Lipitor (atorvastatin), marketed by Pfizer (PFE) to reduce blood cholesterol levels, has been the best-selling pharmaceutical of all time, with aggregate sales of over $125 billion and still going. But the patent has expired, and since November 30, 2011 there have been generics available from Watson Pharmaceuticals (WPI) and Ranbaxy Laboratories, with more certainly to come. Sales of Lipitor peaked at 12.8 billion in 2008. Sales were still over $10 billion in 2010, but shrank by 11%, over a billion dollars in 2011. What will happen to Pfizer as sales of its leading product inevitably decline further?
Lipitor is not the first statin to go off patent. Merck's (MRK) Zocor has been available as a generic since 2006, which has pressured the sales of other more expensive statins like Lipitor and Crestor (marketed by AstraZeneca (AZN).
Pfizer has a well-deserved reputation as an aggressive marketer of pharmaceuticals - it does not intend to give up its Lipitor franchise without a fight. The company is selling directly to consumers at reduced prices, so Lipitor has essentially become a branded generic. Nevertheless, sales of Lipitor in the U.S. were off 71% in the first quarter of 2012, while overall revenues were off 7%, largely as a result of Lipitor's decline.
Pfizer, of course, is hardly a one-trick pony. It sells a number of well-known products, including Celebrex, for osteoarthritis, Viagra for erectile dysfunction, Lyrica for neuropathic pain, Premarin for menopausal symptoms, Effexor for depression, and Enbrel, which is co-marketed with Amgen (AMGN) for rheumatoid diseases. Not all the company's pharmaceuticals require a prescription. The company sells over-the-counter drugs like Advil, Dristan and Neosporin. Other products include antibiotics, vaccines and animal health products.
The company has recently launched three drugs. Inlyta was approved on January 27 of this year for advanced renal carcinoma, but it competes with six other drugs already on the market. Barclays analyst Tony Butler predicted peak sales of $600 million, nice to have but not Lipitor type numbers. Xalkori was approved for the 1-7% of non-small cell carcinoma patients who have a specific mutation. This was a welcome advance for personalized medicine, and a life-saving reprieve for certain patients, but Xalkori is not likely to be a blockbuster drug. Prevnar 13 was approved Dec 30, 2011, as a vaccine for pneumococcal pneumonia in patients 50 years or over. It was already in use as children's vaccine.
This month, a drug called Elelyso, which Pfizer had developed with the biotech company Protalix (PLX), was approved to treat Gaucher's disease, a rare genetic disorder. This was a big deal for Protalix, whose share price jumped on the news, but it is not enough of a market to make a difference to Pfizer. There are only 6,000 Gaucher's patients in the U.S.
Pfizer also has a large pipeline. It has 18 drugs in Phase III trials, 35 in phase II an 26 in phase I. The company is awaiting approvals on three drugs: Eliquis, Bosutinib and tofacitinib. Eliquis is an anti-clotting drug being developed with Bristol-MeyersSquibb (BMY) for patients with atrial fibrillation at high risk for stroke or systemic embolisms. Eliquis would face immediate competition from Xarelto, marketed by Bayer (BAYRY.PK) and Johnson & Johnson (JNJ) as well as from Boehringer Ingelheim's (private) Pradaxa. Bosutinib is under review for the treatment of certain myeloid leukemia patients.
On May 9, 2012, an FDA panel voted 8-2 to clear Pfizer's drug tofacitinib for sale as a treatment for rheumatoid arthritis (the FDA is not obligated to follow the panel's recommendation, although it usually does). An analyst with Citigroup, John Boris, has predicted that the tofacitinib could generate as much as $1.5 billion in annual revenues. The drug will compete with drugs like Humira, from Abbott Labs (ABT) and Enbrel. Those drugs, however, inhibit tumor necrosis factor. Tofacitinib, which no doubt will now get a flashier trade name, has a different mechanism of action: It inhibits JAK protein kinases, indirectly affecting the regulation of genes involved in inflammation. Also, it is an oral small molecule drug, whereas Enbrel and Humira are very expensive protein drugs. Tofacitinib is also being investigated for the treatment of psoriasis and inflammatory bowel diseases.
Last month, Pfizer announced that it will sell its nutritional business, focused on baby formula, to Nestle for $11.85 billion, a good deal more than analysts were expecting. Pfizer is also exploring the possibility of selling its animal health division. There has been speculation that its consumer products division will also be sold.
So the new, streamlined Pfizer will concentrate on its high margin pharmaceuticals, but none of its near term products look to be blockbusters of the Lipitor variety. There may never be another Lipitor, anywhere in the industry, unless someone comes up with a diet drug that actually works without side effects. Newer drugs are likely be more focused and like Xalkori, work only on certain populations. But Pfizer's large pipeline should guarantee a steady stream of profitable drugs.
Pfizer is a shareholder friendly company. It has bought back over $9 billion of its own shares in the last year in addition to paying out $6 billion in dividends. At its current price, Pfizer is yielding almost 4%. Although Pfizer has grown in the past through large acquisitions, notably a $68 billion deal to acquire Wyeth in 2009, management has stated that it will look at any new acquisition only if it feels it offers more value than its own shares.
Earnings will likely stabilize this year, post Lipitor, and increase modestly next year. Analysts are expecting the company to earn $2.34 per share in 2013, which gives a forward-looking price-to-earning rate of only about 10.
Analysts, in general, see Pfizer as a buy. I also see it as a buy for conservative investors. Pfizer is a defensive play with predictable earnings and a reasonable dividend.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.