hings About to Move Pfizer Stock
By Maxx Chatsko | More Articles | Save For Later
May 26, 2013 | Comments (1)
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Large, multinational companies have an unprecedented number of things pulling and pushing on their share price. Pfizer (NYSE: PFE ) , the world's largest pharmaceutical company, is no different. It can be difficult to keep up with every booming product, failed trial, and promising drug candidate nestled within the giant's pipeline. Sometimes to keep up with the complexity, investors need to think simple. Sit down, make a list of important catalysts and anchors, and research each one. Here are three things that I found that will affect Pfizer stock in the rest of 2013.
Complete spinoff of animal health division
When Pfizer kicked Zoetis (NYSE: ZTS ) out of the nest earlier this year, it held on to 80% of the company. Now the pharmaceutical giant wants to boot its remaining 401 million shares in an effort to boost earnings and focus on pharma. Animal health is an important and steadily growing international industry, but it just doesn't bring the same margins as prescription drugs. That's probably why Pfizer shares rose 3% after announcing plans to unload its massive stake in Zoetis.
I think there is room for a bigger rise -- or drop -- depending on demand for shares. For instance, shareholders have the option to exchange $100 of Pfizer shares for $107.52 of Zoetis shares. Investors don't have to take the offer, but at least 160,394,000 shares of Zoetis must be distributed for the exchange to be completed. If the company can ditch its entire stake in the offering, investors will be that much closer to a leaner Pfizer. Otherwise the world's largest drug company will be forced to drag out the process over multiple exchanges or entertain the possibility of a special dividend.
Sales of Xeljanz
Late last year the FDA approved Xeljanz, a novel JAK inhibitor with blockbuster potential, for rheumatoid arthritis. That made Pfizer the first company to boast such a drug for use in the multi-billion dollar autoimmune market. The drug was specifically approved as a first-line treatment after or in conjunction with methotrexate -- the absolute first drug used by doctors. Unfortunately, being first-to-market can bring its own set of challenges. Sales of $11 million during the drug's first quarter on the market didn't exactly blow anyone away.
It will need to pick up the pace considerably if it is going to compete with the likes of Humira from AbbVie (NYSE: ABBV ) , which brought in $2,244 million -- tops in the world -- in the same period. Analysts fearing generic and novel competition for Humira figure Xeljanz to be among the fiercest adversaries. As a small molecule, Xeljanz has lower manufacturing costs and has the advantage of being orally administered (many biologics are injected). So what's with the slow start?
Aside from being rejected in Europe, doctors are not happy with its cost. Pfizer prices the drug at $2,000 per month -- nearly the same amount as already expensive biologics. That won't help Xeljanz get a foot in the door as a new treatment option, especially with the cautious approach to newer, less-proven drugs. It's very early, but investors need to watch how well the therapy performs this year. Hopefully a massive data dump this June will encourage doctors to prescribe the drug in parallel to its potential and push European regulators to approve it at second glance.
Expanded indication for Prevnar13/Prevenar13
The third event that will toy with Pfizer stock in 2013 is an expanded indication for Prevnar13, a vaccine against Streptococcus pneuimoniae, which protects against pneumonia and meningitis. Prevnar13 is already approved for children 6 weeks to 17 years old and adults over age 50 in the United States, Europe, and dozens of other countries. A recent phase 3 trial evaluating the vaccine's effectiveness in those aged 18-49 years -- who were expected to be less responsive to inoculation -- met all primary and secondary endpoints. Pfizer should have no problem gaining expanded approval for the new age group.
That will provide a solid boost to sales for the best-selling pneumococcal vaccine, which brought in $877 million in the first quarter. Prevnar13 already easily competes with Synflorix from GlaxoSmithKline (NYSE: GSK ) and Prevnar/Prevenar from Wyeth. Synflorix protects against 10 types of the bacterium and generated sales of just $116 million in the first quarter, while Prevnar (from Wyeth) protects against just seven. Pfizer's Prevnar13 protects against, you guessed it, 13 types -- giving it the broadest protection of any such vaccine. An expanded indication will further cement its stranglehold on the market and make it the only therapy approved for nearly any age group.
Foolish bottom line
These are just three things I picked out that will be moving Pfizer stock in the next several months. A successful separation from Zoetis will show investors that management is focused on higher-margin pharmaceutical products. Likewise, expanding Prevnar13 to the rest of the population would give the company the de facto pneumococcal vaccine, perhaps boosting the bottom line as early as the end of the year. If Xeljanz can find stable footing of its own, Pfizer stock could be driven higher by three powerful catalysts. The world's largest pharma company may be complex, but all-in-all the future looks bright for long-term investors.
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Fool contributor Maxx Chatsko has no position in any stocks mentioned. Check out his personal portfolio or his CAPS page, or follow him on Twitter, @BlacknGoldFool, to keep up with his writing on energy, bioprocessing, and emerging technologies.
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Report this Comment On May 26, 2013, at 11:08 PM, EllenBrandtPhD wrote:
Thank you for a good story.
For traders, it may be just terrific that the deadline for the Zoetis conversion is June 19th, or two weeks after the end of ASCO.
Both biotech and Big Pharma are expected to outperform the next few trading days in anticipation of ASCO.
So PFE will probably get a little rally or two prior to ASCO closing on June 4th.
If there is then a drop-off in this group, PFE may well get yet ANOTHER rally counter to the rest of the group in anticipation of a successful Zoetis conversion.
That seems to be what a lot of big and powerful Hedgies are betting on. The options action in the stock has been very Bullish, I believe. I don't trade options, but they are usually a good indication of what the hot money is thinking. And the hot money here is thinking the same way we are.
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