Paging the Doctor: Is There a Cure for Pfizer?

Source: Getty Images

Source: Getty Images

Not only did its prescription for courting AstraZeneca Group (NYSE:AZN) fail, but Pfizer Inc. (NYSE:PFE) reported on Monday morning that its growth prospects have been undermined by competition from generic drugs. The damage is reflected in its first-quarter earnings, which showed a 15 percent decline in profits despite cost cutting efforts by the company.

“Despite continuing revenue challenges due to ongoing product losses of exclusivity and co-promotion expirations, I look forward to the remainder of the year given the strength of our mid- and late-stage pipeline, the continued growth opportunities for our recently launched products, as well as opportunities for upcoming product launches,” Chair and CEO of Pfizer Ian Read said. “Within both our innovative pharmaceutical businesses and our established pharmaceutical segment, I continue to see attractive opportunities to pursue revenue expansion.”

The drugmaker’s shares fell fractionally in premarket trading early Monday morning. According to ABC News, the company has seen its revenue shrink, particularly against competition facing its cholesterol drug Lipitor with peak revenue of $13 billion. The company, ironically, reports its profit forecast for 2014 for earnings per share from $2.20 to $2.30 and revenue of $49.2 billion to $52.3 billion.

According to The Wall Street Journal, the drugmaker was counting on an experimental breast cancer drug known as palbociclib as well as expanded use of the Prevnar pneumococcal pneumonia vaccine to help replace the billions of dollars lost to Lipitor and other products facing the generic competition out there. The Wall Street Journal states that Pfizer projects to lose billions of dollars this year in sales owing to patent expirations.

The deal that went south Friday was, according to AstraZeneca, due to an undervaluation of the British drugmaker. Investors and analysts believe that Pfizer needs to raise its offer as high as 52 to 55 British pounds a share to make it happen. Reuters also noted an increased cash portion to as much as 50 percent versus the 30 percent offer would suffice as well.

Brian Turner, healthcare analyst for Levin Capital, which holds more than 11 million Pfizer shares, told Reuters that he doesn’t see his personal friend Read going over the heads of AstraZeneca and directly to the shareholders to make some sort of deal to get its competitive edge back.

“I think he believes he can get the deal done,” Turner said. “If he’s told he’s not coming in at a price that’s sort of equitable for both parties, at the end of the day, he’ll just go away.”

Bloomberg Businessweek said this deal at the forefront currently is mostly about relocating for tax purposes to the UK, where the rate for corporate profits would be 15 percentage points lower than in the U.S. next year, and even Warren Buffett is crazy about it.

“You are getting more mergers that are tax driven,” Buffet said during an interview with CNBC. “It will gather momentum, and my guess is when you get to companies of this size, this prominence, and with this speed-up of momentum, my guess is that Congress one way or another addresses it.”

Richard Sykes, chair of the Royal Institution and former chair and chief executive of GlaxoSmithKline (NYSE:GSK), wrote in The Financial Times that the United Kingdom already has world class infrastructure but should have its government pushing tooth and nail to have more companies relocate or do business.

“The UK government needs to tell investors: ‘We want you to come here, we want you to invest, we want you to employ people, and we will create a long-term stable environment that encourages you to do that,’” Sykes said.

The death of Pfizer’s latest deal is proof positive that the company is losing its edge. Known so long for its cutting edge drugs, pharmacies are releasing its own generic brands to create more competition, and drug companies are forced to decrease prices to compete with those generics with prices that are already lower to bring in sales by margins for its consumers.

It is very difficult to see a pathway out of this economic mess for Pfizer. The company’s whole decline can be accounted mainly for its lack of concern towards generics, but yet again, it has nothing legal it can do about other drugmakers or pharmacies that want to utilize sales by margins, and provide better products and prices for consumers. The future looks bleak for Pfizer.