Pfizer Stubs Toe Without Celebrex

Pfizer (NYSE: PFE  ) remains committed to maintaining a leadership position in global pain-treatment markets, despite the upcoming loss of market exclusivity for Celebrex – which contributed 6% to reported biopharmaceutical revenue of $47.8 billion in 2013. Reformulating old molecules in the pain pipeline, however, won't offset sales erosion of the drugmaker's fourth best-selling product – which still managed 6% global growth year-over-year – to generic competitors.

What is Celebrex and why is it important to Pfizer?
Celebrex is used to primarily treat inflammation and pain accompanying osteoarthritis and rheumatoid arthritis. Around 72% of the $2.92 billion in global sales generated in 2013 is at risk, however, once the drug loses exclusivity. Originally set to expire in the U.S. last November, Pfizer successfully fought off patent challenges from several generic drug specialists, including Teva, Mylan, and Actavis, delaying the introduction of generics until December 2015. Patent challenges in Canada and Europe, however, have either been withdrawn or allowed to elapse, which means the drug could face generic competition in November of this year.

Growing its pain portfolio
Pfizer's management stated during the fourth-quarter 2013 earnings call last month that a move toward opioid analgesics and a promising anti-nerve growth factor (NGF) drug in its pipeline, a monoclonal antibody called tanezumab, could help to mitigate the impact Celebrex's loss of market exclusivity will have on sales going forward.

Looking to capitalize on the growing need for abuse-deterrent formulations, Pfizer is looking to entrench itself in the $5.1 billion market for extended-release (ER) opioid formulations prescribed by physicians to chronic pain sufferers (30% of the $18.1 billion in annual sales for all opioid-based therapies). Chief executive Ian Read confirmed on the conference call that Embeda, an ER morphine/naltrexone formulation that was voluntarily benched in 2011, would be back on pharmacy shelves in second-quarter 2014 after the FDA approved both an updated manufacturing process and a risk evaluation and mitigation strategy (REMS) – which is now required for all ER and long-acting opioid medications.

A slow sales start hasn't stopped generic manufacturers from preying on Embeda, however. Actavis is seeking FDA-approval of lower-cost versions of the drug at all dosage forms and strengths. Litigation challenging the naltrexone sequestering manufacturing process and composition patents went to court during the drug's abeyance. Embeda must also confront a market dominated by Purdue Pharma's $3 billion controlled-release oxycodone derivatives, OxyContin and its reformulated, tamper-resistant cousin OxyContin OP. Embeda could also find itself taking a back seat to Opana ER, a generic version of oxymorphone sold by Impax Labs as per a licensing agreement with Endo Health Solutions.

Likewise, I'm not sure that Pfizer's decision to move forward with the development of another problematic drug called Remoxy ER Capsules CII will truly help the company grow. Using a tamper-resistant technology, called ORADUR, licensed from Durect that envelopes a long-acting oral formulation of oxycodone in a high-viscosity matrix – preventing accelerated drug release following crushing or chewing, combined with difficulty in separating the active drug via dissolution – the drug was originally intended to compete against OxyContin back in 2008.

It makes little strategic sense to continue development here, however, since the drugmaker has sold all rights for development of other ORADUR-based opioid drug candidates (hydrocodone, hydromorphone, and oxymorphone) back to its co-developer Pain Therapeutics.

Previously rejected by the FDA, and with OxyContin firmly entrenched, I think a better strategy would be to instead focus on more promising programs, such as its growing oncology pipeline.

Financial strength
Despite operational pressures from Celebrex and other at-risk patents – like the antibiotic Zyvox – credit rating agency Fitch believes the company's financial metrics remain healthy, opining that total debt leverage will remain steady (between 1.5 times and 1.7 times stockholder equity) due to further decreases in Pfizer's overall debt level; most of the $31 billion in long term debt doesn't come due before 2017, too.

Though organic revenue growth is expected to be relatively flat this year, significant free cash flow of $15.9 billion demonstrates that investors willing to be patient could still be rewarded despite some misfires in its pipeline.

Promising anti-nerve growth factor in pipeline
Pfizer, in collaboration with Eli Lilly (NYSE: LLY  ) is developing a promising anti-nerve growth factor (NGF) called tanezumab. At present the monoclonal antibody is subject to a partial clinical hold, due to safety concerns (small subset of subjects on the NGF had a worsening of disease requiring joint replacements in a late-stage trial in patients with osteoarthritis).

The FDA review of the partial clinical hold could come early next year. Notwithstanding developmental risks, analytics firm Decision Resources is forecasting that the NGF class could command 19%, or $4.1 billion, of major-market sales for chronic pain therapies by 2022.

Pfizer is currently stumbling as it looks to retain a leadership position in global pain-treatment markets. However, should the drug maker get back on track with this nerve-blocking drug, stockholders could be ultimately rewarded.

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