Pfizer: Buy Big Pharma

02/06/2014 12:01 am EST

Focus: HEALTHCARE

Jim Jubak

Founder and Editor, JubakPicks.com

The drop in share price yesterday, coupled with recent news regarding a new drug, has made this pharmaceutical giant look attractive again to MoneyShow's Jim Jubak.

The 2.51% drop in Pfizer (PFE) shares yesterday, February 5, plus recent news out of the company on trials for its experimental drug for breast cancer, Palbociclib, makes this Big Pharma stock an attractive dividend-income/capital appreciation story. The stock currently yields 3.39%.

On January 28, Pfizer announced fourth quarter earnings of 56 cents a share, 3 cents a share above Wall Street consensus. Revenue fell 2.4% year over year, but at $13.56 billion, still came in above the $13.41 billion consensus.

In the conference call, the company said it had implemented its plan to internally separate its operations into three units. Each of those units will begin to report results independently in 2014, in order to build a track record in preparation for a potential restructuring of the company, sometime, analysts speculate, around 2017.

And, in that conference call, the company was relatively restrained in its comments on the Phase 2 trial for Palbociclib in patients with advanced breast cancer. The company said it is scheduled to begin enrolling patients for a Phase 3 trial soon, and that it will have a meeting with the US Food & Drug Administration at the conclusion of the Phase 2 trial, and would explore a potential filing for approval on the drug, if the Phase 2 results are strong enough. Palbociclib has been granted "Breakthrough Therapy" status by the FDA. That would allow the agency to accept a filing for the drug before the completion to the normal Phase 3 trials, if the Phase 2 results are strong enough.

Pfizer got less reticent about those Phase 2 trials on February 3. That day, the company announced that the trials had demonstrated a "statistically significant and clinically meaningful" improvement in progression-free survival, for a combination of Palbociclib and Letrozole, versus Letrozole alone in women with locally advanced or newly diagnosed metastatic breast cancer. Pfizer said it will present results of the trials at the April 5-9 meeting of the American Association for Cancer Research.

It's too early to tell if the trial results are strong enough for a filing with the FDA before the normal Phase 3 trials, but the Phase 2 data looks promising. If Palbociclib succeeds in setting a new standard for treating advanced breast cancer, Pfizer has a potential blockbuster drug in its pipeline-and not very far from the end of that pipeline. Wall Street analysts estimate that Palbociclib could show peak annual sales of $3 to $5 billion, with the upper estimates assuming that early indications that Palbociclib shows promise in treating small-cell lung and other cancers pan out.

The most likely schedule is still filing for approval in 2015, with sales beginning in 2016, but even that timing is enough to give Pfizer some new product momentum.

And it's been a while since I've felt able to say that about any Big Pharma.

I'd put a one-year target price of $36 on these shares-roughly 20% above the February 5 close. And you do get paid 3.39% while you wait.

I'm adding the stock to my Dividend Income portfolio.

Full disclosure: I don't own shares of any of the companies mentioned in this post in my personal portfolio. When in 2010 I started the mutual fund I manage, Jubak Global Equity Fund, I liquidated all my individual stock holdings and put the money into the fund. The fund may or may not now own positions in any stock mentioned in this post. The fund did not own shares of Pfizer as of the end of December. For a full list of the stocks in the fund see the fund's portfolio here.

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