This is something new. In the past, if Pfizer got word from test monitors that adverse side effects would probably prevent a drug from being approved, Pfizer on its own would halt the tests such as what happened with Torcetrapib.
But with Tanezumab, it looks like several tests now have been stopped at the urging of the regulators - even though few deaths have been reported.
Why all of a sudden would the regulators be taking such a harsh stance? If Pfizer management thought that the side effects were severe enough or prevalent enough to likelyh prevent the drug from being approved, they on their own would stop the testing.
But if they do NOT feel that the severity or incidence warrants stoppage, why is the FDA demanding stoppage? As I said previously, I just haven't seen this kind of stance by the FDA before.
In Phase III testing of an experimental drug, the FDA in the past has tolerated all kinds of adverse effects including significant deaths. In the past, some joint swelling or whatever even resulting in surgery being needed hasn't been nearly enough to halt these tests if the drug company doesn't voluntarily stop them.
Government regulators seem to be getting involved in something they haven't previously been involved in.
Pfizer's low PE is just a reflection of the the very poor image that investors and analysts have of the company's R&D department. It is very true that the crackdown in the FDA makes it very tough to get new drugs approved and all of the major pharmas are experiencing problems in this regard. However Pfizer's drug approval record is particularly abysmal when you factor in that its R&D department is funded to the tune of $9 billion dollars a year for developing new drugs. This money has essentially been wasted and furthermore the entire investment community knows this. Image is everything and quite frankly Pfizer's R&D image stinks. Until this image can be turned around with demonstrated development of new, useful drugs that the American public needs, the Pfizer stock price will continue to languish and deservedly so.
PFE was a much smaller company just seven years ago before they bought PHA. They sure weren't spending $9B a year on research before that. It's well known that it can easily take ten years to get a brand new compound on the market from inception - so not a penny of the expanded R & D would have resulted in even one new drug yet.
PFE simply didn't have much of a pipeline eight years ago and that's why they bought PHA in the first place - they knew that the big, clustered patent expirations were right around the corner.
Pfizer had a limited number of late-stage compounds but even so, with normal luck they would have had their fair share of FDA approvals even in the very tough FDA environment following Vioxx.
But horrific bad luck reared its ugly head. It started with insomnia drug I(ndiplon. For whatever reason, the discovering company didn't want Pfizer to have any part in the testing process or the FDA submission. They just wanted Pfizer to pay the bills for the testing. So they made the unforgiveable mistake in Phase III testing of not being able to decide on which dosage they wanted to market. So they tested three or four dosages and NO dosage was tested sufficiently enough for the FDA's liking and they issued a Letter of Non-Approval. Would experienced Pfizer have ever made that kind of a mistake? But they had absolutely no say in the matter with Indiplon. It also didn't help that a major insomnia drug at the time that had been on the market for a decade suddenly started resulting in bizarre symptoms like zombie-like next-day driving and binge sleep-eating.
Exubera was another product where the luck was unbelievably bad where the new head of the Amnerican Diabetes Assn. single-handedly provided the cover for insurers to deny reimbursement.
If even one of these products makes it, the perception of Pfizer's research would be entirely different.
But does this kiod of bad luck really hnave anything to do with the probabilities of success of Pfizer's current late-stage pipeline?
Many analysts wouild say yet. For me though, it's an EMPHATIC no. Abd uf tge OE is unusually low because of improper percenptions, I will take full advantage of it knowing that these kind of ridiculous perceptions won['t last forever.
<<Government regulators seem to be getting involved in something they haven't previously been involved in>>.
That's a reasonable observation and consistent with many recent articles on how the FDA has been getting tougher in recent years at various points in the regulatory process. Now Mr. Thinker, how will this observation affect your numbers for earnings and PE going forward. Perhaps earnings, not much. But PE has to be hurt by a less predictable and tougher FDA.
Here's a more general point that never gets spoken about by you. It's one thing to have a best in class, no competition on the horizon, drg where one can reasonably compute the likely market and attribute continued rising pricing. Pfe has few such drugs. Most of Pfe's drugs do not have sales today which can readily be extrapolated out to 2014. There will inevitably be new competitive drugs in areas like pain relief, oncology and high blood pressure to take just 3 examples. Then there are current competitive drugs which will be going generic and make Pfe's pricing unattainable. Then there is the inevitable push to control pricing as part of a huge, meaningful effort to cut the debt and the deficit. I genuinely have no comfort level that Pfe's current group of non-unique drugs (the bulk of the portfolio) will blithely keep their volumes increasing, with price increases well beyond inflation. I believe it is highly unlikely that it will all play out as you cavalierly assume. The low PE is consistent with others sharing my concern that there are major risks just to the current portfolio moving forward successfully 4 or 5 years out.
For one thing, if the government is going to take a tougher stance on approvals, doesn't that kind of shoot down your arguments about a lot more competition? The tougher the government is, the less competition for medicines already on the market. And with Pfizer having so few big patent expirations after September 2012, that can't be a bad thing.
With less competition of course, it's that much EASIER to forecast sales out to 2014. Certainly you have to consider nice-sized domestic price hikes, population growth, overseas expansion, boomers turning 65 and new Obamacare enrollees - and less competition.
Obamacare was a year in the making and Congress and the President lost a lot of esteem because of it. It will be YEARS before extensive healthcare reform is taken up again - unless it's repeal of some of the provisions passed. The chances of there being government "negotiations" for drugs for Medicare in the near future are very very slim. The seniors now are getting the doughnut hole closed; government wouldn't risk alienating the seniors by reneging on the compromises that led to that event.
Maybe the government would like to reduce drug costs but realistically there is little they can do about it in the near future or will do about it.
If most of Pfizer's peers had equally low PE's THEN it would be cause for concern. But when I see a PE of 13 for BMY's 2013 estimate and just half that much for Pfizer, I realize just how undervalued this one really is and even WHY that is.
It's largely because the brain-dead analysts including even Cramer have been brainwashed by the many years of earnings being impaired by big, clustered patent expirations into thinking that Pfizer is a permanent slow grower.
They don't stop to analyze just WHY Pfizer stopped growing so fast after 2004. And in emphasizing pipeline and the lack of recent success, they aren't thinking about years like 2005 and 2006 when the company really did have some nice new drug approvals and STILL had very unexciting results because of the huge losses to patent expirations.
In the end, it's all about patent expirations and the analysts just can't fathom that. But I can and I know from Page #9 of the 10-K that the patent expiration situation is soon about to change dramatically for the better.
When it happens in just a few years, analysts will suddenly be looking at Pfizer as some kind of turnaround situation.
But nothing with Pfizer really needed turning around - time simply had to elapse to where the years of the big expirations would start giving way to the many years of paltry expirations that begins with 2013.