U.S. Markets closed

Credit Suisse Absolutely Is Right to Double Down on Pfizer Stock

James Brumley

After upgrading Pfizer (NYSE:PFE) to “Outperform” in January and raising its price target on Pfizer stock to $48 in May, one would think there’s nothing else Credit Suisse could so to bolster its bullish case, but there is.

Pfizer stock PFE Stock

Source: Kojach Via Flickr

Following a meeting with the pharmaceutical giant’s top brass just a few days ago, on Thursday, Credit Suisse labeled PFE stock a “top pick.” It was apparently one heck of a meeting.

The specifics prompting the accolade weren’t made crystal clear, though Credit Suisse did note that the company’s prospects for new products was compelling. Translation: Whatever stoked Credit Suisse’s fires is likely to be in the company’s late-stage pipeline, which is admittedly more exciting than it has been in a long while.

InvestorPlace - Stock Market News, Stock Advice & Trading Tips

A Brief Look at Pfizer

It’s not a story that needs a great deal of retelling. It was an unstoppable powerhouse when it had full patent protection of its erectile dysfunction drug Viagra and faced little competition. But, seeing the writing on the wall, the drugmaker allowed Teva Pharmaceutical Industries (NYSE:TEVA) to begin selling a generic version of the drug in 2017. In the meantime, consumer interest in ED drugs has broadly waned.

Pfizer is about to lose ground with blockbuster neuropathic pain drug Lyrica too, which lost patent protection last year, threatening to quickly cut its $5 billion in annual sales in half once generic alternatives become available.

It’s the same story that plays out over and over within the pharmaceutical industry; these organizations must constantly replenish their portfolios with patent-protected drugs, or risk losing ground.

It’s something Pfizer hasn’t done especially well in recent years.

Although Pfizer stock has made reliable if choppy progress since turning around with all other stocks in 2009, revenue growth hasn’t been overwhelming. The $53.9 billion in sales generated over the course of the past four reported quarters was not remarkable better than the $52.7 billion figure from a year earlier.

“Pfizer has been working through a dark period with extensive patent expirations,” Credit Suisse analyst Vamil Divan said in late January. “That period is now nearing an end.”

Solid Pipeline

What Pfizer told Credit Suisse at the meeting remains veiled, though when Divan upgraded Pfizer stock early this year he explicitly noted opportunities for several cancer and autoimmune disease drugs along with vaccinations.

Two of the drugs Divan had in mind are Vyndaqel and Vyndamax (though they’re actually different doses of the same molecule), which combats the buildup for amyloid in the heart.

Alnylam Pharmaceuticals (NASDAQ:ALNY) and Ionis Pharmaceuticals (NASDAQ:IONS) already make similar rival drugs, but their versions are considerably more expensive. Divan foresees peak sales of $2 billion for Vyndaqel, but is willing to entertain a number “significantly larger than that if Pfizer is able to commercialize it successfully.”

Pfizer has also partnered with Eli Lilly (NYSE:LLY) on the development of a non-opioid arthritis treatment called tanezumab, another one of the 15 game-changing drugs Pfizer believes could be brought to the market within the next five years.

Some analysts are looking for modest peak sales of around $500 million, although Cantor Fitzgerald analyst Louise Chen thinks tanezumab could prove to a multi-billion dollar opportunity to replace a significant piece of the existing opioid market.

In the meantime, Pfizer aims to widen the uses of already-marketable drugs like Ibrance, Eliquis, and Xeljanz.

Ibrance has already become something of a wonder drug. Already approved as a therapy for multiple forms of breast cancer and generating revenue of $4.1 billion last year, expanded labeling could translate into peak annualized revenue of $8 billion before the treatment hits its ceiling.

Eliquis (or Apixaban) for blood clots, co-marketed with Bristol-Myers Squibb (NYSE:BMY), and arthritis/ulcerative colitis therapy Xeljanz generated nearly $3.5 billion and more than $1.7 billion worth of revenue for Pfizer last year, respectively,  yet both are also in trials for new uses after having proven they’re safe and effective.

All told, Pfizer’s got 23 phase 3 trials underway right now. All of them look promising; most of them appear to have blockbuster potential.

Looking Ahead for Pfizer Stock

It was self-serving to be sure when CEO Albert Bourla proclaimed in January that Pfizer is sitting on its “greatest pipeline ever.”

But that doesn’t mean he’s wrong.

Granted, the deterioration of Pfizer stock since December’s peak (PFE stock been performing completely contrary to the market for months) says investors don’t exactly believe Bourla. The crowd has understandably become a “show me first” mob, willing to wait on the sidelines for proof that the pipeline can do all the company suggests it can do.

Credit Suisse’s Divan may have the right idea though. The time to step into a great prospect is when its stock is down because the majority of investors aren’t convinced and analysts are collectively lukewarm because they’re unable to see more than a few months down the road.

That’s certainly Pfizer stock right now.

As of this writing, James Brumley did not hold a position in any of the aforementioned securities. You can learn more about James at his site, jamesbrumley.com, or follow him on Twitter, at @jbrumley.

More From InvestorPlace

Compare Brokers

The post Credit Suisse Absolutely Is Right to Double Down on Pfizer Stock appeared first on InvestorPlace.