For many of the large-cap pharmaceutical companies, 2006 has been a rather down year. Several are facing the prospect of generic competition to their top drugs within the next several years, but have no drugs in the pipeline to replace these lost sales. Still, some of the pharmas are in better shape than others. This morning, Wyeth
Revenue was up 9% to $20 billion for Wyeth in 2006, and adjusted earnings gained a healthy 15%, to $4.3 billion and $3.14 a share. Gross margins were given a boost to 73%, vs. 71% in 2005. Going forward, Wyeth expects revenue to grow in the "mid-to-high" single digits, percentage-wise, and for margins to remain at this higher level.
There's no doubt that Wyeth and several of its large-cap pharma peers are well-managed corporations, but this doesn't necessarily make their stocks a good investment. Wyeth is currently trading for roughly 14 times its 2007 adjusted $3.40-$3.50 a share in earnings. While shares are not tres cheap, investors are at least getting a 2% dividend yield to tide them over until Wyeth can bring to market potential blockbuster compounds, like its antidepressant Pristiq and the several other products about which it's awaiting rulings from the U.S. and European Union medical authorities.
Even with the potential for several new products on the market this year, I'm still a little wary of Wyeth, since three of its top drugs are losing patent protection in the next two years. By the end of 2008, key patents will have expired on its $1-billion-a-year antibiotic treatment Zosyn, $2-billion-a-year vaccine Prevnar, and almost $4-billion-a-year antidepressant Effexor franchise. These products alone accounted for nearly a third of Wyeth's $20 billion in sales last year, and currently, Wyeth has no near-term drug candidates to completely fill the hole from the lost sales that could occur if they start facing generic competition in the coming years. This alone is enough to make me a little cautious of investing in shares of Wyeth, even though it's one of the better-run pharmas out there.
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