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At first glance, Pfizer's (PFE) future looks somewhat sketchy. It has lost patent protection on a host of its major drugs, leading to declining sales. Furthermore, it has greatly reduced the number of clinical trials on new drugs, indicating a sparse pipeline to replace what it's lost.

And yet, the company's balance sheet is improving, it pays a good dividend, its stock price is up nearly 30% in the last year and it seems to be sharpening its focus on its primary drug segment.

Pfizer stock is trading at around $28 a share, just shy of its current 52-week high and nearly 29% above its 52-week low of $21.40. Its current price-to-earnings ratio is 14.4.

About Pfizer

Pfizer's business is split into five segments. Its Primary Care segment contains a large portfolio of drugs that treat numerous disorders, including Alzheimer's Disease, cardiovascular issues, erectile dysfunction, depression, and respiratory illnesses. Pfizer also produces a drug that is designed to help people quit smoking. Some of the many drugs that fall within this segment of Pfizer's business include Chantix, Celebrex, Lyrica, Viagra, and Pristiq. This segment accounts for 26% of the company's sales.

Its Specialty Care and Oncology segment produces prescription drugs that are prescribed by specialists, including anti-infective drugs, as well as drugs that treat endocrine disorders, hemophilia, and oncology-related issues. Some of these drugs include Enbrel, Geotropin, Tygacil, and Xyvox. This segment accounts for 26% of Pfizer's sales.

The company's Established Products and Emerging Markets segment is responsible for prescription drugs that have lost patent protection or marketing exclusivity, as well as for all prescription drugs that are sold in the emerging markets. Some of these drugs include Lipitor, Effexor, Protonix, and Medrol.

About 61% of the company's sales come from outside the United States, where it's typically easier for drugmakers to gain regulatory approval and begin marketing their products.

Strong Cash Position

Pfizer has been accumulating cash in the last couple of years. At $10.4 billion, its cash balance is five times greater than it was in 2009 and almost three times greater than it was at the end of 2011. During the same period, it has reduced its long-term debt from $43 billion to $31 billion.

The increase in cash was partially funded by operating cash flows that totaled $17.1 billion for the year. A review of Pfizer's last 25 filings shows the company never carried more than $4.5 billion in cash, leading some to believe the company is on the hunt for an acquisition.

Purchasing a competitor with drugs in the pipeline may offset a decline in clinical trials Pfizer has initiated in the last few years. In 2009, the company initiated more than 200 drug trials, which fell to 150 in 2010, 120 in 2011 and about 80 in 2012.

These moves also coincide with recent divestitures. Unlike some of its competitors, Pfizer seems to be sharpening its focus on its core business. In April 2012, it sold Vevey, an infant nutrition business, to Nestle SA for nearly $12 billion. In January 2013, it announced it is spinning off its Zoetis business, which makes vaccines and drugs for animals. The IPO of that business was expected to raise $2.2 billion for Pfizer.

Pfizer has a fairly low debt-to-equity ratio of 0.38, while its quick ratio (1.9) and current ratio (2.1) indicate a company with strong liquidity.

2012 Financial Highlights

At the end of January, Pfizer reported financial results for fourth-quarter and full-year 2012. Fourth-quarter 2012 revenues were $15.1 billion, a decrease of 7% compared with $16.1 billion in the year-ago quarter. Full-year 2012 revenues were $59.0 billion, a decrease of 10% compared with $65.3 billion in full-year 2011.

Fourth-quarter 2012 adjusted income was $3.5 billion, a decrease of 7% compared with $3.8 billion in the year-ago quarter, and earnings per share were $0.47, a decrease of 4% compared with $0.49 in fourth-quarter 2011. Full-year 2012 adjusted income was $16.5 billion, a decrease of 8% compared with $17.8 billion in full-year 2011, and EPS was $2.19, a decrease of 4% compared with $2.27 in full-year 2011.

The company has reported better results than the consensus analysts' estimates in three of the last four quarters. This past year, Pfizer generated more than $18 billion in free cash flow, which allowed the company to raise its 3.5% dividend yield yet again this past quarter.

Pfizer anticipates 2013 full-year revenues to come in between $56.2 billion and $58.2 billion, while earnings per share should come in between $2.20 to $2.30.

Key Patent Extended

The company received more good news in early March when the U.S. Patent adn Trademark office extended the patent protection on one of its flagship drugs, Celebrex. Instead of losing its exclusivity in May 2014, the painkilling drug will now have no generic competition until December 2015.

Losing marketing exclusivity erodes revenues from key drugs. Since 2008, 16 of Pfizer's drugs have lost their patent protection, including Lipitor and Viagra. These expirations have contributed to Pfizer's falling sales by more than 11% from $67 billion in 2009 to $59.5 billion in 2012. Sales of Lipitor alone plummeted from $9.6 billion in 2011 to $4 billion in 2012.

Now the company has an extra 18 months to get new drugs out to market to make up for the inevitable loss in Celebrex sales.

Celebrex would have been the next blockbuster to lose exclusivity. The drug was Pfizer's fifth largest selling drug in fiscal 2012 and fourth ranking in the company's recent fourth quarter of fiscal 2012, with sales of $2.72 billion and $750 million, respectively. Further, the company had placed an increased promotional emphasis on the drug following the exclusivity lapse of Lipitor in the fourth quarter of 2011. Celebrex results, when expressed as a percentage of total Pfizer revenues, have risen from 3.9% in its fiscal third quarter of 2012 to a projected 5.3% in the fiscal fourth quarter of 2013.

One analyst estimates that the extension will add $5.3 billion in sales over the life of the extension, which will add $0.05 to its fiscal 2014 and $0.09 to its fiscal 2015 earnings projections.

Overall, despite the expiration of key patents and an uncertain future, Pfizer has a great balance sheet, ample cash, a strong history, and international exposure, all of which help make a strong case for investment. Overall, as one of the biggest players in the industry, it is hard to imagine a time when Pfizer will not continue to be a leader and find a way to be profitable. With this in mind, now may be a great time to invest, especially if you are looking for a pharmaceutical company for your portfolio.

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Source: Pfizer: Hope For The Future?