What Are The Intrinsic Factors Contributing To Pfizer's Stock Movement?

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Mar 27, 2015

Global pharma major Pfizer (PFE, Financial) is currently being given a decent bit of "financial attention," as it now prides itself for creating the next supposed blockbuster drug, Ibrance. This next wonder drug is being seen by the medical community as the next best alternative to chemotherapy, which often has detrimental side-effects on patients. Traditionally, chemotherapy destroys the good and bad tissue cells (cancer affected) altogether, which later renders the patient weak in health and develops other health complications for them. Ibrance is the medical alternative, which will help eliminate the affected cancer cells only. According to sell-side firm Jefferies, the financial implications from the sales of this drug will be significant over the next 2 years as it gains quick popularity. That is the reason why the firm has a put a firm 'buy' rating on the Pfizer stock, and estimated the price to touch $45 from the earlier forecasted price target of $42. The news has given the Pfizer stock a positive push forward with 2.72% jump at its last closing, bringing the price to $35.18 a share.

Jefferies seems to have taken to the idea of Ibrance in a big way, especially after a survey they conducted, putting the faith of American oncologists in the new drug. They issued a statement saying, “Ibrance will be used in 50% of first-line hormonal therapy within 1 year, with off-label use in all lines of therapy including adjuvant.” Looking at a slightly longer term picture, the drug is expected to bring in $5.5 billion in risk-adjusted revenue by 2020, whereas additional indications could tip sales to go over $13 billion. But is this drug only the stock price trigger at this moment, let’s jump into the facts which speak about the other attributes triggering a stock price movement upwards for Pfizer.

The growth factors are eminent

Research reveals that Ibrance may not be the only major reason for the positive movement witnessed the Pfizer stock.

Jefferies which has been following the stock closely, feels that Pfizer's Global Established Pharma (GEP) business segment will have a durable growth pattern in the years to come, including a chance for a 60% payout potential for FY2016, and this could be pushing the value of the stock. Also acquisitions like the one announced recently of Hospira, could give the company a tax-driven advantage, bringing in a more positive valuation for the Pfizer stock. The Jefferies firm has also increased its revenue estimates on Pfizer from $48.1 billion to $52.1 billion for the fiscal year 2016, and from $51 billion to $56.3 billion for 2017.

Pfizer and Eli Lilly (LLY, Financial) have jointly collaborated for the pain-killing drug Tanezumab, on which they have recently shared their plan to resume the Phase 3 trials, following the lifting of the U.S. Food & Drug Administration (FDA) hold on the program in 2012. Under the 2013 agreement between the companies, Pfizer is set to receive $200 million in upfront payments for this phase of trials.

Other than Tanezumab and Ibrance, there are a few drugs which are in the Phase II and Phase III of trials; 10 of them are in Phase III trials, and 12 of them in Phase II. Under the Phase III status, Pfizer is testing some biosimilar drugs for Remicade, Herceptin and Rituxan. It is to be noted that all of these patented drugs are blockbuster biologics for their development companies. While the Remicade drug is known to have brought Johnson & Johnson (JNJ, Financial) $6.65 billion in revenue, Herceptin has earned about $6.9 billion and the Rituxan/MabThera drug brought in more than $7.54 billion in revenue for Roche (RHHBY, Financial). The biosimilar drugs from Pfizer, if approved by USFDA, are expected to be around 30% cheaper in price for consumers who are unable to buy these costly patented drugs. Hence, Pfizer expects to earn huge revenue in the long run by targeting a market worth more than $15 billion with its phase 3 biosimilar drugs.

Final thoughts

With the demand for advanced pharma products being virtually constant, Pfizer’s revenue stream has been taken care of for at least 2017, if not for a few more years beyond. As mentioned, some of the prime creations are being dubbed as potential blockbuster drugs which will have a positive impact on the Pfizer stock as well. This means that Pfizer’s stock is a short term "buy," medium-term and long-term "hold" stock, which could possibly yield more shareholder returns in the long run.