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Pfizer Pipeline Supports $25 Target

Tickers in this article: PFE
NEW YORK (Trefis) -- Pfizer(PFE) has seen its stock underperform some of its peers like Abbott Labs (ABT) and Merck(MRK) as the company continues to struggle with various lawsuits and complaints.

Last week, five large retailers sued the company accusing it of using anti-competitive tactics to delay the launch of the generic version of Pfizer's blockbuster drug Lipitor, a cholesterol lowering pill. There are many other class action suits filed against the company since Lipitor lost its patent expiry last November.

Our price estimate for Pfizer stands at $25 implying a premium of 10% to the current market price.

While an unfavorable outcome will hurt the company's cash reserves, we believe the patent losses and increased threat from generic competition are the two biggest factors impacting future performance, as the drug already lost its patent exclusivity last November. Lipitor, which generated close to $10 billion in 2011, is expected to lose market share at an accelerating pace, going forward. The looming patent expiration for Viagra, Enbrel, Detrol, among others, in 2012 will also hit revenue.

Further, of late, there have been some concerns about its pipeline of drugs. The U.S. FDA has raised safety concerns about Tofacitinib, a drug used to fight rheumatoid arthritis and is said to be Pfizer's trump card in the autoimmune market.

The FDA also rejected its application for the central nervous system drug, Tafamidus. Further, another major pipeline drug Eliquis also received a setback as the FDA delayed the approval of the drug. The revenue potential of Eliquis could be in excess of $3 billion and could offset revenue loss from Lipitor within the Cardiovascular category.

Despite the concerns on patents, we believe the drug pipeline is promising and will help offset revenue losses. Recently, the CDC recommended the vaccine Prevnar 13, which could strengthen Pfizer's market share in the anti-infectives drug market while boosting the sales of the drug. The company's pain drug Lyrica also got approval for broader use.

In addition, Pfizer's dividend yield of more than 4% is attractive, and we expect the stock to move closer to its fundamental value of around $25, by our analysis.

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This commentary comes from an independent investor or market observer as part of TheStreet guest contributor program. The views expressed are those of the author and do not necessarily represent the views of TheStreet or its management.