Pfizer Suffering from Withdrawal Symptoms
Amanda is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
Pity poor Pfizer, Inc. (NYSE: PFE). Since the patent on its best-selling anti-cholesterol drug expired last November, it has officially entered “life without Lipitor”. Of course, any company would sorely miss a product reported to have earned $12 billion per year globally, but Pfizer is taking empty nest syndrome to new heights. Long before the patent expired, the pharmaceutical giant was busy making back-room deals to preserve its patient brand-loyalty and boost their bottom line.
In an unusual move, Pfizer has negotiated agreements with insurance companies and pharmacy benefit managers to substitute Lipitor for atorvastatin, its generic equivalent, while charging patients lower co-pays. The discounted Lipitor also applies to those on Medicare Part D, which will speed those pensioners much closer to the dreaded doughnut hole than the generic pills would. For that reason, the U.S. Senate’s Finance Committee has asked Pfizer for the details of these done deals, alleging possible abuse of the system. Separately, Pfizer has inked a five-year deal with Watson Pharmaceuticals (NYSE: ACT), one of the two companies authorized to sell atorvastatin, in which they supply the pills for Watson to sell, who then hands Pfizer 70% of all profits from those sales.
The benefit deals are in effect only until May 31, when the six-month grace period within which generic competition is limited comes to an end and anyone can jump into the off-brand Lipitor game. The Watson agreement will prop up Pfizer’s profits for much longer, especially since the pills are so cheap. It seems, then, that Pfizer’s bottom line will not suffer too much, at least for the next several months—good news for investors.
A niggling question remains, however: why is Pfizer hanging on to the Lipitor gravy train so desperately? After all, drug companies are all about creating new medications that will rise up and take the place of those whose reign is ending. And therein lies the rub. There’s apparently no great new drug to inherit Lipitor’s crown.
Not that Pfizer has an empty pipeline at the moment. Drugs to battle Alzheimer’s and cancer as well as vaccines to protect both infants and adults against pneumonia are coming up for approval, as well as several more in phase 3 testing. It’s just that there is no one Lipitor-like superstar in the offing; and, even though those are very big shoes to fill, this fact makes Pfizer nervous. Part of the reason for this fear could be that, as far as research and development goes, Pfizer is a bit of a slouch. Hefty cuts in that department about a year ago and a big stock buyback made investors happy, but didn’t do much to enhance its profile as a big developer of new blockbuster drugs. Instead, Pfizer has relied upon acquisitions to pad its pipeline, as it did when the purchase of Wyeth brought biggies like Premarin and Prevnar to the table.
Anyway, Pfizer doesn’t seem to be suffering, dividends are attractive and earnings healthy. More stock buybacks are planned and the company seems ready to spin off its baby-formula unit. Certainly, there is no reason to think that Pfizer will not thrive in a post-Lipitor world. It would just be nice to see them do more of what drug manufacturers do—research and develop new, amazing products. Oh, well. I guess you can’t have everything.
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