CVS, Rite Aid Case Could Harm Pfizer Stockholders
Jordo is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
Legal issues can have major effects on stocks, so Pfizer (NYSE: PFE) shareholders will not be pleased with the recent news surrounding the company. CVS Caremark (CVS) and Rite Aid (RAD) are suing Pfizer and Teva (TEVA) for delaying the approval of anti-depression drugs. This was allegedly an attempt to stop medications from reaching the market and competing with Effexor XR.
This is not the first time that Pfizer has faced these allegations, so this lawsuit only serves to exacerbate the legal issues it has already been encountering. Walgreen (WAG), Kroger (KR), Safeway (SWY),Supervalu (SVU) and HEB Grocery (HEB) have filed similar complaints against Pfizer in the past. These companies all reported substantial losses due to how these generics still remain unavailable on the market.
Pfizer lost the marketing rights to Effexor XR about two years ago. According to CVS and Rite Aid, however, the company is still doing everything it can to keep generics for the popular drug off the market. This strategy has apparently brought success, as the generic drugs are still unavailable after two years. In terms of the company's public image, however, these questionable tactics may begin to harm it in the near future.
The accusations state that Pfizer obtained invalid patents in order to sue other companies that attempted to bring generics to the market. The company also stands accused of having conspired with Teva to keep other generics off the market, allowing Teva to be the only form of generic competition. The retail companies involved in the litigation state that they have had to overpay for the Pfizer drug when there are cheaper options on the horizon. This has done some damage to their revenue intakes and stock options.
If all of this is true, it is quite a serious case. Pfizer is already struggling, so such a significant court case could have a seriously negative impact on the stock. Pfizer and Teva have denied the claims made by CVS and Rite Aid. This is not very comforting, however, when looking at how many companies have become involved in the case.
You can understand why Pfizer wants to keep Effexor XR as the dominant drug on the market. The drug has brought the company $2.5 billion every year since 2008. This is a revenue stream that the company simply cannot afford to lose in its current state. I feel that it did not necessarily go about things in the right way though. There must be other strategies that the pharmaceutical company could have employed, and these could have helped it avoid this anti-trust lawsuit. There were benefits to what Pfizer did, as indicated by the revenues it brought in. These benefits are in the past though, and the negative components are starting to break through with this lawsuit. This is a company to be concerned about, and I would not recommend investing in it any time soon. If you already hold Pfizer stock, furthermore, you should keep a close eye on developments in this case.
Some other companies in the industry are doing quite well though, and Merck (NYSE: MRK) is one competitor that is currently keeping ahead of the game. This drug manufacturer recently announced more results from its late stage trials into the insomnia drug suvorexant. The results are very impressive, making this an eagerly-anticipated drug. The trials suggested that the drug reduces the amount of time it takes for people suffering from insomnia to fall asleep. In addition, it also increases the amount of time that they are able to stay asleep. This is a significant breakthrough, so I expect this to have a positive effect on the stock.
GlaxoSmithKline (NYSE: GSK) is also doing well, as it recently had a drug approved by the FDA for preventing meningococcal serogroups. It is a vaccine that can be administered to children between the ages of 6 weeks and 18 months, and it is the first combination vaccine invented for this purpose. This is called MenHibrix, and it is a significant breakthrough for the company. Child care and preventative medicine are critical areas for pharmaceutical companies to address. I feel that this is a good move on GlaxoSmithKline's part, therefore, and I think the company and stock will benefit from this new treatment in the long run.
Eli Lilly (NYSE: LLY) and Boehringer Ingelheim have formed an alliance for the purpose of fighting diabetes, and it should bring benefits to both companies. The two companies will soon launch their first product in India. This is a great milestone for the partners. The product that they have chosen as the flagship product in India is Boehringer Ingelheim's Linagliptin. This drug is special because it can be taken without running any risks to your liver. Furthermore, it does not come with other common side effects associated with diabetic medication, including weight gain and low-sugar attacks. As a result, both companies should be doing well, and Eli Lilly stock should be on the rise in the near future.
Not all competitors are doing well though, as Abbott Laboratories (NYSE: ABT) recently had to pay an amount of $15 million in settlement money to the state of Missouri. This settlement relates to Abbott's off-label marketing of its drug, Depakote. The drug has been approved by the FDA for the treatment of convulsions and epilepsy, but Abbott allegedly marketed the drug for other purposes as well. These purposes were not approved by the FDA, and this type of marketing is illegal. Abbott also falsely advertised the drug in nursing homes and paid healthcare professionals to prescribe the drug for unapproved off-label purposes. Abbott stock will likely continue to be negatively affected by this case for some time to come.
Like Abbott's case, I think the case with Pfizer is quite a serious one. It is an anti-trust allegation, so it could have a significant effect on how investors feel about the stock. As a result, Pfizer stock may decline significantly. This is not good news for an already-struggling pharmaceutical stock. At this point in time, I would not choose to add Pfizer to my portfolio. Instead, I would concentrate on one of the stronger competitors that are making headway in the development and marketing of new drugs and treatments for a variety of different conditions. Many companies are doing well in the pharmaceutical industry, but Pfizer is not one of them and will likely be struggling in the stock market over the next few months.
jordobivona has no positions in the stocks mentioned above. The Motley Fool owns shares of Abbott Laboratories and GlaxoSmithKline. Motley Fool newsletter services recommend GlaxoSmithKline and Pfizer. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.If you have questions about this post or the Fool’s blog network, click here for information.