Please ensure Javascript is enabled for purposes of website accessibility

Can This 1 Breast Cancer Drug Turn Pfizer Inc. Into a Growth Stock?

By George Budwell – Oct 20, 2014 at 9:02AM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

The world's largest pharmaceutical company, Pfizer, looks lost amid its staggering patent cliff problem. Could this experimental breast cancer drug put Pfizer back on track for growth?

Source: Pfizer.

Big Pharma is undergoing a radical face-lift due to the avalanche of top-selling drugs losing patent protection. The consequences of the aptly named "patent cliff" have been widespread and immense in scope. Specifically, we've seen historically high levels of mergers and acquisition across the sector, leading to an unprecedented amount of consolidation within the pharmaceutical industry. 

Perhaps no name has been as badly damaged by the patent cliff as the world's largest pharma, Pfizer (PFE -1.04%). Pfizer has already lost exclusivity for major drugs such as Celebrex and Lipitor, and is set to lose protection for a handful of others in coming years. In a nutshell, this top pharma could lose almost a quarter of its current revenue to generic competition, putting the onus on the company's diverse pipeline to produce the next generation of star drugs.

Is Pfizer's pipeline up to the task?
According to a recent investor presentation, Pfizer has an eye-popping 83 products in clinical trials. Even so, this hyper-diverse pipeline is strangely barren when it comes to potential blockbusters.

Among the few that fall into the "blockbuster in-waiting" category, the investing world has honed in on Pfizer's experimental CDK 4/6 dual inhibitor palbociclib, which Pfizer is seeking for approval as a front-line treatment for estrogen-positive, HER2-negative breast cancer when used in combination with Novartis' (NVS -0.39%) Femara. Investors are excited about this drug, in part, because this receptor profile describes about 60% of new breast cancers. As such, experts project palbociclib should quickly reach megablockbuster status, and some even see staggering peak sales in the neighborhood of $6 to $9 billion, if it can garner some key label expansions down the line. 

Earlier this week, Pfizer announced that the FDA had accepted a new drug application for palbociclib and granted a priority review, meaning the drug could be on the market in early 2015 if approved. With Pfizer on track to post flat earnings-per-share numbers next year despite drastic cost-cutting measures, it's hard to understate the importance of this single drug to the company's future. 

Will palbociclib save the day?
Anyone buying Pfizer stock right now should consider this pivotal question. The problem is that the answer is far from clear-cut and highly dependent upon factors outside of Pfizer's control.

First off, palbociclib's midstage trial, PALOMA-1, which is being used as the basis for the new drug application, was a mixed bag in many ways. Palbociclib plus Femara more than tripled progression-free survival, or PFS, to 26.1 months compared to patients on standard therapy. However, this combo therapy showed no clinical benefit in terms of improving overall survival. Personally, I believe the huge benefit for PFS will be enough to gain regulatory approval, but the lack of an overall survival benefit might be the drug's Achilles' heel. 

The foremost issue is that Eli Lilly (LLY -1.70%) and Novartis have their own CDK 4/6 inhibitors in development that could ultimately prove superior to palbociclib on this critical efficacy measure. We have not yet seen enough data for these competing drugs to tell if this will be the case, but both companies hope to have their offerings on the market by 2016, or 2017 at the latest. 

Two key issues
There are two strikes against Pfizer as an investment vehicle: falling revenue and its sheer size that dilutes the positive impacts of newer drugs. Management is keenly aware of these problems, and is actively exploring options, such as a merger or a breakup, as possible solutions. Now that the tax benefits of a merger with AstraZeneca appear off the table, I think we are rapidly closing in on a breakup of this pharma giant. And that is a good thing for drugs such as palbociclib.

All told, we could see Pfizer lose several billion in revenue from patent expiry. That means newer blockbusters would simply be treading water for the company's bottom line. Creating an "innovation" segment or spinoff would allow the company's newest stars to create top and bottom-line growth. 

I would like to see more data on Lilly and Novartis' competing drugs before deciding to invest in this stumbling pharma. Palbociclib might be the first in class for this next-generation cancer drug, but that doesn't mean it will be the best in class as well.

I would be much more inclined to take a risk on this dividend stock if it divided up its assets into more manageable pieces that would unlock latent value. In short, Pfizer is always a good name to watch, but too many question marks hang over its ability to return to growth at present.

George Budwell has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.