Pharmaceutical giant Pfizer (NYSE:PFE) is working frantically to reinvent itself. Recent results suggest a transformation is under way, but there are still clouds on the horizon.

Pfizer reported first-quarter results this morning. Back in January, it announced five key priorities it hopes will prepare it for 2010, when Lipitor, its most successful drug, loses patent protection. Lipitor accounted for almost 27% of first-quarter sales, showing just how much revenue will need to be replaced in just a couple of years.

Pfizer had a more recent setback as its Norvasc drug lost patent protection earlier than expected. Mylan Laboratories (NYSE:MYL) started selling a generic version toward the end of the quarter. As a result, Pfizer has had to temper 2007 projections slightly. It now expects earnings of $2.08-$2.15 on an adjusted basis.

First-quarter results also included reported and adjusted bottom-line numbers, because Pfizer is taking numerous charges to rein in costs since sales trends are becoming more difficult. It also recently entered into "30 business-development transactions," and a "simplification" of its R&D efforts is also clouding the financial statement picture.

But overall, Pfizer's operating flux is not a surprise, as the loss of Lipitor and other drugs to generic competition is a big deal. What is a surprise is the stock's low valuation, considering that Pfizer remains a king of cash. Based on this year's guidance, the shares are trading at less than 13 times earnings, and cash flow generation is strong, as free cash flow usually exceeds reported earnings.

Sales are clearly struggling, but the company has been buying back stock and pays a 4.3% dividend yield. That means investors are getting paid to wait for a turnaround, and conditions should be steady for at least another couple of years. In other words, Pfizer could be worth a further look, especially considering investors are warming to pharma again, as witnessed by the recent stock runs at Merck (NYSE:MRK), Schering-Plough (NYSE:SGP), and Bristol Myers Squibb  (NYSE:BMY).                

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Pfizer is an Inside Value recommendation.

Fool contributor Ryan Fuhrmann is long shares of Pfizer but has no financial interest in any other company mentioned. Feel free to email him with feedback or to discuss any companies mentioned further. The Fool has an ironclad disclosure policy.