A potentially large blow was dealt to Pfizer (PFE) recently by the United States Court of Appeals, Second Circuit. It was decided that the company is not immune to asbestos-related lawsuits that have been filed by more than 160,000 plaintiffs against the now-bankrupt Quigley. In 1968, Pfizer bought out Quigley, a company that is under fire for allegedly selling asbestos-containing products, creating a health hazard. Even though Quigley stopped most operations in 1992, and filed for bankruptcy in 2004, these suits are still an issue for Pfizer.
The road to these court dealings has been a long one. It all began in 1999, when attorney Peter G. Angelos started the process of bringing these claims against Pfizer. Angelos claimed that the fact that Pfizer's company logo appeared on Quigley products made it liable for all of the asbestos-containing products. However, Christopher Loder, a spokesman for Pfizer, cited precedence as reason to refrain from being concerned: "In the history of this litigation, Pfizer has never been found derivatively or directly liable for injuries allegedly caused by Quigley's asbestos-containing products."
Loder's claims seemed to have been confirmed when a United States Bankruptcy judge, Stuart Bernstein, issued a decision that stated that Quigley's bankruptcy precluded Pfizer from some of the lawsuits that were being filed against it. This decision was great news for the company and it seemed as though it might be off the hook. Unfortunately, it is not that simple. In May 2011, a federal judge in New York reversed the earlier order. This new decision meant that Pfizer would have to face the claims against it, despite Quigley's bankruptcy.
Pfizer appealed this ruling, but lost. On April 10th, the United States Court of Appeals, Second Circuit, in New York, brought down the ruling mentioned at the beginning of this article. In the 34-page ruling, the three judges of this court said that "we are confident that the Angelos reading of the statutory language at issue here is the correct one." The wording in question is that of section "524(g)" of the bankruptcy code. This deals specifically with asbestos liability cases. Pfizer is remaining confident that it will come out unscathed in these lawsuits, stating "it is important to note that the court's ruling is procedural and does not address the merits of the underlying claims, which we strongly dispute." It will be interesting to see how this one pans out. I am not feeling very optimistic about the outcome from Pfizer's point of view.
Pfizer had seen quite a lot of improvement in share price over the past six months, but it has slid some recently. Its 52 week low is around $17 per share and its 52 week high is around $23. Currently, it is hovering right around $22 per share. This is a good sign, but the latest slide is concerning. With the threat of lawsuits, and all of the bad press that comes with them, becoming more and more imminent, I am starting to worry about Pfizer going forward. I would not be surprised to see its price drop significantly before it turns around again.
One of Pfizer's closest competitors, Abbott Laboratories (ABT), finds itself on the opposite end of the legal system. Abbott is suing the German drug maker Boehringer AG's Roxane Laboratories. for the alleged infringement of three patents for the HIV drug Norvir. According to Abbott, Roxane is planning to market the Norvir tablets in a generic version before the U.S. patents expire.
Abbott claims that it will be irreparably harmed if Roxane goes through with introducing its copy. The complaint that it filed states that "Abbott is entitled to a permanent injunction against further infringement." This all is happening as Abbott's stock price has been on the rise for the past year. Everything is looking rather good for Abbott, assuming that it can win in court and stop Roxane from releasing this generic medication.
In the past three years Pfizer, the world's largest pharmaceutical company, has fired more than 26,000 workers to save money in the current economy. It does not get better with the latest news about its attempts to save $1 billion in operating costs in 2012. After May 14, the company will be cutting its basic severance package for fired workers significantly. The basic severance pay used to be 12 weeks, but will be lowered to only 8 weeks after this change. More drastically, the health benefits associated with the severance package will also only last 8 weeks, as opposed to the year-long duration that was the previous norm.
The memo that announced this to Pfizer's workers said: "Our benefits continue to be competitive when compared against those offered by our industry peers and other leading global companies." The company is maintaining that the new package is more than fair. The package will still include a 60-day notice and a $5,000 retraining program. The memo also says the company "will continue to analyze all of its benefit programs to support its long-term competitiveness and the sustainability of benefits in today's challenging business environment."
GlaxoSmithKline (GSK), another one of Pfizer's main competitors, is seeing similar trends in stock price as Abbott, but has not seen as drastic of improvements. It is hoping to make some headway with a new connection to Japan-based Chiome Bioscience. The two companies are entering into a pilot study to generate monoclonal antibodies using Chiome's proprietary ADLib system. The details have not all been worked out, but this research could prove very beneficial for both companies.
The good news and good press seem to be confined to Pfizer's competitors currently, and Pfizer seems to be stuck in the mud with legal battles and cost-saving tactics. It certainly might not take that large of a hit in its stock price, especially if everything plays out okay, but I am not optimistic about the immediate future.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.