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Strategies & Market Trends : Value Investing -- Ignore unavailable to you. Want to Upgrade?

To: Jurgis Bekepuris who wrote (33379)	1/29/2009 4:34:43 PM
From: Oblomov	Read Replies (2) \| Respond to of 78658

>>would you hold WYE here for PFE stock or sell it? It's interesting that PFE (which became the largest US pharma company by buying Warner-Lambert) would buy WYE (W-L's other suitor prior to the PFE merger in 2000 - remember when it was rumored that P&G would buy both WYE and PFE?). Had WYE bought W-L, it would have had a half-interest in Lipitor (with PFE), and might have ended up buying Pfizer... I'm lukewarm on PFE. The stock could do OK over the next 12-18 months, especially if the dollar falls a bit, since over half of PFEs sales are outside of the US. This, even more than rising commodity prices in 2007-8, has been a significant headwind for the company. But PFE has probably the greatest risk of any of the major pharma companies to changes in the US health care system, and the Wyeth acquisition only mitigates it slightly. Drugs like Lipitor, Zoloft, Bextra, Celebrex, Chantix, Viagra, Detrol, and Lyrica have succeeded because of primary care marketing (same with Wyeth's Effexor, Pristiq, and Protonix). Whether or not we agree with the policies, chances are that there will be more government influence on reimbursement decisions, especially in Primary Care. Even under single payer systems, critical care and catastrophic care coverage tend to be quite good, while primary care prescribing latitude tends to be quite limited and primary care itself is effectively rationed. This could actually be a boon to companies with large pipelines in oncology, critical care, and disease states such as MS and Alzheimer's that require expensive ongoing treatment (i.e., if these diseases could be managed down by drug therapy to permit patient independence). A shift toward a less consumer-driven regime could greatly reduce the advantage conferred by Pfizer's size and marketing resources. Pfizer, of course, knows this, which is why it is buying Wyeth. Wyeth has an excellent biotech development platform. But probably even with this acquisition, PFE will not have the best biotech platform, and it will still be several years behind other major pharma in acquiring the ability to produce biologic generics (an attractive growth opportunity for pharma under the current political reality of a Dem Congress and President). Look at the acquisitions major pharma has made over the past few years: LLY buying IMCL, BioMS and AMBI, AZN buying MEDI, SNY buying Acambis, Takeda buying MLNM, GSK buying ATLN, NVS buying Speedel, and of course Roche trying to buy the remainder of DNA. With the exception of the last one, the acquisitions are small to mid capitalization, with a specific development platform. Look at Amgen's acquisitions: they are obviously very well tied into the Silicon Valley venture community - all of their acquisitions have been small private firms with a very specific technology. PFE, on the other hand, seems intent on the sort of large mergers that have a questionable benefit to shareholders. It appears that the proximity to Wall Street has infected Pfizer with the "deal-bug". PFE would be better off buying five mid-size biotechs, and would not have to take on any debt or cut its divi as it will with the WYE acquisition. The upshot is that there are probably better big pharma companies to hold (In my opinion, ABT, JNJ, BMY and maybe SNY). But PFE could benefit more than other pharma from USD depreciation, and has probably learned some lessons from its messy acquisitions of Warner-Lambert and Pharmacia-Upjohn-Searle. It is a solid company despite the S&P/Moody's ratings cuts, but not a particularly exciting company. Holding Pfizer here is, in essence, a speculation that the merger will work out better than expected.