Pfizer (NYSE:PFE) is a leader in the biopharmaceutical industry and has been performing well over the years. But a number of issues like the loss of patent exclusivity within the product portfolio, scattered M&A success and ongoing research and development shortcomings have besieged the company in the recent past. Can it overcome all the difficulties and create a silver lining somewhere in the cloud? Let's discuss.
Pfizer experiencing healthy growth
Pfizer, the largest US drug maker, reported a 2012 revenue of $60 billion with an earnings per share of $2. With a market capitalization of $210 billion, it is the 13th largest company in the US. It has a healthy dividend scheme and had posted better than expected fourth-quarter 2012 results on account of rebounding sales in emerging markets and sale of its nutritional foods business to the Swiss food giant, Nestle. Analysts like Thomson Reuters had expected Pfizer to earn 44 cents a share, however it earned 47 cents, above expectations. The company has a price to earnings (P/E) ratio of 23 above the S&P 500 ratio of 18, which is quite impressive. Moreover Pfizer has a strong list of experimental drugs in the pipeline, which is always encouraging for a company in the pharmaceutical industry. Pfizer has set its FY13 guidance at $2.20-2.30 earnings per share.
Patent loss issues looming over Pfizer
However, all is not well for Pfizer. It has been facing huge problems in the recent past. Much of its portfolio will lose patent protection within 3 years. It's over an year since Lipitor lost it - remember, this cholesterol drug was Pfizer's breakthrough rainmaker. It is tough for any company to cope up with a loss of $6 billion, which is what is the differential between what Lipitor used to make for it, and what it earns them now. Similar to this drug, Pfizer has also lost patent protection on other drugs like Caduet, Benefix and Revatio, which accounted for several billion dollars in revenue. Such drug patent losses can result in a huge revenue loss for the company and might get reflected in the quarterly results.
Tackling issues quite easily
But fortunately Pfizer did not have to face the consequences as it made up the loss by reducing its R&D expenses and general and administrative expenses. Moreover it sold its drug capsule business, Capsugel in 2011 and made some acquisitions like Icagen Inc. and NextWave Pharmaceuticals, which brought in a sufficient amount of cash to the balance sheet of Pfizer. Some of Pfizer's drugs like Celebrex, Pfizer's anti-inflammatory pain relief offering also received an eighteen-month patent protection, which means some additional revenue to the bottom line.
Breakthrough Therapy designation
Pfizer announced its investigational compound palbociclib (PD-0332991), an oral and selective inhibitor of cyclin dependent kinases (NYSEARCA:CDK) 4 and 6, which has received Breakthrough Therapy designation by the United States Food and Drug Administration (FDA) for the potential treatment of patients with breast cancer. Breakthrough therapy designation is intended to expedite the process of the development of a medicine, which is supposed to treat a life threatening disease. Palbociclib is an investigational, oral and selective inhibitor of cyclin dependent kinases (CDK) 4 and 6. In pre-clinical studies, palbociclib has been shown to be an inhibitor of cell growth and a suppressor of DNA replication by preventing cells from entering S phase. This announcement of palbociclib is one example of Pfizer's commitment to identify and transform innovative science into significant new treatment options for cancer patients.
To conclude, I think Pfizer's strengths can be witnessed in multiple areas, such as its growth in earnings per share, solid stock performance, impressive growth in net income, concrete financial position with reasonable debt levels and expanding profit margins. I feel that these strengths of Pfizer far outweigh the negatives like a weak operating cash flow and patent losses.
As a long-term investor I would focus more on the growth opportunities within the company and that is pretty much available with Pfizer. The recent breakthrough therapy designation has lifted Pfizer's shares by 2.6% and put a spotlight on its growing cancer drug portfolio. Right now, I am very bullish on this stock and expect it to post a healthy profit in its next earnings report.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.