about 7% of its total (nine month statistics). Zoetis will use a dual-class share structure, with Pfizer offering all the Class A common shares in the IPO.
This is part of Pfizer's overall plan to focus most of its energies on its core prescription drug business to increase profitability. It has been trimming non-core business under CEO Ian Read. It plans on selling its nutritional business to Nestle. Interestingly enough, Pfizer is also separating its on-patent prescription drug operations from the "established products" business, which encompasses off-patent Pfizer drugs and other generic products. Will this lead to further breakup of the company? Time will tell and it is worth watching.
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Technically Speaking
As January rolled around, Pfizer caught fire and gaped up, never turning back. Its at a new high again with good momentum and it looks like it is taking a short break. The recent move up was pretty fast. Since it traced the upper Bollinger band, it is now moving sideways toward the center band. Not moving down shows strength. The RSI indicator continues to look health, especially when the highs do not move into over bought territory. The MACD MA's look like they are topping out on high's so I would expect the stock to possibly pull back soon before it continue to move up.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
