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Summary

  • The strategic changes in the structure and recent transactions have allowed the company to enhance its cash position.
  • Solid cash position will be vital for the company to follow its strategic goals.
  • Smoking Cessation market is showing moderate signs of growth with renewed pressure on FDA from American Heart Association.
  • HIV market is massive and Pfizer's subsidiary, ViiV Healthcare will bring in considerable revenue growth for the company.

The healthcare sector has been performing well over the last few months - in fact, most of the BioPharma companies have outperformed most of the sectors and the overall market itself. However, some of the major players have not been able to show the same price movement - Pfizer (NYSE:PFE) is one example as the stock has been performing poorly. Over the last six months, the stock has lost over 8%.

Over the last two years, Pfizer has spun-off several of its business segments including Animal Health, Nutrition and Capsugel businesses, in order to support its growth-via-acquisition strategy. These changes have allowed Pfizer to improve its cash position, which is vital for the strategic growth plans of the company in the long run. These transactions also resulted in better profitability for the company in 2013, clearly showing that the company was getting rid of less-profitable segments of the business. The earnings for the first six months, however, have been poor and the stock price has reacted accordingly.

A New Commercial Structure

With the beginning of the current fiscal year, Pfizer started to manage its commercial operations through a new global commercial structure consisting of three businesses: Global Innovative Pharmaceutical business [GIP], Global Vaccines, Oncology and Consumer Healthcare business [VOC], and the Global Established Pharmaceutical business [GEP]. Moreover, the company integrated emerging markets into each segment, which brought a significant change in its growth strategy. Emerging markets are an important component of the company's strategy for global leadership and the company anticipates that the demographics and rising economic power of the fastest-growing emerging markets will enable the company to grow substantially. A number of players in the industry are focusing on emerging markets due to the massive growth opportunity - growing disposable income and the lack of healthcare facilities makes these economies a perfect market for these companies. The new structure will allow the company to maintain its operations better as each segment focuses on a specific line of products, which will allow these segments to streamline the strategies to get the best out of these products.

An Opportunity in the Smoking Cessation Segment?

The smoking cessation medicine industry has gained a lot of traction over the last few years and it has been forecasted to increase at a compound annual growth rate [CAGR] of around 3.4% over the next few years. Pfizer has also developed a smoking cessation drug named Chantix/Champix, which had gained a considerable market share in the industry at around 39% in 2011. However, the introduction of e-cigarettes has adversely affected the Chantix sales over the last two years - sales have dropped by around 10% during the period.

However, the American Heart Association [AHA] has advised the FDA to introduce stricter regulations on the usage of nicotine-containing E-cigarettes and to put a ban altogether for minors. Further, AHA has advised FDA to allow E-cigarettes as the last treatment technique for smoking cessation. Also, AHA has warned that nicotine based E-cigarettes might lead to a short-term increase in blood pressure and heart rate. This strict regulation will enable pharmaceutical companies to enhance their smoking cessation medicine sales.

Different Routes for Future Growth

Pfizer has used alliances, licenses, joint ventures, and acquisitions in order to complement/ grow the pipeline - One such arrangement is ViiV Healthcare Limited (ViiV), which is a small biotech company founded in 2009 and jointly owned by GlaxoSmithKline (NYSE:GSK), Pfizer and Shionogi & Co. Ltd. The company specializes in developing novel therapies aimed to treat patients suffering from chronic HIV disease. ViiV has 12 in-line HIV drugs, and reported sales of around $2.3 billion in the last year.

Recently, ViiV Healthcare has won the FDA approval for its new drug, Triumeq, which is a combination drug aimed to treat HIV patients. The new drug reportedly combines three drugs: Dolutegravir, Abacavir and Lamivudine and is aimed to cure HIV-1. Pfizer has a 13% stake in the company while GSK is the majority shareholder with 77% of the shares. Nonetheless, the successful launch of these drugs will result in considerable growth for Pfizer as the market for HIV drugs is massive.

Conclusion

We believe the fall in the stock price is temporary for the company as the recent deals have positioned Pfizer nicely for the future growth. The changes in the structure have allowed the company to enhance its cash position - as Pfizer intends to focus on high-growth areas, the availability of cash will be important to follow the strategic goals. Furthermore, the growth prospects from the current portfolio of the drugs are also good - smoking cessation segment is showing signs of growth and the HIV segment will surely bring in enhanced revenues for Pfizer. We believe Pfizer is a solid long-term investment and the recent price fall is an opportunity to buy.

Additional Disclosure: This article is for educational purposes only and it should not be taken as an investment recommendation. Investing in stock markets involves a number of risks and readers/investors are encouraged to do their own due diligence and familiarize themselves with the risks involved.

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Source: Growth Prospects Remain Strong For Pfizer