Biotech Values

[Biopharm investor]

Dew, regarding PFE

"If you are saying that PFE’s late-stage pipeline is not that good relative to the size of the company, I would agree with that."

Yes, that is precisely what I was saying.

Pipeline in absolute terms is far less meaningful than its relation to the size of the company. It's all about growth, and I think the most meaningful assessment of a company's pipeline is the extent to which it can fuel top-line growth - net of whatever losses the company will experience. In this context, Pfizer's late-stage pipeline is pretty weak.

[Even what is meant by "late-stage" is somewhat debatable. "Late-stage" to me means drugs that are in registration-based clinical trials. Many view "late-stage" to mean only drugs that have been filed or will soon be filed.]

Notwithstanding the favorable outcome last week on the Lipitor patent challenge, Pfizer continues to face serious generic threat over the next few years.

For example, Zoloft (which should sell about $1.5 Billion this year) and $1.6 Billion next year, is projected to sell only $200 Million in 2007.

Similarly, Norvasc will sell $4.7 Billion this year and $4.8 Billion next year, at which time it will drop to an estimated $700 million in 2007 (and lower in 2008).

Neuronton did $2.7 Billion in 2004 and will still do $1.5 billion this year, but will be lucky to sell $100 Million next year (gabapentin launched in Q4 2004 by several generics).

Zithromax was the world's #1 best-selling antibiotic and sold over $2.0 Billion in 2004 and will be down in 2005 to about $1.5 Billion as azithromycin launched this quarter. Pfizer will be lucky to sell $400 Million in 2006 and projections call for that number to be cut in half again in 2007 to about $200 Million.

Celebrex continues to have a cloud over its head and I doubt Pfizer will see much, if any, growth on this $3.3 Billion product.

Viagra faces continued competition.

Accupril actually lost market exclusivity in Q1 2005, but PFE won a court decision to force withdrawal of quinapril. But that decision is being appealed and a ruling could come at any time that would dramatically erode this product.

And lastly, although this has never happened before, I think there is a very good chance that, for the first time ever, there will be "therapeutic substitution" when pravastatin and simvastatin become available substitutes for atorvastatin. The economic stakes, and potential savings, to payors is just too great for that not to have some dampening effect on Lipitor sales in the US.

Pfizer has a revenue base of $50 Billion on which they need to demonstrate growth. I don't see any way the late stage products you mentioned will be be nearly sufficient to offset the impact of the generic threat Pfizer faces and to deliver top-line growth on a base of that size.

Pfizer has lost about one-half of its market cap in the past few years, which itself represents a loss of about $165 Billion of market cap. That happened for a reason, and the loss of market exclusivity on several of its key products is not a surprise to the market. Rather, the Company's R&D pipeline has not delivered insofar as offsetting the effects of those anticipated revenue losses and still drive growth.

So in my view, I would not consider Pfizer to have anywhere near the best late-stage pipeline.

Incidentally, I took the survey and selected the dividend yield as the most compelling thing about owning PFE.

I have to run now and will reply later to the PFE/TEVA question, but in the meantime, remember Pfizer already has a generic arm, Greenstone (although Greenstone admittedly is more of a platform to manage to sunset stage of its products in the management of their life-cycle via AG's and is NOT the kind of strategic thrust that Sandoz is for Novartis).

Regards