Wyeth: Waiting on the Pipeline
By
Stephen D. Simpson, CFA (TMFWildWeasel)
January 31, 2006
|
Hurry up and wait: That seems to be the story for a lot of drug stocks these days. Wait to see if Pfizer's (NYSE: PFE) cost-cutting and acquisitions can boost growth. Wait to see how Merck's (NYSE: MRK) Vioxx court cases go. Wait to see how the pipelines at companies like Schering-Plough (NYSE: SGP) or GlaxoSmithKline (NYSE: GSK) shake out.
For better or worse, that's pretty much the story with Wyeth (NYSE: WYE) these days as well. While current growth is nothing to get too excited about, some late-stage pipeline drugs do open up the possibility of better growth in the not-too-distant future.
Growth was definitely lacking in the fourth quarter. Sales were up just 2% (5% excluding the impact of currencies), and the adjusted net profit actually fell a bit (6.5%) from last year's level.
You don't have to look too far to find a culprit for Wyeth's sluggish growth -- total pharmaceutical sales were up just 3% in the quarter. And while drugs like Prevnar and Enbrel showed good growth, Effexor was a bit weak despite receiving a follow-on approval for use in panic disorder. Of course, it should be remembered that the whole depression category is in a bit of flux, with worries about the safety of the drugs (especially in adolescents) and the impact of Lilly's (NYSE: LLY) Cymbalta.
If I may look ahead a bit here, Wyeth's pipeline could deliver some growth in the next couple of years. Two new drug applications have already been filed -- one for an oral contraceptive and the other for a depression drug. The depression drug, desvenlafaxine, is a metabolite of Effexor; it should offer less drug interaction worries and could be worth at least as much as its parent drug in terms of sales. Other drugs, including a compound for osteoporosis and a treatment for renal cell cancer, should contribute a few hundred million dollars each in sales, and a new schizophrenia drug has at least an outside shot of making an even bigger contribution.
Now for the "yeah, but" part of the story. Wyeth's stock enjoyed a good run at the end of 2005, and that move took the stock from a discount to more or less fair value. I do like the company's above-average growth prospects, but would want more of a discount before buying the shares myself.
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Fool contributor
Stephen Simpson
has no financial interest in any stocks mentioned (that means he's neither long nor short the shares.
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