6/18/08

Pfizer Update

Pfizer (PFE) announced this morning that it reached a deal with Indian generic drug maker Ranbaxy Laboratories regarding its popular Lipitor drug. Before the deal was announced, it was widely expected that Ranbaxy would start selling generic Lipitor in the US by June 2011. The deal, however, gives Pfizer five extra months. Ranbaxy will start with generic Lipitor in November 2011.

The agreement also involves Ranbaxy being able to sell generic versions of Caduet, a Pfizer drug that is a combination of Lipitor and Norvasc (a blood pressure drug). While Pfizer's expiring Lipitor patents in Denmark, Finland, Portugal, Romania, and Spain still face litigation, Pfizer will not attempt to block Ranbaxy from marketing generic Lipitor in Australia, Belgium, Canada, Germany, Italy, the Netherlands, and Sweden when its patents will expire in those nations.

No money was exchanged in the deal, so federal regulators should not be able to contest it.

What does this all mean? Deutsche Bank's Barbara Ryan thinks the extra five months give Pfizer an extra profit of $0.40 per share in 2010 and 2011. James Kelly, an analyst at Goldman Sachs now thinks Pfizer will earn $2.44 a share in 2011 (up from his earlier projection of $2.09), and $1.96 a share in 2012 (up from $1.88).

Investors have reacted favorably, sending the stock past $18, where it has hovered over the past two weeks (going as low as $17.50). Pfizer's share price is still at 10 year lows.

There obviously are still challenges ahead for Pfizer. Current projections still show shrinking profits, and it's not just Lipitor that's expiring. The dividend cut that I wrote about earlier still appears to be a possibility. On the other hand, Pfizer has more time to get its act together, and the Ranbaxy deal shows that management has some competence. Forbes has recently reported that there appear to be some promising cancer drugs currently in Phase II trials.

Last time I wrote that I was too fearful to buy right now. I still am. The stock of the world's largest drug maker looks attractive, but I still think it can go lower. I will look to see what happens to Pfizer's dividend. If it remains steady or is raised, and the stock is still under $20 a share, I'll consider buying it.