Pfizer's Next Big Deal Will Generate Income For Novartis, Prevent Competitors' Initiative

| About: Pfizer Inc. (PFE)

This article provides an overview of the opportunities raised by Pfizer's (NYSE:PFE) new drug under development from a biological point of view, highlighting the reasons why palbociclib will be Pfizer's next big deal.

Economic significance of the market

With about 1 out of 8 US women developing an invasive breast cancer over the course of her lifetime, breast cancer is the most commonly diagnosed cancer in women. Breast cancer treatment represents a major market for pharmaceutical companies with a worldwide incidence of 1,4 million of new cases every year. Note that those numbers do not include recurrence rate (the likelihood to experience relapse after successful therapy), which is about 20% within 5 years. Treatments used to treat only 25% of breast cancers generated a 3.4 billion dollars of revenues according to Decision Resources.

Pfizer's magic touch: subgrouping for treatment

One of the reasons why current treatment strategies are poorly effective, as illustrated by its dramatic 17% death rate, is the high versatility of molecular etiologies underlying the disease. Indeed, different subgroups of breast cancer originate from different mutations, which imply that the treatment strategy should be adapted regarding the subgroup. The so-called personalized medicine, which consists in the analysis of the molecular causes of a disease to adapt its treatment, is believed to yield to higher cure rates.

In this regard, Pfizer focused its efforts in detecting patients from the estrogen receptor positive subgroup, which accounts for 80% of all breast cancers. The company identified palbociclib as an inhibitor of molecular players that are absolutely required for breast cancer cell, but seems to be dispensable for normal cells, leading to a low toxicity.

The treatment already demonstrated huge promises in treating highly advanced breast cancer in a phase 2 clinical trial. In the course of this trial, one group was given the current standard treatment (Femara, developed by Novartis (NYSE:NVS) ) and displayed a progression-free survival period of 7.5 months while the second group received a combination of palbociclib and Fermara. The second group demonstrated a dramatic increase in progression-free survival with an average of 26,1 months.

This represents a yet unseen improvement in the survival rate of an advanced form of cancer and held great promises.

Biological and economic promises

The yet unseen effect of the drug on survival rate of the most advanced stages of breast cancer and the virtual absence of side effect hold great promises for the future of this drug. Of note, Pfizer seems to be in a comfortable position given the fact that Novartis' LEE011 and Lilly's (NYSE:LLY) LY2835219 are far less advanced and are supposed to be less effective. An important consideration is that once Pfizer will have finished the developing process, they'll go fo FDA approval and probably be considered as standard treatment for estrogen positive breast cancers. At that point, any Pfizer's competitor will have to prove that his drug is more effective or at least less toxic with an equivalent activity. The second point is unlikely given the virtual absence of toxicity of Pfizer's drug. Regarding the first point, Novartis and Lilly's drugs work by targeting the same molecule as Pfizer's one. It is therefore tempting to speculate that they are unlikely to demonstrate any statistical improvement in survival rate (which would be required for its approval by FDA once Pfizer's drug has been released).

Conclusion on Pfizer's direct and indirect profits

In accordance with Mark Schoenebaum, I predict that the drug will be release between three to four years from now. While Schoenebaum predicted a $2 billion to $6 billion worldwide, I rather estimate the direct revenues to range from $4 to $8 billion based on the estrogen positive cancer incidence. Moreover, the mechanism of action of Pfizer's drug is found in several other cancers and it is tempting to speculate that Pfizer's might take the step to adapt its treatment to other kinds of cancer. Such a strategy would generate "indirect" high profits with minimal investments since the early steps of drug development do not need to be repeated for an already approved drug.

Market impact

Since the treatment was used in combination with Novartis' Femara, one would expect no change on Femara's sales. However, it will reinforce its sales, which were threatened by more promising treatment that are no longer to fear since it is protected by the efficacy of Pfizer's drug. In addition to the increase in sales that is due to the increase in population size with a constant incidence of breast cancer, the longer survival time obtained by this combination of Pfizer's and Novartis' drugs implies that higher quantities of Femara will be sold to each patient, which will give rise to an increase in Femara's sales.

With the virtual absence of GlaxoSmithKline (NYSE:GSK), Johnson & Johnson (NYSE:JNJ), Teva Pharmaceutical (NYSE:TEVA) and Abbott (NYSE:ABT) from the estrogen positive breast cancer market, I predict Pfizer's drug to have no significant impact these companies. Palbociclib will probably act mainly as a barrier that will daunt competitors' initiative to start developing new drugs for estrogen-positive breast cancer.

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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