Pfizer: With Lipitor Lagging, New Drugs Vital

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 |  About: Pfizer Inc. (PFE), Includes: ABT, AMGN, MRK, NVS, SNY
by: IncomeHunter

As Pfizer (NYSE:PFE) and Amgen (NASDAQ:AMGN) dissolve their long-standing partnership, investors can expect large-scale changes to occur.

The main change set to take place is that the promotional responsibilities for the drug Enbrel will be shifted to Amgen. The move is part of an agreement between the companies to consolidate all U.S. field sales activities under Amgen by June. This will affect Puerto Rico and the US, but not Canada. The right to market the drug outside the US will remain in Pfizer's hands.

The reasons for this change are as follows: the two companies currently have an agreement that will expire next year, and the change is being made in anticipation of this agreement in order to limit any customer inconvenience during the change-over period. Also, Pfizer plans to soon start marketing a new drug. The drug is called tofacitinib and will be aimed at treating rheumatoid arthritis, one of the conditions that Enbrel is also aimed at treating. Basically, Pfizer plans to hand over a best-selling and highly effective drug to Amgen and then almost immediately start marketing a competitor for that drug.

The expectation is that the move will not have a large effect on either company's stock. For now, the change is merely to inhibit any inconveniences and make things easier for employees, too. Once Pfizer puts its own competing drug on the market, the battle of the two treatments will determine how each company stands to profit from the split. Currently, estimates for Pfizer's drug sales are high as the drug has already garnered some excitement in the pharmaceutical community.

In other news Pfizer aims to sell its baby formula subsidiary, most likely to the international giant, Nestle. Other companies, such as Danone, have also bid to acquire the business.

At present, it seems that Nestle is leading the race to buy the company and it is widely expected that the food group will acquire Pfizer's baby formula subsidiary later this year. The acquisition will serve Nestle well, in that it will boost sales in places such as China where Pfizer already has a well-established presence. The acquisition of the baby formula company by Nestle is considered by many to be a strategic move for the company.

Pfizer elected to sell the company after its acquisition of Wyeth a few years ago. In an attempt to shed some of the non-core businesses that are no longer serving a significant purpose to the company, Pfizer is also considering putting its animal health business on the market sometime very soon.

Pfizer will more than likely make its final choice soon, although there seems to be very little competition. Nestle and Danone have been the only two serious competitors and most investors expect Nestle to acquire the company.

The main question, of course, is how this will affect Pfizer as a whole. By shedding the companies that are not core to the pharmaceutical company's main aim, Pfizer will now be able to focus more of its attention on the development of new drugs. This is positive for future stock moves, provided, of course, that new and successful drugs are created. Selling the subsidiary companies will also help Pfizer make up for the financial losses that it has recently experienced due to the decrease in Lipitor sales. Lipitor was once the best-selling drug in the world, but has since taken a large hit in thanks to several generic versions flooding the market.

Pfizer's competitors have been busy, too. Abbott Laboratories (NYSE:ABT) recently experienced an increase in net earnings of 44%, directly due to the success of its anti-inflammatory drug Humira, exceeding the expectations of market analysts. Abbott also intends to split its company up by the end of the year in order "to capitalize on an expected higher market valuation for its medical-products business". When the intended split was announced, Abbott shares rose by 15%. With consistently strong performance from this leader in the pharmaceutical market, many people are shifting alliances from Pfizer to Abbott. I expect it to take the announcement of a new winning and marketable drug from Pfifzer to win back these investors, rather than news of an acquisition or subsidiary sale. Pfizer should use the sale to fund drug research and development. Anything else, I fear, will fail to inspire the kind of confident investing the company found after releasing Lipitor and the impending skyrocket sales figures.

After some friction with the FDA regarding the labels on its drug Aliskiren, competitor Novartis AG (NYSE:NVS) will now be allowed to market the drug once more. The move allows Novartis to sell its drug once again, bringing the chance of new cash flow. New cash flow means an investment into new research, and this may bring new drugs about to compete with Pfizer. The news is not good for Pfizer, but the hope is that it won't effect the company too much.

Sanofi (NYSE:SNY) and Michael J Fox Foundation (MJFF) have recently entered into a collaboration aimed at testing whether or not a Sanofi PDE4 inhibitor is safe for patients suffering from Parkinson's disease to use, and Merck (NYSE:MRK) recently released the results of a phase 3 trial that evaluated anemia management strategies for patients with Hepatitis C who are currently being treated with VICTRELIS.

The moves by Sanofi and Merck are important because they highlight the ever-moving philosophy that drug companies need to take on. Pfizer is certainly busy, especially with the sales of its large subsidiaries, but it will need to invest the money it receives from the sale and move quickly. If these competitors release a successful drug, it just means a hit for Pfizer's reputation as a global leader. Now that Lipitor continues to fall, Pfizer may need another big name drug to hit the market and make up for the lost sales. As an investor, watch to see what Pfizer does with its sale money from Nestle or Danone, as this will tell where the company sees itself heading for the rest of the year.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.