Inside Wall Street: Pfizer's Pipeline Looks Primed to Deliver

In the $780 billion global pharmaceutical industry, the world's largest drugmaker, Pfizer (PFE), stands out above its peers. Why then does its stock look uninspired? Well, Big Pharma hasn't been exactly high in Wall Street's popularity polls -- and fickle and volatile markets in recent weeks haven't helped, either.

Still, Pfizer perked up on Friday, June 11, leaping 3.69%, to $15.46 a share as the market did a late rally before the close. And Pfizer did show some zest during the market's robust rally last year: It surged to a 52-week high of $20.36 on Jan. 20, 2010, up from a 52-week low of $13.94 on June 10, 2009. Since then, however, Pfizer has surrendered much of its gains.

Nonetheless, some strategists who predict that the market's big sell-off is about done argue that Pfizer would be among the standout stocks when the broad indexes stage their big comeback rally.

Limited Risk at This Point

"We think most of the selling in the market has run its course, so we are starting to shop for quality stocks selling at bargain prices -- and Pfizer is on top of our list on a risk-reward basis," says Gregory MacArthur, president of consulting firm ViewPoint2000. The stock has limited risk, he says, partly because of its attractive 5% dividend yield -- and because of Pfizer' big lineup of new exciting drugs.

Over the next three to six months, Pfizer should hit $20 a share again, MacArthur figures. Much of his optimism is based on his forecast that the Dow Jones industrial average will snap back to the 11,000 to 11,500 level by year-end. He expects Pfizer to fully participate in the Dow's next extended advance. MacArthur describes Pfizer as a classic "fallen angel," with solid prospects of finally moving to sales and earnings that exceed expectations in the next couple of quarters.

The fuel for renewed growth, apart from a strong array of products, is Pfizer's pipeline of new drugs, notes Herman B. Saftlas of Standard & Poor's, who upgraded on his rating on the stock to buy from hold on June 11. His bullish move was partly responsible for the stock's surprising rise that day. "Pfizer's drug portfolio is unmatched in terms of breadth and depth in the global drug market," notes Saftlas. Its "rejuvenated [drug] pipelines" will help the company offset "patent cliffs," such as the loss of the patent and onset of generic competition for Lipitor, the cholesterol fighter that produced gigantic sales of $11.4 billion in 2009.

Lots of Leadersin Its Lineup

One of Pfizer's new products that shows huge promise is Apixaban, which has exhibited evidence of effectiveness in stroke prevention, says Saftlas. It has a safety profile similar to aspirin's, and he believes the new compound "has the potential to replace the present leading anticoagulant, Warfarin." Saftlas predicts Apixaban could be launched in 2012 and generate sales of over $4 billion. Pfizer is in partnership with Bristol-Myers Squibb (BMY) to develop the drug.

Pfizer has leading products in almost every important category, including Norvasc for hypertension, which is now off-patent but still pulled in sales of $2 billion 2009; Lyrica, a treatment for nerve pain and epileptic seizures, produced $2.8 billion; Celebrex for arthritis and pain, $2.4 billion; and Viagra for male erectile dysfunction, $1.9 billion.

It's Pfizer's quest for big acquisitions that has wounded its stock. Investors are usually turned off by companies getting into big buyout deals because of the potential dilution of earnings that tends to pull down the acquirer's stock. In October 2009, Pfizer gobbled up Wyeth, one of its major rivals, for a steep $68 billion. On top of the Wyeth purchase, Pfizer had two other major acquisitions: In 2003 it bought Pharmacia, and in 2000 it acquired giant drugmaker Warner-Lambert.

Positive Clinical Findings

But analysts expect Wyeth's array of drugs to help ease some of Pfizer's problems. With Wyeth, the sustainability of Pfizer's business is "upgraded significantly," says Seamus Fernandez, analyst at investment firm Leerink Swann. There's little downside risk to the stock, the analyst argues, because it's trading at just seven times his 2010 earnings estimate of $2.16 a share. The Pfizer-Wyeth entity will enjoy improved long-term strategic positioning due to a more sustainable business mix across small-molecule therapeutics, vaccines and biologics, he says.

Fernandez expects the combined company to deliver Phase 3 data on 15 clinical programs with a cumulative market opportunity of $20 billion during 2010-2013. Fernandez rates the stock outperform with 12-month target of $20 to $21 a share.

At the ASCO (American Society of Clinical Oncology) plenary session in Chicago on June 6, Pfizer provided what some analysts said were highly positive presentations. One was on a new drug called Crizotinib, a pill aimed at combating lung cancer. According to a Pfizer study released at the ASCO confab, Crizotinib reduced tumors in patients afflicted with a rare form of lung cancer, that occurs mostly in nonsmokers and is caused by a defective gene. The experimental drug reduced tumors in 57% of such patients and stopped the disease's progress in 87% of patients who participated in the clinical trials.

Crizotinib is the only compound that's in clinical trials to target a defect in a gene called ALK. The Pfizer drug attracted attention at the ASCO among oncology researchers who were impressed by the Phase 1 and 2 clinical trials in patients with an ALK gene.

An Angel Returning to Grace?

As a result "we revised our 2015 sales estimate for Crizotinib from $75 million to $350 million to reflect the positive data and clinical progress of the product," says Marc Goodman, analyst at UBS. He rates Pfizer stock a buy with a target of $24 a share, and he figures Pfizer will resume its upward profit momentum again, earning $2.15 a share in 2010 and $2.25 in 2011, up from 2009's $2.02.

As the world's largest pharmaceutical company, Pfizer is bound to come back to a strong leadership role in the industry and regain the support of investors -- and Wall Street. There's no better time to get into the stock of a fallen angel than when it's still down.