PFE, MRK, and BMY all fell short of analysts expectations in their Q1 earnings reports and their stock prices paid the consequences. The common denominator for these three big pharmas was the patent expiration of one or more of their mega blockbusters such as Lipitor for PFE and Singulair for MRK. It certainly isn't going to be easy for PFE and MRK to replace billions of dollars of lost annual sales ($13 B in the case of Lipitor) from the patent expiration of key drugs. It all boils down to the quality of thieir pipelines. Merck, particularly, has been reported to have an extremely strong drug pipeline with 35 drugs in various stages of development. How good is PFE's pipeline? I think Read has done a good job in bringing value to PFE stockholders with dividends, cost cutting measures, and the recent spin off of Zoetis which was very successful. The remarkable increase in the PFE stock price proves this. Read is now toying with the idea of dividing PFE into separate branded and generic drug divisions. However I don't think there are many more bunnies that he can remove from his majic hat. to bring share value to PFE stockholders. Make no mistake about it. Now is the time for PFE to prove to the analysts and the PFE stockholders that it can develop not just one but a number of key drugs to replace the revenue of its expiring mega blockbuster drugs. We all know that Merck and BMY are hard at work in trying to develop new drugs and PFE has to do the same. It is the only way to insure the long term vitality of our company.
BMY didn't pay much ... that one could be a real leader going forward ... also BMY had a terrific run up in the
past year ... not sure it's in the same bucket ..
i also don't rule out MRK and PFE , but their pipes seem to be a bit behind the curve ..
it's only a matter of time , for the top 5 or 6 pharma's to really ignite ... right now , they are all in the middle
of one of the biggest transistions that any sector has seen ... bumps in the road are to be expected , so
enjoy the divs and sleep well ....
Unlike PFE and MRK which bought quality pharmas near their lows at the bottom of the 2008/2009 crash, BMY was low on cash and could do little to offset its patent expiration cliff. As a result, they continue to pay the price earnings-wise. After seeing earnings peak at $2.28 a share in 2011 just prior to a slew of major patent expirations, here is the miserable 2012-2015 situation with respect to earnings per share:
$2.28 in 2011 (actual)
$1.99 in 2012 (actual)
$1.81 in 2013 (consensus))
$2.15 in 2014 (consensus)
$2.02 in 2015 (consensus)
Do investors look at earnings projections any more? Is anyone but me seeing this? Or are they so taken in with the likes of Cramer and want to be "cool" by saying that they own Bristol MARS? Does anyone but me see that at the current $40.02 stock price, the stock with its pedestrian 3.5% dividend sells at virtually TWENTY times estimes 2015 earnings? I mean isn't that a wee bit RICH for such miserable expected earnings performance even out to the end of 2015?
At the other end of the valuation spectrum is BIDU, the dominant search engine in China whose biggest competitor is just 1/7 BIDU's size. With BIDU currently at $87.65 (it was $166 two years ago), here is its 2011-2015 earnings per share situation:
$3.02 in 2011 (actual)
$4.79 in 2012 (actual)
$5.03 in 2013 (consensus)
$6.25 in 2014 (consensus)
$8.05 in 2015 (consensus)\
In 2011, BIDU's $3.02 in earnings were just 33% above those of BMY. Nut in 2015, BIDU's earnings are expected to be virtually QUADRUPLE those of BMY. But yet BIDU currently sells for less than 11 times estimated 2015 results while BIDU sports a 19.8 multiple relative to 2015 expectations.
Is it any surprise that I am foregoing the right to say that I am an owner in Bristol MARS? I'd much rather own one of the fastest-growing companies its size in the world with a PE with respect to 2015 that is less than HALF its normal growth rate of about 25% per year.
Pfizer's Lipitor patent expired domestically on Nov. 30, 2011 and has had various expirations overseas from mid-2011 on. So while 2012 results were affected very adversely by the Lipitor patent expiries, comparisons in 2013, 2014 and thereafter are affected by a much smaller amount.
While PFE should certainly have its share of new blockbusters along the way, the fact is that for such a large company, such new blockbusters really don't amount to all that much. Probably more important even than the development of big new drugs is the availability to largely control PRICING. And THAT is largely where PFE and the other drugmakers are falling by the wayside. It's also the main reason why I decided to finally exit the stock a month ago after having been such a staunch bull since mid-November of 2004.
The relative inability to control pricing is a recent material adverse factor that just isn't discussed much these days but which is definitely present. Pfizer does about 5/8 of its business overseas and many of the countries it does business with are being forced to adopt austerity measures. Many of these nations are socialist-leaning and the governments and not Pfizer calls the shots when it comes to pricing. If for example the Spanish or Irtalian governments say they are going to lower drug reimbursements by 5% the next year, what can Pfizer do about it? The truth is that they can't do a thing about it. And this is why you see revenues actually falling despite the fact that most of the big patent expiries are now behind the company.
As mentioned above, Lipitor was a big factor in holding earnings in check in the year 2012 when adjusted EPS amounted to $2.19 per share. However, lack of pricing power is largely due to these future lackluster earnings projections:
$2.19 in 2012 (actual)
$2.23 in 2013 (consensus). 2% growth
$2.35 in 2014 (consensus). 5% growth
$2.46 in 2015 (consensus). 5% growth
Let's just say that I'm not impressed.
Stiffening of drug price controls by foreign governments would indeed adversely PFE's overseas revenue in future years. However in his 2013 Q1 earnings reports, CEO Read cited that the major factors for reduced drug sales so far this year were sudden unfavorable worsening of currency exchange rates and generic competition. Interestingly, just a few days later, the Merck CEO also highlighted these same two factors for Merck's disappointing Q1 earnings. There is not too much that the big Pharma companies can do about foreign currency exchange rates. To counter the onslaught of generic competition on expired drugs which will only intensify in the future, the big Pharmas such as PFE, MRK, and BMY must rely on their pipelines to develop[ new drugs in a timely fashion. I would venture to guess that the CEOs of all of the major US owned pharmaceutical companies would agree that the single greatest threat to their businesses now is generic