Pfizer: Buy, Sell Or Hold?

| About: Pfizer Inc. (PFE)

For Pfizer (NYSE:PFE) there is good news, there is bad news, and there is really good news.

First, the bad news. Pfizer released 3Q results confessing a 16% decline in revenue to $14 billion. The pharmaceutical company narrowed its 2012 guidance. About 4% of the loss was due to a stronger dollar on the currency market. Of course, the big player was Lipitor's patent expiration. Lipitor sales were $750 million compared to $2.6 billion one year ago. The drug accounted for only $190 million in sales in the U.S. The patent plague continued with loss of Detrol's exclusivity in September 2012.

Another problem was a 5% decrease in Prevnar Vaccine sales. The loss was a surprise. The excuse was everyone has been vaccinated. There was not market share loss, though, to Merck's (NYSE:MRK) Pneumovax.

The bad news goes to the north. The Canadian Supreme Court held Pfizer's patent on Viagra was invalid. This leaves Teva (NYSE:TEVA) open to manufacturer a generic version of the drug. Pfizer envisions American customers flocking to Canada to buy a cheaper generic form of Viagra. This ruling sets precedent for future patent challenges in Canada. The courts in the U.S. are aware of the new cost-conscious health care system being implemented in America that will mirror Canada's medical system.

Adding insult to injury, the FDA rejected Pfizer's new central nervous system drug, Tafamidus, and delayed approval of Eliqus.

If Pfizer's analysis consisted of just the above facts, it would be a Big Pharma company in trouble.

Now, some good news. Concerning Prevnar Vaccine, the Center for Disease Control, CDC, has recommended vaccination for all people 19 years old and older with any possibility of immune system dysfunction. This encompasses anyone with a chronic illness and represents a significant percentage of the population. Also, the World Health Organization, WHO, now advocates vaccination for everyone age 50 and older. This is the adult version of the vaccine, Prevenar. This is worldwide and Pfizer's revenues are 60% international.

Pfizer won its patent challenge for Lyrica which is a lucrative medication,and, thus, great news. The Pharmaceutical company settled lawsuits favorably with Mylan (NASDAQ:MYL) and Impax (NASDAQ:IPXL). Detrol LA will remain on patent until 2014. In addition, the Wyeth acquisition should start paying off with 4 possible FDA approvals through 2013. Pfizer's generic division continues to gain market share and generate good revenue.

All is not totally lost; however, if what we have examined was the end, there would be nothing to get excited about.

Finally, the really good news. After a delay, Pfizer's JAK inhibitor, Xeljanz (Tofacitinib) got FDA approval for Rheumatoid Arthritis (RA). Pfizer thus beats Abbott (NYSE:ABT)'s JAK inhibitor to the market and will compete with Abbott's Humira, the world's most profitable drug. Incyte (NASDAQ:INCY)'s Ruxolitinib, a JAK inhibitor, was approved in November 2011 but for refractory myelofibrosis only. Myelofibrosis is a rare bone marrow disease. Eli Lilly (NYSE:LLY)'s Baricitinib for RA is still in trials as is Sanofi (NYSE:SNY)'s TG101348 for myelofibrosis. This ostensibly makes Pfizer's Xeljanz the first JAK inhibitor in the stream of commerce. As we will see, this is going to be a very lucrative market.

Xeljanz is even going into phase III trials for ulcerative colitis. Being medically trained, I can say there will be multiple indications to utilize JAK inhibitors. It will become a huge market and Pfizer is first. Ultimately, this marketplace will be competitive, but physicians know and trust Pfizer. Doctors will prescribe Pfizer's medication before some NewSuchDrug company's agent. Pfizer had a proven track record and physicians are wary of new drugs and new pharmaceutical corporations. Plus, a doctor prescribing is mainly based upon habit. The first drug released in that class develops that habit and Xeljanz is first.

What is a JAK inhibitor? These compounds block one of five Janus enzymes. Technically, Janus Kinase is an immune-modulating signal transduction molecule. The important issue is that Janus Kinase enzymes are necessary for inflammation. In "autoimmune" diseases like RA, it is the inflammatory reaction that creates the tissue damage that makes up the illness. Stop the inflammation and stop the tissue destruction. If there exists no damage to flesh and bone the disease is in remission. JAK inhibitors are very potent and effective anti-inflammatory compounds. If Tylenol is beer, JAK inhibitors are 151 proof rum. The inflammatory response is the corrosive, disease causing activity in hundreds of illnesses. That is why I say the JAK inhibitor arena will become massive.

Now let us do some math problems. Around 30% to 40% of RA patients do not respond to standard treatment and would become JAK inhibitor candidates. There are 1.5 million persons suffering from RA in the U.S. alone. America makes up 5% of the world's population. Globally, 20 to 25 million cases of RA exist at a given moment. Assuming 30% of these folks are non-responders and approximately 10% to 15% will not have access to JAK inhibitors. Bottom line is 3 to 4 million people worldly could be on JAK inhibitors for their RA symptoms. Pfizer's retail price for Xeljanz is $2,000 for 30 days. That calculates to $24,000 annually. Mathematically it comes to $48 billion a year global marketplace. Such calculations are for RA only, again there will be other illnesses treated with these compounds.

Now, this is fine speculation but reasonable and conservative. Serious side effects could emerge taking JAK inhibitors. Will Pfizer really receive $2,000 per month in revenue from Xeljanz? There are many unknown variables. Still, it is obvious this will become an enormous sphere of commerce. For many years JAK inhibitors will be quite profitable. Concerning Pfizer, Xeljanz is going to generate more revenue than Lipitor.

Currently, Pfizer is selling around $25 per share. The market, at the time of writing, is in correction mode. Now would be an optimal time to start a position in the pharmaceutical company. I believe Pfizer will be a riser. Even the active trader could do well short-term.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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