Don't Sell: Pfizer Can Handle Crisis

Jun.15.12 | About: Pfizer Inc. (PFE)

by Veronica Chang

Many remain concerned about the global economy and the developing situation in Europe, and this has had a negative impact on Pfizer (NYSE:PFE) stock, along with many others. Recent news for the company has been mostly positive, but some negative news will likely cancel out the effects of these stories. Based on recent news, I would not be expecting any significant changes specific to this stock.

Pfizer is continuing forward with its plans to focus more on its human pharmaceuticals. It is preparing to file for an initial public offering of minority ownership in its animal-health unit. This unit will now go by the name of Zoetis, and Pfizer plans to make this into its own standalone business by July 2013.

The initial response to this move has been positive, as Pfizer stock rose three-quarters of a percent after the announcement. It shows consistency with the company's overall strategy, which may prove quite successful in the long run. This kind of dedication to a specific part of the industry could help it make significant gains in keeping up with progress.

Pfizer is making another change in its structure as well, relocating its surveillance test group to Singapore. This is not downsizing, as slightly more people will actually be employed at the Singapore site, but it is a move partly to cut costs. It is also a strategic decision, as this new location will put the group closer to its growing number of suppliers in Asia. This new location will allow the company to give more support to these increasingly important parts of its business. Once again, this shows Pfizer focusing on the more critical aspects of the company and making changes in logical ways. Increased support for suppliers and decreased costs for the company will reassure investors and have a positive effect on Pfizer stock.

Everything is not perfect for the company, however, as it must still deal with the termination of its patents on the cholesterol drug Lipitor. As a result, Pfizer plans to lay off 177 employees in Ireland and possibly make additional cuts in the future. The company cites the patent loss and the resulting increase in competition as the reason for these cuts. The patent issue will have a significant impact on the company, and it is acknowledging this through the planning of these cuts. Pfizer is attempting to deal with the situation, but I think its acknowledgement of this difficulty will have a strongly negative effect on Pfizer stock in the near future.

This issue does not mean that Pfizer will not continue forward, however, as it is introducing Toviaz - a treatment for overactive bladder patients - in Canada. This condition is prevalent but remains undertreated. As a result, this is an important development for medical professionals in Canada, but it will not have a significant impact on Pfizer stock. This combines with the current restructuring plans to show the company moving in a positive direction, but these may barely offset the difficulties surrounding the Lipitor patents.

Pfizer is not the only company making plans for restructuring, as Abbott Laboratories (NYSE:ABT) has recently announced its intention to create a spin-off company called AbbVie. This is a strategic move for Abbot to focus on its role as a "maker of medical products and generic drugs." This will help Abbott keep up with other companies like Pfizer that are focusing on core aspects of their businesses. I expect this announcement to have a slightly positive effect on the company, but I believe it will be minor. Its long-term effects may prove more significant, but that is mere speculation for the moment.

One company that is facing a specific difficulty at the moment is Merck (NYSE:MRK). The Food and Drug Administration did not approve Merck's experimental sarcoma drug, ridaforolimus. It is requiring further testing from the company in order to prove that it is both safe and effective. There are several potential major side effects of the drug, including lung irritation, kidney failure, and high blood pressure. More testing is necessary to prove that the pros outweigh the cons. The company remains confident. This is a big impediment to its progress, however, and it is unclear whether or not this drug will get approved even after further testing. Based on this uncertainty, therefore, I would expect Merck stock to be struggling.

Several competitors are announcing results from studies that may have a slightly positive impact on these stocks. Johnson & Johnson (NYSE:JNJ) plans to announce the results of five studies with its treatment for Type 2 Diabetes. This just took place, at the America Diabetes Association, and investors should pay close attention to the story. It could have a positive impact on Johnson & Johnson stock if these studies were successful. Novartis (NYSE:NVS) is also announcing results from its recent studies. The results of these studies showed that 62% of patients with severe forms of childhood arthritis had no symptoms after Novartis' treatment. The company met the goals of its studies, and this should have a positive impact on Novartis stock as well.

It must be noted that medical studies are frequently being released, but these are major studies for the companies and should have a larger-than-average impact on the stocks.

Merck is facing difficulties with the FDA, and Pfizer is still working on its response to the loss of its Lipitor patent. Pfizer is restructuring, however, and this may offset the bad news. It may not have major study announcements in the recent news, but the current stories do not make the situation seem too bad for Pfizer. For the time being, it will probably come out fairly neutral with the positive stories canceling out the more negative one. I expect Pfizer stock to remain fairly constant in price as a result.

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