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At Pfizer, where there’s a pill, there’s a way to healthy returns

Dear Mr. Berko: I know that you like Pfizer because you just put the stock in my sister’s account.

Dear Mr. Berko: I know that you like Pfizer because you just put the stock in my sister’s account. Did you know that Pfizer will lose its patent on Lipitor (its largest drug)? Did you know that Pfizer’s blockbuster drug, Celebrex, is losing sales because it might have the same effect on people as Vioxx? Did you know that Lipitor is the subject of two class action suits that could do to Pfizer what Vioxx did to Merck? Did you know that in the coming years Pfizer will lose billions of dollars in revenues due to generic versions of its popular Zithromax, Zoloft and Zyrtec?

With all of those negatives, and more, why do you like Pfizer? I think you are making a mistake with your Pfizer position. You better be careful.

D.L.

Waterloo, Iowa

Dear D.L.: I’ve been a Pfizer Inc. (PFE-$22.87) admirer since 1998, when I bought the stock (adjusted for a 3-for-1 split) at $24.85. Well, I still own Pfizer, and so do many of the accounts we manage. Pfizer shares are trading at valuations I haven’t seen in 25 years, and it trades at a sharp discount to the overall market, as well as its peers. I believe it would be difficult to find a stock that has PFE’s potential to prosper in the next three to five years.

PFE has 10 drugs, each with annual revenues that exceed $1 billion. PFE also owns 15 of the world’s top-selling medicines, and eight of those 15 medications are the top sellers in their therapeutic classes.

PFE will introduce six new medications this year, three of which are likely to be billion-dollar blockbusters: Sutent (for cancer), Exubra (an insulin inhaler) and Champix (smoking cessation), which I’m told has minimal side effects and really works.

I’m told that the brilliant Pfizer research people have 160 novel compounds in their fecund pipeline, and 22 of them have potential to become billion-dollar blockbusters. Now that’s impressive.

PFE is one of the finest and most respected drug companies in the world. It trades at an embarrassing 11 times this year’s earnings of $2.02, pays a 96-cent dividend that yields 4.2 percent, has $22 billion in cash, and has a cash flow of more than $20 billion, which should continue to the foreseeable future.

Yes, I know that PFE’s Lipitor goes off patent in 2011 and that Lipitor is a huge cash cow. But did you know that Torceptrapib (a new anti-cholesterol drug) reported uncommonly impressive results in recent clinical trails? The PFE folks believe that Torceptrapib (they’ll give it a pronounceable name when it debuts) is better than Lipitor by a small order of magnitude, and it’s expected to become a “super blockbuster.” And yes, I know that Celebrex has been a substantial source of pain for PFE, but sales began to rebound briskly earlier this year.

While all of this and all of the above are baking, cooking, boiling and broiling, management just introduced an impressive cost-cutting program that should reduce expenses by at least $4 billion a year. A source at PFE headquarters tells me that he’s “flabbergasted it took those boneheads this long because those savings are so obvious.” This savings improves earnings by 55 cents to 60 cents a share. Now that’s really impressive.

Also impressive are the facts that PFE’s dividend should continue to grow, net profit margins are setting new records, long-term debt continues to decrease, cash flow and operating margins are surging, shareholder equity continues to improve, and earnings are expected to reach a new high next year.

Pfizer appears to have superb numbers and an attractive future. And yes, I know that Lipitor is the subject of two lawsuits claiming nervous system damage and memory loss. However, those claims are the ministrations of a vomitous group of hungry postulant lawyers who can’t earn a living in their hometowns. The science supporting those allegations seems impressively weak, and PFE will drop a few million in the trough to make the legal scavengers fade away. It’s certainly less time-consuming and cheaper than spending $30 million and years in court fighting against the pestilential abundance of prowling pettifoggers.

PFE is a value stock, a growth stock, a medical tech stock and an income stock all rolled into one — which is a rare combination! Lipitor and Celebrex aside, I believe every growth and income portfolio should own Pfizer. There’s little downside at this price, the bad news is out, and there is good news on the horizon.

And, “oh yes,” PFE may sell its consumer products division that sells brands such as Listerine and Lubriderm. The potential buyers are Glaxo, Johnson & Johnson and Reckitt Benchiser, a British outfit. This could put $14 billion in PFE’s bank account, which ain’t chopped liver. PFE is a classy long-term investment, and I’m stone ginger certain of that.

  • Malcolm Berko responds to letters he receives; send questions to Berko, c/o Central Penn Business Journal, P.O. Box 1416, Boca Raton, Fla. 33429. He answers questions by mail or in his column for free. If readers want in-depth analyses, they may be asked to become clients.

    ©Copley News Service

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