The Pipeline Powerhouse You Can't Afford To Miss

| About: Pfizer Inc. (PFE)
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Pfizer's (NYSE:PFE) current pipeline makes it a more attractive investment option than its peers and rivals. The company has 78 drugs in its pipeline currently. 53 of these drugs are in Phase 1 or Phase 2 trials. Eight, however, are in registration, and another 17 are approaching registration in Phase 3 trials. In just the last three months the company has seen four of its drugs approved for sale by the FDA.

By comparison, Merck (NYSE:MRK) has 32 drugs in trial stages, and three under review. Johnson & Johnson (NYSE:JNJ) has a total of 16 drugs in clinical trials with two in registration. Both of these companies have particularly weak pipelines, although Johnson & Johnson does not depend as heavily on its pharmaceutical business as Merck does. Bristol-Myers Squibb (NYSE:BMY) has seven drugs in the registration phase with an additional 46 drugs in the clinical trials stage. Eli Lilly (NYSE:LLY) has a healthy 62 drugs in clinical stages. But Eli Lilly is in trouble given that its best-selling drug Cymbalta is on track to lose patent protection in the first half of 2013. Cymbalta provided Lilly 22% of its revenue in 2011 and losing patent protection will see Cymbalta sales decline by two-thirds or more.

Pfizer's recently approved drugs will go a long way towards making up the $9 billion a year in sales that Lipitor, which has lost patent protection, provided. The rheumatoid arthritis drug Xeljanz is expected to provide more than $2.5 billion in sales a year. Xeljanz is a pill taken twice a day that functions by inhibiting molecules known as "Janus kinases", crucial to the joint inflammation that characterizes rheumatoid arthritis.

Xeljanz is targeted at those patients who have an insufficient or allergic response to methotrexate, as treatment for fiercely active rheumatoid arthritis. During clinical trials, patients taking Xeljanz showed an increased risk of infections and especially opportunistic infections. These are infections that occur when the immune system is weakened. The drug can also can an increased chance of tuberculosis, lymphoma, and certain kinds of cancers. Because of the long-term side effects of Xeljanz, the FDA has announced that it is scheduling a study in the future to look at the effects between different dosages and compare results to patients receiving other kinds of treatment.

Xalkori is currently approved for lung cancer patients whose tumors have rare mutations in the protein ALK, which occurs in less than 4% of non-small cell lung cancer cases and it is the first and only drug approved to market for this subgroup. Although the ALK mutation is rare, Xalkori is expected generate $1.5 billion in sales based on its current label alone due to several reasons. First, as lung cancer is the most common cancer in developed countries, even a tiny fraction of the market translates to large numbers (40 to 50 thousand patients per year globally).

As a drug for a niche indication, Xalkori enjoys very good pricing - $9,600 per month. Most importantly, the drug has overwhelming and durable activity in ALK mutated patients which means every patient diagnosed with the mutation will probably get the drug and will stay on it for a long time (8-9 months). The drug will probably generate even more revenue as the drug inhibits a host of additional targets besides ALK, some of which are relevant cancer targets. The drug inhibits a target called ROS, which is similar to ALK in its structure. Interestingly, a similar type of rare mutations (translocation) was found with ROS in lung cancer as well as other tumors. There is very limited data on the prevalence of ROS mutations but they appear to constitute 1-2% of NSCLC cases and an unknown portion of other malignancies such as GBM and bile duct cancer. In addition, Pfizer may also target the drug as a MET inhibitor.

Although Xalkori is not perceived as a MET inhibitor (even though it was initially developed as one), anecdotal cases of activity in MET amplified patients start to emerge in lung and esophageal cancer. Unlike the case with ROS, the correlation between the genetic abnormality and response is not as straightforward. While ROS and MET mutations are quite rare, their cumulative incidence could represent an additional patient population of 25 thousand patients per year. If Xalkori's is half as effective in these patients compared to the activity in ALK mutated patients, the financial implications could be substantial. If a prevalence of 4% of NSCLC translates to annual sales of $1.5 billion, 1 to 2% of NSCLC combined with the additional smaller indications could add another $750 million annually.

Pfizer also recently received marketing approval for another cancer drug. The FDA gave its blessing to Bosulif, a treatment for chronic myelogenous leukemia (NYSE:CML) patients with Philadelphia chromosome-positive disease. It's a second-line approval, for patients who've failed on, or can't tolerate, another drug. Analysts figure the approval is worth $350 million in annual sales by 2016. The typical first-line therapy is Novartis' (NYSE:NVS) Gleevec, the first drug in the same class as Bosulif. The treatments work by inhibiting an enzyme called tyrosine kinase. Patients often become resistant to Gleevec, which is why second-line therapies such as Bosulif are increasingly important. Other second-line CML drugs include Bristol-Myers Squibb's Sprycel and Novartis' Tasigna.

With these drugs having recently entered the market combined with the company's strong pipeline with drugs late in the approval stage, Pfizer looks like a good bet going forward.

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.