Drug companies pour millions into research hoping to find the next major drug that could generate billions in revenue for the company. Some drugs are hits and some are misses. Pfizer (PFE), like all companies had its share of windfalls but also albatrosses that cause more problems than they are worth. Here are some examples of what the company is experiencing presently.
It is not always certain that new drugs will work or even generate revenue and sometimes it is a shot in the dark. As an example let's take a look at a Roche compound drug in its phase III trial for Alzheimer's. As drug researchers attempt to prove that (beta-amyloid) is the cause for the disease, numerous other trails using a beta-amyloid inhibitor have failed. But Roche is taking its drug (Gantenerumab) and moving ahead with trials to see if early intervention of high risk patients can stave off the disease. It will either fail or work. If it fails-no revenue. If it succeeds-it could be a blockbuster for the company. No one thought Lipitor would do so well for Pfizer (PFE). Revenue estimates were at $800 million not the peak of $12.8 billion. So drugs are a shot in the dark and who knows the next blockbuster.
Chantix liability suite is still present and still has an unknown outcome. The drug has FDA labeling about the possibility of suicidal thoughts since 2006 and in 2009 the labeling was enhanced with a black box that was more pronounced. There is a suit against Pfizer presently. The Whitely case is the first of some 2,500 Chantix liability suits now pending in Alabama. It claims Pfizer did not warn its customers adequately about the psychological side affects. This is not something Pfizer anticipated for the drug.
In another study, Pfizer has been researching an advanced Kidney Cancer treatment with a drug called Inlyta that missed the research goal when compared to another drug in patients who had not been treated for the disease. So with its narrowly missing its goal, Pfizer goes back to the drawing board analyzing findings and determining its next course of research. The drug is presently being marketed to treat adult patients with renal cell carcinoma who have been treated unsuccessfully with other drugs.
But there are always setbacks with drugs. Another recent study found that a Pfizer multivitamin could lower the risk of cancer in men by 8%. Centrum Silver was the study of choice. So there is always good and not so good in drug studies. The key is to investing in steady companies like Pfizer that usually have enough research in the hopper so as to have a steady revenue stream. I believe the company will continue to move up when it is done consolidating this time around.
If Pfizer is in a long term bullish trend, it will be using a bullish stepping pattern. In these types of moves, a stock moves up quickly and then consolidates for a longer period of time before moving up again and repeating the pattern. My observations conclude that the stock has just finished moving up and is now getting ready to consolidate again and move sideways. If this is the case, if could last up to 6 weeks. The RSI indicator is flirting with an over bought position again and this always signals a short term pullback. At the same time it is very bullish and a pullback will not mean it is bearish by any means. I would expect to see the Bollinger Bands tighten up again if the stock is going to move sideways from this point forward.
The Options Play
The stock is presently trading at 25.84, and I believe it is also consolidating and may continue this through November. I then anticipate another leg up.
- Buy the March 2013 call with a strike of '26' (priced at $0.83)
- Sell the March 2013 call with a strike of '27' (priced at $0.43)
- Net Debit to start: $0.40
- Maximum Profit: $0.60
- Maximum Risk: net debit
- Maximum Length of Trade: 5 months
Reasoning behind the Trade
- Markets look favorable through the year and Pfizer follows the markets.
- Trade with the bullish trend.
- Drugs in the hopper are healthy enough to continue revenue stream.