Sorry!! The article you are trying to read is not available now.
Thank you very much;
you're only a step away from
downloading your reports.

Pfizer Plan to Buy Stock, Raise Dividends Overshadows Growth Strategy [UPDATE]


Stock buybacks and dividend increases are nice gestures to shareholders, but what about growth?


UPDATE May 4, 2012
Pfizer (PFE) released two pieces of bad news Friday related to studies of its big-selling drug Lyrica. The company halted a study of the drug as a treatment for nerve pain in HIV patients and said another trial testing the product in people with diabetes-related pain also failed. Shares of Pfizer fell 1% to $22.38 in midday trading. Pfizer needs to find growth and this latest clinical setback only makes next week's government panel meeting for an experimental drug that much more important to the company. Pfizer is developing a pill for rheumatoid arthritis that would compete with injected therapies such Abbott Laboratories' (ABT) Humira. A panel of advisers to the Food and Drug Administration will review the Pfizer drug, tofacitinib, at a meeting Wednesday (May 9).

Despite all the talk about divestitures, stock buybacks, and higher dividends, there's still much interest in how Pfizer is going to replace the loss of Lipitor sales to generic competition.

After reporting a 19% decline in quarterly net income, CEO Ian Read made it clear on a call with Wall Street analysts Tuesday that the company's cash is best spent on share buybacks and dividends. He's said this before and he reiterated that any acquisition would have to be very compelling -- a "high hurdle" -- to trump a plan to repurchase the company's own stock. This raises an important question as Pfizer expects to receive almost $12 billion for the sale of its baby food business to Nestle sometime in the first half of next year.

Is Pfizer being too conservative? Its shares are up 6% this year but that's off a low base. The stock is less than half what it traded at a little more than a decade ago when Lipitor was on its way to becoming the world's biggest-selling drug. Shares traded at $22.96 midday Tuesday.

Waving off deal talk, Read isn't even discussing major acquisitions. He says at this point he doesn't see any small takeovers that compel him to spend money. So that brings us to Pfizer's pipeline of developmental products. And the spotlight -- at least near term -- is on an experimental pill to treat rheumatoid arthritis, tofacitinib.

At the foundation of his overall strategy, Read is completing a task dictated by Wall Street: Become smaller through divestitures and cost cutting to focus on a core business, which is drugs (branded and generic). The company continues to divest; Pfizer plans to divest (probably through a spin-off) its animal drug business sometime in the next year.

Yet Read and other Pfizer execs faced recurring questions today over tofacitinib, an oral drug to compete with injected therapies such as Abbott Laboratories' Humira, Johnson & Johnson's (JNJ) Remicade and Amgen's (AMGN) Enbrel. The primary question is whether the folks at Pfizer think their drug will be approved. On May 9, the medicine faces a review by a panel of government advisers who help steer the Food and Drug Administration in its decision on a possible market approval.

While they predict a "thorough and robust discussion" among the FDA advisers, the Pfizer execs say they have a good case for winning market clearance. An oral medicine would be a breakthrough product for a debilitating disease and the drug has shown to be effective in studies. Side effects will be weighed, however, as safety issues are a major concern for any FDA approval.

ISI Group analyst Mark Schoenebaum predicts a "tough" advisory committee for Pfizer next week because of the safety concerns. (It should be noted that approved drugs such as Humira also have side effects). Pfizer likely would face a post-approval safety study, a risk-mitigation plan for patients, and label warnings, Schoenebaum says in a recent note.

However, while he views Wall Street expectations as "modest" for tofacitinib, Schoenebaum predicts it will get the green light and he estimates peak sales of $3 billion for the drug by 2019. (Pfizer reported first-quarter drug sales of about $13 billion, an 8% decline from a year earlier.)

Tofacitinib would help reverse the trend of declining sales. There are, of course, other upcoming catalysts for Pfizer. The FDA delayed a decision on Eliquis, a blood-thinning drug developed with Bristol-Myers Squibb (BMY) until June 28. The product is potentially a big seller, though profit is shared.

At the very least, tofacitinib becomes a symbol of whether Pfizer can get back on track bringing blockbuster drugs to market. At some point, Read is going to exhaust a strategy of buybacks and sales of businesses.

Twitter: @brettchase

Follow the markets all day every day with a FREE 14 day trial to Buzz & Banter. Over 30 professional traders share their ideas in real-time. Learn more.
< Previous
  • 1
Next >
No positions in stocks mentioned.
The information on this website solely reflects the analysis of or opinion about the performance of securities and financial markets by the writers whose articles appear on the site. The views expressed by the writers are not necessarily the views of Minyanville Media, Inc. or members of its management. Nothing contained on the website is intended to constitute a recommendation or advice addressed to an individual investor or category of investors to purchase, sell or hold any security, or to take any action with respect to the prospective movement of the securities markets or to solicit the purchase or sale of any security. Any investment decisions must be made by the reader either individually or in consultation with his or her investment professional. Minyanville writers and staff may trade or hold positions in securities that are discussed in articles appearing on the website. Writers of articles are required to disclose whether they have a position in any stock or fund discussed in an article, but are not permitted to disclose the size or direction of the position. Nothing on this website is intended to solicit business of any kind for a writer's business or fund. Minyanville management and staff as well as contributing writers will not respond to emails or other communications requesting investment advice.

Copyright 2011 Minyanville Media, Inc. All Rights Reserved.
Featured Videos