Pfizer: Two Stocks in One?

07/18/2016 7:00 am EST

Focus: STOCKS

This pharmaceutical firm owes a lot of its present and renewed growth to exceedingly smart buys, explains, notes Michael Robinson in Money Morning.

Pfizer (PFE) had hoped to acquire Allergan (AGN) in a $150 billion buyout the deal and relocate its headquarters to the tax-friendly Republic of Ireland.

That big merger is now dead and gone. Now, normally when a deal like this falls through, the shares take a serious pounding. But the smart money is holding its nerve. That says a lot.

Those investors, along with folks who buy in right now, stand to be richly rewarded in the future. That's because there's something much bigger is coming down the road.

One smart deal was its 2015 purchase of Hospira and that company's enviable basket of injectables. But even more critical for us is Hospira's strength in biosimilars.

Biosimilars are basically reformulated name-brand biotech drugs that are cheaper but similarly effective, essentially the generic drugs of biotech. By some estimates biosimilars are set to be a $35 billion market in the next few years.

Pfizer has very quietly, but aggressively, been moving into China; it's building a $350 million facility there to develop biosimilars for the global market.

In May it announced a $4.5 billion deal to buy Anacor Pharmaceuticals (ANAC), which specializes in boron-based biopharmaceuticals and its Kerydin lotion is already being sold for toenail fungus.

Pfizer also has a new cholesterol-lowering drug that is chugging through two phase 3 trials. This would be the next step from its name-brand Lipitor that went off-patent in 2011.

While all this is going on, Pfizer continues to reevaluate its structure; one of the plans under discussion would have Pfizer split into two companies; one for its "slow and steady" divisions and another for its high-growth products and pipelines.

The company is on track to make a decision on any split by the end of 2016. So it's entirely likely that shareholders will end up with not one but two great stocks.

And don't forget, Pfizer kicks off a rock-solid 3.4% dividend. Admittedly, that split is not a done deal yet. But even if the split doesn't come, for my money, big-cap pharma shares don't come any better than Pfizer.

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By Michael Robinson, Editor in Money Morning

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