Pfizer: What Will Drive The Behemoth Forward?

 |  About: Pfizer Inc. (PFE), Includes: DRRX, PTIE, ZGNX
by: Fusion Research

By Satya Prakash,

The analgesic drug market is one of the largest segments of the healthcare industry. The chronic pain drugs market offers a high growth opportunity to pharmaceutical companies. The U.S. represents the largest market for the analgesic drugs worldwide; there are more than 100 million people suffering from the chronic pain. Further, the Asia-Pacific is a fast growing market for analgesic drugs, and this market is expected to grow 4% annually. Among the painkilling drugs, Pfizer (PFE) is working on developing "Remoxy," an investigational analgesic drug that was rejected twice by the FDA.

Remoxy - At a glance

It is a unique long acting oral formulation of oxycodone which will help treat moderate-to-severe pain. In 2002, Pain Therapeutic (PTIE) received the worldwide rights from Durect (DRRX) for development and commercialization of Remoxy. To develop this drug, Pain Therapeutic entered an agreement with King Pharmaceuticals, now a subsidiary of Pfizer, and submitted the New Drug Application, or NDA, for Remoxy in June 2008. The company received the complete response letter from the FDA in December 2008. In March 2009, King gained the full control regarding the development of Remoxy and resubmitted its NDA in December 2010, but it failed to gain FDA approval and again received the complete response letter on June 23, 2011.

Under the hands of Giant

On October 23, 2013, Pfizer announced that after achieving the technical milestones related to manufacturing, it will continue the development program of Remoxy Extended-Release Capsules CII. The drug will release the ingredient slowly, reducing frequent intakes and resulting in fewer side effects. Remoxy is developed using Durect's Oradur technology. This technology has the added benefit of being less prone to defects or improper usage or treatment. Oradur technology helps develop easy to swallow drugs, reduces side effects, and it will enable Remoxy to treat patients with its full efficacy.

Based on the June 2011 complete response letter and the guidance received by the FDA, Pfizer will continue the development and commence new clinical trials of Remoxy. It will enhance and evaluate the efficacy of the new version of Remoxy compared to the older version. It is expected to submit the complete response for its phase results by 2015.

Opportunity for Pfizer

Pfizer has a huge opportunity in analgesic drugs, as there are more than 1.5 billion people suffering worldwide from chronic pain. The global analgesic drug market is expected to reach $34.6 billion by 2015. We expect that Pfizer, after thorough review and achieving the technical milestones, will develop and enhance the efficacy level of Remoxy and treat chronic patients more efficiently. If Pfizer is able to win FDA approval for Remoxy, it will be able to deepen it presence in the analgesic drug market. According to Datamonitor, Remoxy may reach annual peak sales of $400 million in the U.S. As per the Cowen & Co. analyst, Remoxy peak sales of $500 million are expected in the U.S.

As one of the leading pharmaceutical companies, Pfizer will easily achieve Remoxy's U.S. sales targets, and we presume Remoxy may generate even higher sales than expected, as Pfizer may take this drug globally to grab all the opportunities available for this drug. This would add higher revenue from Remoxy to its topline.

Benefits to its partners

Durect is a specialty pharmaceutical company that develops innovative drugs for pain and other chronic diseases. Under the license agreement with Pain Therapeutic and Pfizer, Durect will receive payments if certain milestones regarding the development or regulatory approval for Remoxy are achieved. In addition to this, Durect will receive the royalties between 6%-11.5% on net sales depending on its sales volume, upon Remoxy commercialization.

In June 2013, the FDA accepted "Posidur", Durect's pain relief drug, which is used for the treatment of post-operation pain. The FDA has established a Prescription Drug User Fee Act, or PDUFA, date of February 12, 2014. PDUFA is a law that allows the FDA to a collect fee to fund the new drug approval process and set the target date to review the New Drug Application, or NDA. If Durect is able to receive FDA approval for Posidur, it may have the opportunity to enhance its revenue, which was around $53 million in 2012. It is expected that Posidur may have peak sales of $250 million, or add around $0.40 per share to Durect's EPS.

On the other hand, Pain Therapeutic is eligible to receive $15 million from Pfizer upon FDA approval for Remoxy. On its commercialization in the U.S., Pfizer will pay the royalty of 15% for the first cumulative net sales of $1 billion and 20% thereafter. Additionally, it will receive the royalty of 10% for sales outside the U.S. Pain Therapeutic received all the rights from Pfizer related to the other three Oradur-based analgesic drug candidates, "hydrocodone, hydromorphone, and oxymorphone". Now Pain Therapeutic will be able to develop and commercialize these candidates on its own or with a licensee. The company has placed an Investigational New Drug, or IND, application for these three drugs with the FDA; if approved, these will boost its growth prospects and add to its future valuations.

On competition side

On October 25, 2013, Zogenix (ZGNX) received FDA approval for its new painkiller drug, "Zohydro ER." This drug is the first FDA-approved "Single Entity," which means that it isn't combined with an analgesic such as acetaminophen and extended-release hydrocodone product. This drug is used to treat patients with severe pain and for which other pain treatments are inadequate. The approval was based on its efficacy in treating 1,100 patients with chronic pain and 500 patients with chronic low back pain. In the studies, patients treated with ER witnessed significant improvement in their pain compared to the placebo.

ZGNX Chart

ZGNX data by YCharts

On the day of FDA approval, Zogenix's stock was hovering around $2.22, and with the news regarding Zohydro ER approval, its stock reached $3.45, a jump of nearly 55% in a single day. We expect this drug will help the company gain strong momentum in its revenue and earnings, which will result in additional upsurge in its stock price.

Pfizer's stock Performance

PFE Chart

PFE data by YCharts

Pfizer's stock has generated the return of around 23% year-to-date. Backed on its strong earnings, the company is also returning around 25% of its earnings to the investors, and generated the average dividend yield of 3.10% for them. This will drive the investors' interest and are expected to maintain their position in the company for the longer term.


Pfizer recently declared its third-quarter results, beating the analysts' EPS estimate of $0.56. It reported adjusted EPS of $0.58 per share. Its revenue declined 2% year over year to $12.64 billion. Its oncology segment showed strong sales growth of 24% to $407 million. From its performance, we expect Pfizer will perform even stronger in the coming quarters.

With the third quarter revenue decline, Pfizer reduced its previous revenue guidance, changing it to the range of $50.8 billion-$51.8 billion from $50.8 billion-$52.8 billion. It also narrowed the adjusted EPS guidance range from $2.1-$2.2 to $2.15-$2.2 per share.

We expect that Pfizer, with its strong presence among pharmaceutical companies, will continue to beat the investors' estimation and post higher earnings in the future. Additionally, with its vast experience, we believe it will be able to develop Remoxy to its full efficacy and receive FDA approval faster, resulting in a significant opportunity for the company and for investors too.

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.

Disclaimer: Fusion Research is a team of equity analysts. This article was written by one of our research analysts. We did not receive compensation for this article (other than from Seeking Alpha), and we have no business relationship with any company whose stock is mentioned in this article.