How Serious Is Pfizer's Condition?

The stock is feeling some pain these days. However, this drugmaker has enough going for it that the illness shouldn't last

By Amy Tsao

Amid nervousness over the future of Pfizer's arthritis pain treatment Celebrex and an ongoing court case to keep generic-drug makers from selling its blockbuster drug Neurontin, shares in Pfizer (PFE ) fell almost 4% on Oct. 7, to close at $29.97. Such a one-day drop is a rarity for the bellwether of the pharmaceutical industry. And it raises the question of just how worried investors should be.

"The concerns are valid," says Sena Lund, analyst at Cathay Financial. "The reaction in the stock is too severe." Lund recommends investors buy the stock and currently has a $38 price target on it. (His firm doesn't perform investment banking. Lund personally owns shares in Pfizer.)


  Though the stock is now trading close to its 52-week low, Pfizer is "in good shape next to others [in the sector]," says Steve Paspal, senior analyst at Sovereign Asset Management, a subsidiary of John Hancock Funds. Wall Street will likely remain cautious on drugmakers overall, but investors won't abandon the stock en masse, because Pfizer is the largest and best diversified of all the big pharmaceuticals.

"We like that a single product doesn't determine its fate," says Paspal, noting that Pfizer's arthritis pain medication accounts for only about 8% of sales, which totaled $45 billion in 2003.

While Pfizer may not be in the deep funk that has plagued others in the industry for months or even years, it's facing increased pressures that have lessened the stock's appeal. The prospect of a Democratic White House is one concern. John Kerry promises that if elected, he'll take the industry to task for high prices and reexamine legalizing the purchase of prescription drugs from Canada.


  Another worry: fresh competition. Impotence drug Viagra, for example, was the only one of its kind for several years. In 2004, it was joined by Bayer's (BAY ) Levitra and Eli Lilly's (LLY ) Cialis. "Pfizer has to fight a little more," says Paspal. Pfizer is also expected to lose its battle to keep generic-drug makers from selling Neurontin, an epilepsy drug that's now used for myriad ailments.

Then there's the Celebrex question. The fallout from Merck's (MRK ) recall of its Vioxx pain medication initially seemed positive for Pfizer, which is the only other company that sells a similar drug (see BW Online, 10/4/04, "The Rippling Pain from Vioxx"). But in the latest edition of the New England Journal of Medicine, prominent researchers questioned whether Pfizer's drug might not share some of the same problems as Vioxx.

Pfizer continues to stand behind the safety of Celebrex, pointing out that a trial that gauges such issues is well into its second year and so far has found no signs of elevated cardiovascular risk as seen with Vioxx.


  Definite pluses for Pfizer are the new products it launched and the promising ones on the horizon. This year it debuted Spriva for chronic obstructive pulmonary disease, and Caduet, its combination of blood pressure drug Norvasc and cholesterol drug Lipitor. Several drugs are expected to get Food & Drug Administration approval before the end of the year, including a next-generation version of Neurontin, an inhaled insulin product, and a new treatment for osteoporosis. All five have blockbuster potential.

Pfizer's woes are less pronounced than those afflicting many of its peers, and that should keep the stock from getting much sicker.

Tsao is a reporter for BusinessWeek Online in New York

Edited by Patricia O'Connell

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