The Real Expert

Big Pharma in Effort to Stimulate Innovation

Eben Tessari....sorry but my analysis is restricted to institutions who pay a large premium for my advice. I have no desire to promo myself on a site whose readers are mainly idiots who have no idea what is going on. Remember, nothing of any value is ever free.

Big Pharma in Effort to Stimulate Innovation

Where is the investment relevance?

"To sustain a 10% annual growth rate is like adding a blockbuster drug ever year at a minimum (not counting patent expirations)."

Where did you arrive at this? I think you have this all wrong. You haven't factored in the sales growth of drugs. Take a look how much growth Lipator or other "blockbusters" have had.

Understand that no one will care to look at your site if this is all you have to offer. If you are going to shay away from investment relevance (which might be a good idea) then at least provide some real insight into the industry instead of summarizing a news post. Just a friendly tip.

Pfizer Continues to Fall Further

To Bioinvestor, Obviously the pipeline is the issue. But the pipeline is the key variable that will take many years to remedy. In contrast, a share buy back is something under more direct control of the company. When I recommend a share buyback, implicit is the assumption that this money will be better spent than any other activities the company might wish to pursue.

The pipeline problem is not one of lack of funds. They have plenty for R&D. The fact is that pharma companies spend twice as much on sales and marketing than for R&D. For PFE to drop $8 billion (and growing) each year on dividends appears to be more of a gradual liquidation of the company than anything else. Regardless how well PFE might do (which at best will take many years for positive results) nearly 7 billion shares is way too much. It is extremely difficult for any company to achieve sufficient earnings growth to be categorized as a growth story with that many shares.

The real solution is surely not a share buyback but it must be addressed regardless what happens, even if the pipeline improves. In no way did I ever imply that would be the ultimate solution. But a share buyback is the easiest way PFE can cushion decelerated earnings while it fills teh pipeline.

The real solution is not so much pipeline but strategic direction. Big pharma needs to stop focusing on these useless me-too drug clones and go back to developing the kinds of breakthrough drugs that made them successful. They need to build a pipeline of better, safer, more useful drugs. If they do that, they won't have the need to spend twice as much on sales and marketing as R&D. Quality breakthrough drugs sell themselves because they are good. Poor drugs need massive marketing and bribes to physicians.

Just because you call yourself "bioinvestor" you should not assume others who post are not more knowledgable in bio investments than you. My core expertise is biopharma, with strong academic credentials and Wall Street experience in this sector. If I were not an expert, I would be talking about the obvious variable that will take many years to resolve and which everyone already knows about - pipeline issues.

Pfizer Continues to Fall Further

And by the way, I would also suspend the dividend growth over that 5-year period, keeping it at $1.28/year to help pay for the buyback.

Pfizer Continues to Fall Further

One cannot and should not ever expect any valuable content to come from the media. After all, they are just reporters who listen to clowns who get things wrong. Hey Mike, if you want to get some credibility come to me next time.

PFE management needs to approve a long-term share buyback of at least 1 billion shares if they want to help their cause. With nearly 7 billion shares outstanding (and floating), there is no way in hell the company can both continue its dividend growth and deal with pipeline issues. In fact, one must question how wise an annual dividend of $8 billion is when revenues are shrinking and expected to continue to shrink. The last time I checked, only MSFT has more shares outstanding. Since 1999, PFE is down by 65% from its peak and an agressive dividend policy has been the only way to keep investors in the stock. But dividends don't help much when the stock continues to fall.

A 5-yr share buyback should come soon especially as the stock price falls-that is if management has a clue. How can one really think current share prices are 'cheap" if the company does not think so enough to buy them back? A buyback of 1 billion shares over a 5-year period could be achieved with minimal pain and would help cushion the effect of declining revenues as lipitor comes off patent. If the stock rises over the next 5 years, they do not have to go through with the full repurchase, so at the very least they should approve it so they can act if needed.

In conclusion, if PFE does not announce a share buyback soon, I would have to conclude management is either lost or else thinks it's a bad way to spend cash, which has huge implications for would be investors. I have already contacted the company with this view and I hope they will listen. To me it is the obvious decision unless the company has more problems than have already been exposed. At the very least, a repurchase would signal a positive signal to investors. That alone could give a much-needed boost to the stock. Nothing else seems to, not even the current 7% dividend yield.